Oxford Health Plans, Inc. developed a new billing and claims processing system for its health maintenance organization intended to put the company on the IT cutting edge and secure its place in the leadership of its industry. It was not successful. The system was in development for more than 5 years, had 100 outside contractors, and cost more than $20 million per year to develop. When implemented, the system:
- Was three to four months behind in getting premium bills to customers.
- Left claims unpaid for six or more months. Medical providers were advanced $275 million against these claims.
- Could not handle the volume of transactions. For example, new member signup was to take 6 seconds but, instead, took 15 minutes.
These problems resulted in:
- Customers canceling their memberships, leaving customer rolls inflated by 30,000 and revenues overstated by $111 million.
- Unprocessed claims that led to higher-than-expected losses and refusal of some providers to service Oxford clients.
- Erroneous data being generated that caused Oxford to write off $94.1 million of uncorrectable accounts receivable leading to a loss in one quarter of $78.2 million ($0.99/share).
How did this disaster happen? Oxford did not have a clear definition of the project and was not prepared to manage it to successful completion. The high turnover of programmers led to a lack of development continuity. The work was poorly done and new systems inadequately tested.