Lack of IT integration a factor in HMO crisis

Once seen as a bellwether HMO, Harvard Pilgrim Health Care's spiraling financial descent culminated in a court-ordered receivership this month. One big reason for the Brookline, Mass.-based insurer's failure: the inability to properly manage its information systems, particularly as it acquired other insurers.

State officials claimed that Harvard Pilgrim's 1999 losses ranged between $150 million and $177 million. Harvard Pilgrim had earlier projected that losses would be $137 million. In a statement, Harvard Pilgrim blamed the figures' discrepancy on "errors in past accounting practices."

Harvard Pilgrim deferred comments to the Massachusetts Insurance Commissioner's office. Christopher Goetcheus, a spokesman at that office, said Harvard Pilgrim had separate financial and billing systems and never fully integrated them. As a result, the insurer priced its services far ahead of when it actually collected premiums and in some cases undercharged for its services, said Goetcheus.

One analyst said it's not a new problem.

"A lot of HMOs in the past 10 years have grown too quickly and can't manage their growth properly," said Melissa Gannon, vice president at Weiss Ratings Inc., based in Palm Beach Gardens, Fla. "If you grow too quickly you can't estimate your claims experience going forward, because you're playing catch-up all the time to keep going."

Harvard Pilgrim was formed by the merger of Harvard Community Health Plan and Pilgrim Health Plan in 1994. HCHP had acquired MultiGroup Health Plan in 1986 and Rhode Island Group Health Association in 1991. (In October, Rhode Island froze the insurer's assets and took over its operations. Harvard later said it would shut down its affiliate there.)

These takeovers weren't followed with rapid integration of the different information systems. That made it difficult to keep track of costs, claims and membership, according to observers.

"A lot of managed-care companies are buying other [plans] and have no way of integrating all the systems effectively," said Mark Anderson, a vice president at Boston-based Meta Group Inc. and a former hospital CIO.

"They didn't have the time or resources or the skill set" to integrate the systems, said Anderson. He said he thinks that's why Harvard Pilgrim announced on Oct. 5 that it had signed a $700 million, 10-year contract with Dallas-based Perot Systems Corp. to manage its claims processing as well as its computer systems.

Goetcheus said Perot continues to provide claims and information technology services. "If Harvard Pilgrim is to rehabilitate, those systems have to be addressed," he said. "If a buyer comes, they have to deal with systems issues. Or [if] Harvard remains its own entity, they'll have to deal with that issue."

Copyright © 2000 IDG Communications, Inc.

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