Case Study 4

CASE STUDY NO. 4

Computer Problems at WellPoint Have Serious Impact

WellPoint, Inc., is the second largest health insurance company in the United States, with 2008 annual revenue of $61 billion.³² The company was formed in December 2004 when Indianapolis-based Anthem, Inc., and California-based WellPoint Health Networks, Inc., merged. In 2005, WellPoint acquired New York–based WellChoice, Inc. WellPoint has more than 42,000 employees, and one out of every nine Americans is a member of a WellPoint-affiliated health plan.³³

            In an attempt to standardize and simplify processes, WellPoint decided to consolidate the claims processing computer systems for the three merged companies into a single system. Unfortunately, the consolidation turned out to be much more difficult than anticipated, and many problems arose—causing significant delays in claims processing.³⁴

            A claims processing backlog began building in 2007, and by the end of the year, several large-dollar claims had been submitted but not yet paid. Because these large claims were not visible in WellPoint’s systems, the company’s actuaries underestimated the firm’s costs for the year. These artificially low costs were then used to price the firm’s health insurance policies for 2008. When the pricing error was discovered, WellPoint was forced to reduce its 2008 profit forecast by 10 percent. First-quarter 2008 earnings came in below even the revised forecasts, and WellPoint was forced to drop its profit forecast by another 6 percent.³⁵ The impact on the stock price was severe; it plunged from the mid-$70 range in February 2008 to the mid-$40 range by March 2008. Numerous lawsuits from shareholders and participants in the company’s 401(k) plan followed. But this was not the end of the problems for WellPoint.³⁶

            By October 2008, Anthem Blue Cross and Blue Shield (WellPoint’s Indiana subsidiary) had a backlog of more than 350,000 claims, resulting in significant delays in payments to hospitals and physicians.³⁷ The St. Francis hospital system, which operates 10 hospitals in Indiana, sued Anthem because it claimed that the company had taken over 12 months to pay some claims and, in many cases, was not paying fair rates. This was only one of hundreds of complaints to come. Eventually, Anthem was placed under investigation by the Indiana Department of Insurance after a huge spike in complaints against the company.³⁸

            More challenges arose for WellPoint in January 2009, when the Centers for Medicare and Medicaid Services (CMS)—the federal agency that administers Medicare, Medicaid, and the Children’s Health Insurance Program—banned WellPoint from marketing or selling Medicare health or drug plans. WellPoint’s data on who was enrolled and eligible for benefits was not linking correctly to its claims-paying systems. This caused problems for thousands of WellPoint members, who were unable to fill prescriptions for medications for a wide range of illnesses, including such life-threatening ailments as chronic heart failure, asthma, and seizures. WellPoint also erroneously dropped coverage for many beneficiaries while overcharging others. CMS finally tired of WellPoint’s failure to follow through on assurances that the problem would be immediately and fully corrected.³⁹ Federal officials allege that WellPoint has also continued to:

•         Charge beneficiaries incorrect amounts for premiums and coinsurance
•          Administer the low-income subsidiary improperly
•          Fail to coordinate benefits to beneficiaries
•          Process appeals and grievances improperly
•          Incorrectly reject claims based on medical necessity determinations
•      Fail to provide required information to beneficiaries

Questions to Answer

11. “The computer system did it” is an easy excuse for a multitude of problems. Clearly WellPoint’s system consolidation effort went poorly, but is it fair to say that this incident raises other more fundamental areas of concern about the management of WellPoint? 

            - Yes, since this situation won't occur if and only if the administration of WellPoint is receptive enough to figure what will befall the business if the consolidation of the three subsidiaries occurred. The consolidation turned out to produced and arise many problems about claims processing. At the primary spot, the WellPoint management is responsible with this issue.

4. What can be done to improve the quality of information technology projects at healthcare organizations? Should such system efforts be classified as safety-critical systems and be subjected to more rigorous implementation standards and processes? Should there be oversight of such efforts by either the government or some industry organization?

              - The company should undergo a system check to see and list all the errors it is producing. Once they identified the errors they can finally correct it. Yes, the system efforts should be classified as safety-critical systems and be subjected to more rigorous implementation standards and processes by maintaining a good quality, service, and available methods of the system, so that it can be safety-critical systems to use for some specific organizations. Yes, there should be an oversight of such efforts by either the government or some industry organization to monitor if the system is working properly and not producing any errors even if consolidations occurs.

3. Implementation of electronic healthcare records is a national priority, and much emphasis is being placed on the importance of adopting new information technology. Meanwhile, the fundamental processing systems are falling into disrepair. How should healthcare organizations such as WellPoint prioritize their scarce resources?

           - The organizations/ WellPoint should focus their effort on analyzing the data of their clients. They should make sure that each data of their client is linked properly to the system. They should also do a thorough check and maintenance to its system to see if there are problems arising from the system itself.