October 25, 2012 -- It seemed like a good idea at the time. With healthcare costs rising, insurance plans from across the Northwest thought they might be able to save money by sharing resources. By 1997, Oregon’s BlueCross BlueShield had merged with BlueShield of Washington and other “Blues” plans from Utah and Idaho to become The Regence Group. Headquartered in downtown Portland, soon the new company had set its tech team to work at integrating its multiple lines of business.
More than 15 years later, Cambia Health Solutions – Regence’s newly adopted corporate name – has succeeded in trimming staff and consolidating some operations. But it also has spent at least $460 million on software systems, according to Cambia estimates. Some insiders estimate that Regence/Cambia has spent far more on these high-tech investments, all while the company repeatedly has raised insurance rates to small businesses and individual policyholders.
Yet all this money has not resulted in a computer system that consistently works. In 2011, Washington State Insurance Commissioner Mike Kreidler slammed Cambia, citing a computer malfunction that led to 6,000 incorrect transactions, more than 200 cases in which the company took money from non-members’ bank accounts in error, and tens of thousands of medical claims that had gone unpaid for months.
By Dec. 31, 2011, Cambia’s Oregon, Washington, Idaho and Utah lines of business had been completely migrated to a combined system, company spokesman Scott Burton said in an email.
Then, earlier this year, another software error affected Idaho claims, though it has since been resolved.
Meanwhile, Cambia officials continue to blame escalating medical and prescription drug costs – not their own decisions – when seeking premium rate hikes year after year. From 2007 though 2011, Regence BlueShield customers who purchase individual plans in Washington saw their rates more than double – climbing a cumulative average of 139 percent. This year, Regence BlueShield hiked rates 13.5 percent.
Cambia cites a “Best of Blue” award its technology platform received this September from the BlueCross BlueShield Association as evidence of its success. “Our investment has been in line with industry standards, and we are pleased that the work we have already done, and will continue to do, is positively impacting the service we provide to our members and business partners every day,” Burton said in an email. (See sidebar for Cambia’s full statement regarding this article.)
Reboot goes wrong
Public records and disclosures made by Cambia, including when it operated as The Regence Group, show that in 1997, the year the company was organized under the Regence name, its leaders wanted to consolidate the separate computer systems they used to manage claims and member data in Oregon, Washington, Idaho and Utah. An internal team went to work to develop the system, which would have to comply with four different sets of regulations.
Within just two years, it became clear that Regence Group officials were in over their heads, according to an analysis by the Idaho Department of Insurance. So in 1999, the insurance company rebooted its tech efforts for the first time by turning to an outside vendor, TriZetto, a California company with a history of setting up health insurance computer systems.
The REMAC project – short for Regence Membership And Claims – was born. “This wasn’t just a start-over, this was a conversion,” said a former middle-manager who worked on several IT projects with the company during this period. Like other current and former employees who spoke to The Lund Report for this story, this middle manager spoke on the condition of anonymity, saying that her professional reputation could be damaged if she attached her name to this article.
For two years, The Regence Group worked with TriZetto to develop REMAC, with plans to first launch the system in Idaho, one of its smaller markets.
“They flipped the switch on Idaho, it must have been 2001,” the former middle manager said. “They couldn’t accept enrollment applications, they couldn’t pay a claim. Everything had to be done by hand. It almost brought Idaho down.”
At some point in 2001, Deloitte & Touche – the company Regence Group hires to audit its books – nominated REMAC for a Computerworld Honors award. REMAC won. According to plaudits that accompanied the award, the project had taken five years – a claim that contradicts evidence that TriZetto had only been at work for two years, and that previous internal developments had been scrapped.
ComputerWorld Honors, a nonprofit program that exists to recognize organizations that “create and use technology to promote and advance the public welfare,” had been told that REMAC was a success.
“Scheduled to occur over the next two years, preparations are under way for Utah, Oregon and Washington implementations,” ComputerWorld Honors wrote in a case study published in 2002. “Customers, partners, and employees alike are confident of the systems’
success over the next two years.”
At the same time as The Regence Group won external praise for REMAC’s success, its Idaho subsidiary was struggling.
“All of REMAC was put on hold, and a new project called ‘Fix Idaho’ was launched,” the former middle manager said.
A faulty interface between the insurer's old claims and membership system and REMAC "resulted in premiums for certain lines of business to be underpriced relative to claims trends, which had the initial impact of increasing enrollment and contributed to underwriting losses between $4 and $4.6 million for the years 2000 through 2002," according to a market conduct exam by Idaho’s Department of Insurance. The Regence Group's Washington, Oregon and Utah insurance plans jointly contributed $12 million to their Idaho counterpart to stabilize its financial condition, the department reported.
By mid 2003, more than 300 IT staff and 50 project managers were working on “Fix Idaho,” which was over-spending by more than $3 million per month, according to details posted online by a former program manager at the company.
That year, Regence Group wrote off $95.5 million on software that could not be used.
Rebooting the reboot
REMAC may have failed, but Regence Group executives were still determined to integrate claims and member information into a single computer system that could be shared by Idaho, Oregon, Washington and Utah plans.
Bill Barr, at that time an executive vice president with The Regence Group, “studied reams of documents and provided an assessment of why the REMAC project failed and how to avoid those failures in the future,” according to the book “Strategic Speed,” written in 2010 by a consultants who had previously worked with the insurance company. (Barr is now CEO of subsidiary Regence Life and Health.)
And in 2004 the company created its Enterprise Program Management Office, involving a team of 40 project managers. It issued a press release: “Regence to consolidate systems,” and TriZetto would underpin those efforts.
“We’re impressed with TriZetto’s ability to work with us as we pursue a new business model for our company,” Regence Group CEO Mark Ganz said at the time. “We’ve learned together from our experience in Idaho. We believe this fresh approach to a single system in support of our new business strategy will enable us to provide outstanding service to our customers.”
Regence dubbed the new effort CP-SS, for “Common Process, Single System.”
Yet this reboot soon seemed to lose its way.
“The idea was a lot harder to implement than they anticipated,” said the former middle manager who worked on the project. “It’s a nice idea to say we’re going to have standard underwriting rules, standard forms, a standard customer experience for people in these states. But the laws are different in all the states; the markets are different in all the states. And the commissioned sales people who sell groups don’t appreciate changes to the rules they operate under because it would make it easier for someone in Oregon to fill out a form.”
To handle that complexity, the leaders of the Enterprise Program Management Office appear to have determined that experts from all four states would have to work closely together. In 2005, Regence began to fly “subject matter experts” from across the Pacific Northwest to Portland for Sunday through Thursday work sessions. Dozens of employees – possibly as many as 50 – were flown in week after week and lodged at Portland’s high-end RiverPlace Hotel, where room rates typically start at $200 per night and can reach $500.
“They’d put us in a room together at Regence -- then at the end of the day they’d send us back to the hotel,” remembers the former middle manager. “It was a lot of fun, but we didn’t get anything accomplished.”
“Barr realized with horror that the same problems that had caused the first failure were cropping up again,” the authors of “Strategic Speed” wrote. “With a focus on performance rather than blame, Barr set about correcting the behaviors and processes. He later commissioned a team not only to set up regular after-action reviews, but to make the learnings available to the rest of the company.”
"One of the big mistakes was that this huge systems conversion was viewed as an IT program and not a business program," Cheron Vail, who became Regence’s chief information officer in 2003, told Insurance & Technology magazine. "There was no strong business buy-in. The project was managed out of the IT division, and in fact the entire Regence PMO [project management office] was managed out of IT — the strategic IT investment never really had a sense of being a strategic business investment."
The authors of “Strategic Speed” write that efforts by Barr’s and Cheron’s teams were successful. In 2007, the first stage CP-SS was ready to launch.
A series of photos from CP-SS Go-Live date in November 2007 show workers crowded around a cubicle with tense expressions as they prepare for a claim to arrive in the new system, then smiles and clapping hands as the first claim is successfully completed. Later, employees gathered to drink sparkling cider and eat cookies at an impromptu celebration.
Six years after the Idaho REMAC debacle, and a decade after first trying to pull four state-based subsidiaries together into a single computer system, The Regence Group finally seemed to be on track to achieve its IT goals. But so far the system could only process a subset of the claims submitted across the company’s four-state region. About 100,000 people, fewer than 10 percent of Regence’s 3 million members, had been moved to the new software system, according to a 2008 profile in Insurance & Technology, a trade publication. Other Regence Group members were divided amongst an older TriZetto-developed system that had been rolled out in Idaho, plus separate legacy systems in Oregon, Washington and Utah. Medicare was on a computer system of its own.
“The projected dates are moving targets right now, but we are planning to be at nearly 100 percent on the new platform by the end of 2011," Vail told Insurance & Technology magazine.
There was still much work to be done.
Progress and problems
What happened next is unclear, but in 2008 – the year after CP-SS went into operation – The Regence Group took a $3.8 million charge related to software investments “due to a change in project direction,” according to its annual financial report. The same year, the Regence Group made a $113.9 million investment in TriZetto’s parent company, giving the insurer a 12.3 percent stake in its large software vendor. Mark Ganz, president of The Regence Group, joined TriZetto’s board of directors. And Regence paid $44.3 million to TriZetto for services.
Despite the write-down, in 2009 the team that oversaw the CP-SS was one of five finalists in the Project Management Office of the Year award.
A case study prepared by PM Solutions when the insurer became a contender for the award shows that Regence had still not fully integrated its claims and member management into a single unified computer system.
RegenceGroup’s Enterprise Program Management Office had been created to help tackle “a fragmented corporate culture; skepticism about broad new internal initiatives; a dearth of professional project management, program management and business analyst expertise; and lack of a single, commonly recognized project management methodology,” according to the case study.
“Step by step, project by project, the EPMO team has kept us focused on the vision of a changed health care system,” Jo Anne Long, who led the team, said in a press release when Regence announced its status as a finalist for the award. “This honor recognizes the remarkable progress we’ve made as a company.”
In 2009 and 2010, The Regence Group’s integration efforts appear to have continued smoothly. The company paid $87.4 million to TriZetto for data processing and related services in those two years, according to its annual reports, but did not have to write-down software or face any public frustration with its computer system.
Though 2010, The Regence Group brought individual-market insurance buyers onto its new software platform, called Facets, and began moving small and large group insurance plans to Facets as well, according to spokesman Burton.
But last year it became clear that not all was well with The Regence Group’s IT integration effort, when Washington Insurance Commissioner Mike Kreidler slammed the insurer for problems that affected tens of thousands of people in his state.
Among the problems that Washington regulators singled out:
Medical claims from tens of thousands of retirees had gone unpaid for months.
In more than 200 cases, the company withdrew money from people’s bank accounts without permission – sometimes thousands of dollars, and sometimes from non-Regence members. It also disclosed private information to strangers.
A computer malfunction in August 2011 led to more than 6,000 incorrect transactions.
“The Regence Group needs to get its act together,” Kreidler told The Lund Report at that time. “We’ve seen an ongoing pattern of errors and problems with Regence and its subsidiaries. Many of these problems directly harm consumers and health care providers.”
By Dec. 31, 2011, Cambia – which had just changed its name from The Regence Group – finished migrating its four states’ lines of business to the Facets system.
Then, earlier this year, a software upgrade error related to TriZetto caused a “claims pricing issue” in Idaho that lasted for about a month. The company says it has since fixed that error.
“Today our claims system can deliver payments to providers three times faster than before our Facets system was implemented,” Burton said.
Cambia’s contract with TriZetto, which has cost an average of roughly $44 million per year for the past four years, continues through 2016.
TO LEARN MORE:
Statement from Cambia spokesperson Scott Burton on IT spending by Cambia and The Regence Group
Timeline detailing IT spending by The Regence Group and Cambia
Glossary of names and terms used in this story
Courtney Sherwood writes about the financial side of health care for The Lund Report. She welcomes off-the-record and on-the-record tips, suggestions and feedback, at 503-208-4173 and [email protected].