Last year's launch of the Affordable Care Act's insurance exchanges was anything but smooth, but troubles facing insurance marketplaces weren't limited to the federal exchange. State exchanges like the one built by Oracle (NYSE:ORCL) for Oregon failed at the fingertips of people eager to take advantage of new healthcare insurance subsidies, too.
As a result, states like Oregon are abandoning ill-fated state-run exchanges in favor of the Federal exchange, but a key question remains: What happens when hundreds of millions of dollars worth of software doesn't work?
Plagued with problems
Oregon's insurance exchange never went live, so the state is suing Oracle, the software Goliath it hired to build its marketplace.
The lawsuit marks the latest in a series of failures and lawsuits that have dogged the Obamacare marketplaces.
In January, the Department of Health and Human Services tossed aside CGI Federal, the software company responsible for Healthcare.gov. The HHS replaced CGI Federal with Accenture, agreeing to pay the company $90 million to revamp the site prior to Obamacare's second open enrollment period, which kicks off in November.
Maryland has also struggled with its contractor after its state exchange failed just moments after going live last October. Maryland's exchange remains hobbled and its troubles have resulted in back-and-forth lawsuits between subcontractor EngagePoint and lead contractor Noridian. EngagePoint alleges that Noridian "lacked the expertise, resources, and commitment actually required" to develop and operate the website, while Noridian has sued EngagePoint over a failure to deliver a working marketplace. After months of in-fighting, Maryland fired Noridian in February, but not before Noridian pocketed $65 million of the $193 million contract to build the exchange.
Like the HHS, Massachusetts also contracted with CGI Federal to build its state exchange, so it's not surprising to learn that the Massachusetts exchange also struggled. Massachusetts parted ways with CGI in March and although there was chatter that the state may sue CGI, the two agreed to a settlement in June in which Massachusetts paid $35 million in outstanding invoices in exchange for CGI's help in transitioning the Mass exchange to a new solution offered by the privately held hCentive.
And that brings us to Oregon whose exchange is even more wonky (and its battle with its contractor more contentious) than these others.
Oregon parted ways with Oracle after its Oracle-built exchange failed to work. As a result, Oregon has signed on a bevvy of programmers to fix its marketplace and application processors to manually process applications. In July, the state announced it had inked an $18 million contract with consultant-giant Deloitte to salvage Oregon's failed exchange for use in the state's Medicaid program.
Clear as mud
Oracle doesn't appear to have any intention of handing the state back any of the $240 million it paid for the failed exchange, fixes, and workarounds. Instead, Oracle has countersued the state claiming that Oregon's bureaucracy gutted its ability to fulfill its contract and that Oregon still owes it $23 million for services already performed.
Oregon thinks that's hogwash.
The state maintains that Oracle was in charge and that Oracle's work was "abysmal" and its programming "atrocious." The state's attorney general went as far as to claim that "Oracle sold the State of Oregon a lie."
But that's not the half of it. In the state's lawsuit (some of summer's most entertaining reading) Oregon claims that Oracle personnel were "poorly trained" and provided "incompetent" work.
Those accusations offer a scathing indictment of Oracle, especially given Oracle's reputation as a go-to software and database solution.
Fool-worthy final thoughts
Neither Oracle nor Oregon seem willing to budge when it comes to refunding any money (in Oracle's case) or paying outstanding invoices (in Oregon's case). The he-said-she-said mentality isn't likely to result in a resolution anytime soon, but it would appear to me that it's Oracle, not Oregon, that stands to lose the most given the risk to its reputation and the fact that Oregon will have a working site in November because it's swapping over to Healthcare.gov. Having said that, Oracle has already been paid and memories, at least when it comes to government contracts, can be notoriously short.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned.
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