Oxford Health Plans Inc. announced it will make sweeping changes in an effort to clean up the computer problems that precipitated a decline of over $100 million in net results between third quarter 1997 and third quarter 1996.
The Norwalk, Conn., health maintenance organization reported a net loss for the third quarter of $78.2 million on $1.1 billion in revenue, compared with net income of $26.7 million on $811.2 million in revenue for the third quarter of 1996.
A troubled conversion to a new computer system hurt earnings by interfering with the ability of the company to track account performance and bill customers in a timely fashion, Oxford executives said in a statement.
The company said it is fighting the computer problems by:
* Spending $51.9 million to increase its reserves.
* Hiring Computer Sciences Corp., El Segundo, Calif., and Cambridge Technology Partners Inc., Cambridge, Mass., to help it improve its computer systems.
* Hiring KPMG Peat Marwick LLP, New York, to conduct a full audit of its Sept. 30 financial statements.
* Accepting the resignation of its chief financial officer, Andrew Cassidy.
* Naming Kevin Hickey to serve as executive vice president in charge of operations.
Mr. Hickey is president of Health Plans of America, a Farmington, Conn., consulting firm that helps health plans manage their provider networks.
He also has worked as senior vice president of operations at Aetna Managed Health Plans, Hartford, Conn. and as an executive in the health insurance units of Lincoln National Life Ins. Co., Fort Wayne, Ind., and Metropolitan Life Ins. Co., New York.
Stephen Wiggins, Oxford chairman, issued a statement declaring that the fundamentals of his company remain strong. 'We are reporting continued membership growth, and our business remains profitable. Our customers can take comfort in a strong balance sheet with no indebtedness.'
The strength of Oxfords balance sheet did little to calm investors on Oct. 27, after the company warned it would post a big third quarter loss: the price of the company's common shares closed at $25.875, down $42.875 for the day. (See NU, Nov. 3.)
Oxford's market value plunged to $2 billion, a little more than $1,000 for each of its 1.9 million members.
The last HMO deal that involved a company about the same size as Oxford was the acquisition of FHP Inc., Fountain, Calif., by PacifiCare Health Systems Inc., Cypress, Calif.
FHP had 2 million members and $4.3 billion in annual revenue in 1996. PacifiCare paid $2.2 billion for FHP, or $1,100 per member, according to documents the company filed with the Securities and Exchange Commission.
'Oxford Health Plans would be a very attractive acquisition candidate, if it were for sale,' said John Penshorn, an analyst with Piper Jaffray Cos., Minneapolis.
But Mr. Penshorn said he thinks the current managers want to retain control of the company and have the ability to put it back on the right track.
Anne Anderson, president of Atlantis, Parsippany, N.J., said she believes Oxford could be a takeover candidate. 'You could make an argument either way,' she said.
Oxford's managers have put together an attractive provider network, and 'it sounds to me as if they've got a lot to fix,' Sis. Anderson said.
But the snarls in Oxfords computer systems might actually be serious enough to protect the company from corporate raiders, she said.
An acquirer would want to take a close look at Oxford's books to make sure it understood what it was buying, Ms. Anderson added. 'It would be foolish to just step in and make a bid.'
