WellPoint, St. Francis battle over insurer’s IT problems

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A year of computer snafus boiled over Oct. 13 when the St. Francis hospital system declared WellPoint Inc. in breach of
its contract because of habitually late payments.

Those computer problems already have helped
to wipe out the Indianapolis-based health insurer’s expected profit growth for the year. And some analysts
fear WellPoint will continue to lose customers and market share until the end of 2009.

companies pay claims," Dave Shove, a health insurance analyst at BMO Capital Markets in New York, said regarding health
insurance companies. "If you don’t get this right, everything else falls apart."

Francis has threatened to cancel its WellPoint contract as of Nov. 2, saying the insurer is not paying
it fair rates and has failed to pay some claims for more than a year. Mishawaka-based Sisters of St.
Francis Health Services Inc. operates 10 hospitals in Indiana, including facilities in Beech Grove, Indianapolis
and Mooresville.

claims-payment problems started at least a year ago, and some say earlier than that. The pain in Indiana dates
to October 2007 when WellPoint switched to a new software program to handle its BlueCard program.

That program includes patients who work for national
employers–such as Visteon Corp. or Wal-Mart Stores Inc. The BlueCard program allows any one state’s
Blue Cross or Blue Shield insurance plan to pay claims for customers enrolled in another state’s plan–including
"Blue" plans WellPoint does not own.

At WellPoint’s Indiana subsidiary, Anthem Blue Cross and Blue Shield, the BlueCard program affects
about 13 percent of all claims.

JWM Neurology in Indianapolis said about half its Anthem patients are part of the problematic
BlueCard program. Anthem pays for about one-third of the practice’s patients, meaning one in every six
patients has been subject to delays.

Because of Anthem’s delays, JWM saw its cash flow drop 5 percent to 10 percent in the fiscal year ended Sept. 30, said Gary
Kaufman, executive director of the 22-doctor practice. With JWM entering its slow season of the year, Kaufman said, the practice
might have to draw extra money from its bank line of credit if Anthem doesn’t fix the problems by year-end.

WellPoint CEO Angela Braly had promised a fix
by that time during an investor conference call in July. But that’s not looking likely now.

In a presentation to physician practice personnel
on Oct. 2, Anthem executive Kevin Armbruster said Anthem will not work through its backlog of more than
350,000 claims until February 2009, according to multiple people who attended the meeting.

WellPoint executives will likely update their estimates for a fix to the computer woes during
their third-quarter earnings conference call Oct. 22.

"What we’ve been told [by Anthem representatives] is that they did not test the software
program of this system completely," said Susan Donovan, who works in JWM Neurology’s billing department
and handles all Anthem claims. "All the bugs have not been worked out. And they still are not worked

starts with mergers

WellPoint’s computer problems stem from two recent acquisitions, which made the company the nation’s largest provider of health

WellPoint was
created in 2004 when Indianapolis-based Anthem Inc. acquired California-based WellPoint Health Networks Inc.
and took that company’s name. In 2005, WellPoint acquired New York-based Well-Choice Inc., which provides health insurance
in New York City.

said WellPoint stumbled while trying to integrate computer systems after those two mergers. Claims-processing delays
meant WellPoint’s actuaries could not see several large-dollar claims coming in at the end of the year. As a result, WellPoint
underpriced its health insurance policies for 2008.

When it finally discovered its mistake, WellPoint had to reduce its 2008 profit forecast as much
as 10 percent. When first-quarter profits came in below expectations, WellPoint dropped the forecast
another 6 percent.

regret that we did not better execute our business integration and system migrations that were significant causes of the
loss in visibility on our claims," Braly said during an April 23 conference call with investors. "We are now completing
corrective actions from prior migrations."

WellPoint has been sued by shareholders and participants in its 401(k) retirement plan because
its stock price plunged after it cut its profit forecast.

One lawsuit claims that WellPoint began to experience claims-processing delays in late 2006 and
that WellPoint executives were briefed on the delays in January 2007. Yet nothing was done, the lawsuit

WellPoint spokeswoman
Cheryl Leamon wrote in an e-mailed statement that Well-Point’s cut in its profit forecast was caused
by multiple factors.

migration of claims processing systems were a factor in the reduced visibility of medical costs. The systems challenges
played a part in the revision in that it increased our claims processing time, reducing our visibility into actual medical
costs," Leamon wrote.

She added, "WellPoint’s revised earnings guidance was the result of several factors including higher-than-expected medical
costs, lower-than-expected fully insured membership and the changing economic environment."

In July, Braly said WellPoint had cleared up problems
in all but one computer system–the one that manages the BlueCard program.

But that one is still causing pain–for both the
company and providers.

Complaints about Anthem have more than doubled this year, according to records filed at the Indiana Department of Insurance.
For the 12 months ended Oct. 15, 947 complaints were filed against Anthem. In all of 2007, Anthem drew 396 complaints.

Carol Mihalik, the department’s chief deputy
commissioner for enforcement, said she and her staff are in discussions with Anthem executives to resolve
the issues.

On Oct. 14,
Doug Leonard, CEO of the Indiana Hospital Association, quizzed a group of 17 CFOs from Indiana hospitals to find
out whether they’ve experienced some of the same problems St. Francis complained about. They have.

"There was some real frustration because things
weren’t working well," said Leonard, also noting that the CFOs had complaints about health insurers
in general.

not casting judgment on anybody," Leonard added, but "insurance companies have an inherent incentive to delay and
deny payment."

And WellPoint has been accused of doing that before. In 2005, the company settled a lawsuit brought on behalf of 900,000 physicians,
which alleged that the insurer had denied, delayed or reduced payments to doctors for years. WellPoint agreed to pay $140


its system’s problems, WellPoint’s Anthem Indiana subsidiary has advanced money to some health care providers affected
by the claims-processing delay.

St. Francis received payments, according to Jay Brehm, its regional CFO. Anthem also offered to advance money to JWM Neurology,
but six weeks later, the practice has yet to receive any funds, said Kaufman, the practice director.

The claims backlog, at least in Indiana, stems
from Anthem’s new computer system’s paying claims incorrectly. When the system came on line a year ago,
it mistakenly classified all of JWM’s physicians as outside Anthem’s network. Therefore, Anthem paid
a lower percentage of JWM’s charges than it should have.

Donovan, the billing worker at JWM, had to request adjustments on each of those underpaid claims.
That required phone calls to Anthem. Earlier this year, she was waiting on hold more than an hour. Now,
she said, those wait times are down to less than 10 minutes.

St. Francis has added seven people to its 80-person billing department to deal with resubmitting
Anthem claims, Brehm said. Claims processing is still running about a month longer than normal, he said.

"Prior to this situation, Anthem had been
at the top of their game. They were excellent in terms of servicing our claims," Brehm said. But,
he added, "close to half of our commercial patients are Anthem-insured. So it really causes a significant

spokesman Tony Felts countered that the real reason St. Francis has threatened to terminate its contract is because
Anthem has refused to grant the hospital system a 50-percent hike in reimbursement rates.

Anthem has brought on extra workers to help fix its computer systems issues, Felts said. It postponed
other computer systems migrations. From February to October, Anthem has reduced its total BlueCard claims
inventory by half, Felts said, without specifying how many claims are still left unprocessed. "We’ve
been working on it extensively and we’re making a lot of progress," Felts said.

But Shove,
the health insurance analyst, said he’s still concerned about the system.

"This is the key," Shove
said. "This is what caused the trouble, and it’s what has to get fixed."

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