Health net delays computer plans in shill of resources.

Health Net Inc. is pushing back the deadline for a computer systems conversion project in California and Oregon as it focuses its efforts on expanding its commercial business and meeting requirements of its settlement of a class action lawsuit with physicians around the country.

It's part of the company's effort to refocus its operations in the short term.

The company was in the process of replicating its MC400 claims system, currently running at Health Net Northeast, in California and Oregon by 2006, but the project will now have to wait until 2008 while the company diverts its resources.

"We've made remarkable progress with (the systems conversion project) Health Net One. We now see promising opportunities in several business areas and need to make optimal use of systems resources to support these efforts," said Jay Gellert, president and chief executive officer of Health Net in a news release last week.

Those efforts will include making changes required under a class action law-suit settlement, improving Internet capabilities for its small business customers in order to improve its showing in that market segment, developing new Medicare plans and implementing a new medical cost management system throughout the country.

Health Net spokesman David Olson said that the delay in the switch to the MC400 system does not mean the company's claims payment process is going to slow down.

"We're already pretty fast, we're about as fast as we can be at this point. Ninety-nine percent of our claims are paid within 30 days," said Olson. "What we're looking to solve are the computer-speak kind of issues, scalability and so forth."

California and Oregon could operate for years without any problems with its current claims software, said Olson.

Early in May, Health Net announced that it had settled a class action lawsuit with 900,000 physicians across the country, and the requirements of the suit were that the company change a number of its business practices which will mean diverting some of the company's IT resources.

As part of the agreement, Health Net will have to pay electronically submitted claims within 15 days and 30 days for paper claims, make changes to its claims editing software and provide more disclosure of its claims payment procedures. Most of the stipulations will require transparency improvements in the company's billing and claims processes, Olson said.

Small group changes

Aside from requirements relating to the lawsuit settlement, however, the company is looking to using its technical resources to improve its showing in California's small group market.

"We want to make some refinements to our small group system, we'd like to improve our interaction (with small group policy holders)," Olson said. "We've been pricing ourselves out of the market and losing some small group enrollment. We'd like that to stop. One way would be improve Web functionality."

Olson said the company is hoping to improve its Internet technology to allow small businesses to get "faster. easier renewals, faster quotes and things like that."

Gellert noted that the company will also be diverting system resources in order to develop new Medicare plans. The Medicare Modernization Act will be in effect starting on January 1, 2006 and Health Net will offer a standalone pharmacy benefit plan to senior citizens, taking part in the federal government's Part D program.

Another project that involves implementing a new medical management system across every health plan in the company will help the reporting and analysis of medical costs, said company officials, but will even further pull information technology manpower away from the company's claims system conversion.

Still, Gellert reported, the conversion's delay does not hurt the company. He said that the company-wide systems consolidation effort has so far allowed it to save more than $40 million annually, and its new efforts will only add to the savings.

Health Net will need to reduce all the costs it can, as earnings for the company have been a disappointment for analysts. The company managed to improve its first quarter earnings even though it had to spend $67 million in order to settle its lawsuit problems, but its stock price still fell after second quarter earnings projections landed below analysts' expectations. If efforts to make small group plans more competitive pay off, that would be a big step toward making the company perceived as a valuable asset.

Bright spots

The company has managed to find some bright spots in the last few months of settling hospital and physician lawsuits, however. In May, Health Net's Medi-Cal contract to provide services throughout Los Angeles County was renewed for up to eight years. The deal will generate estimated annual revenue of $560 million dollars. The company has been actively expanding its Medi-Cal presence, renewing or initiating Medi-Cal services in four California counties since last year.

Health Net was also named "Corporation of the Year" by the Latin Business Association primarily for its Salud con Health Net plan, which gives patients access to provider networks on both sides of the United States-Mexico border.

Olson said Health Net is counting on its expanding palette of products to improve the company's fortunes over the next year. Health Net has launched its own Health Savings Account compatible plans this year, although they have been slow sellers so far. California's relatively low-cost HMO plans, Olson said, have prevented most people from looking into a Health Savings Account.

Olson said he expects Health Net to retain its position in California.

"We feel very confident about California, we feel like a big 5 player in the state and we feel poised for some really good things," he said.