Blue Cross executive resigns amid technology fiasco

Alan Hughes
Alan Hughes

Blue Cross and Blue Shield chief operating officer Alan Hughes has abruptly resigned from the state’s largest health insurance company, an apparent casualty of an ongoing technology fiasco that has prevented thousands of Blue Cross customers from enrolling and triggered an investigation by the N.C. Department of Insurance.

Blue Cross, the state’s largest health insurer, announced Hughes’ resignation Tuesday. The company said Hughes was replaced by Gerald Petkau, the company’s previous chief financial officer. Petkau will oversee the company’s customer service, claims processing, project management and IT functions.

Blue Cross’s announcement noted four executive promotions but made only brief reference to Hughes, saying he had “tendered his resignation,” providing no further details.

Hughes had overseen the implementation of a complex software program for customer billing and enrollment that crashed in January and is still under repair some six months after fatal problems were discovered last year.

The Chapel Hill insurer is now in a race to rewrite its enrollment and billing software in time for the 2017 open enrollment for individual insurance, which gets underway Nov. 1.

Hughes had told Blue Cross employees in an all-hands meeting in March that he expected the software to be fixed by this fall, even as he warned Blue Cross staff that the company could not afford another systemwide crash.

“What we’ve experienced this year cannot happen again – absolutely cannot happen again,” Hughes told employees, according to a Blue Cross video of the meeting. “What’s keeping me up at night right now is we’re already looking ahead to the next open enrollment. And really it’s only about eight months away.”

In the same “Town Hall” meeting, Blue Cross CEO Brad Wilson warned of a prolonged fallout from the software crash.

“We’re nowhere near out of the woods or in a position to declare victory,” Wilson told employees. “We’re going to deal with the downstream effects of our operational issues for some time to come.”

Blue Cross said Hughes will be immediately leaving his position. His departure comes on the heels of a significant pay raise. Hughes’ compensation package was upped to $1.77 million last year, from $1.19 million in 2014.

In other Blue Cross promotions announced Tuesday, current chief accounting officer and treasurer Mitch Perry will assume the role of senior vice president and chief financial officer.

As chief operating officer, Hughes was responsible for network management, as well as information and technology. Hughes joined Blue Cross as chief information officer in 2009 and was promoted to COO four years ago.

The technology problems at Blue Cross have affected customers on individual insurance, primarily those insured under the Affordable Care Act. Customers have complained of being enrolled in the wrong health plans, of losing coverage, of being overbilled and double-billed.

Blue Cross, which has more than 400,000 customers on individual insurance, initially said that about 25,000 customers have been affected by the problems. The company, which insures a total of 3.9 million people in the state, has since stopped providing updates on the mounting problems in enrollment and billing.

The Department of Insurance has reported 11,162 customer calls as of April 1, including 2,346 complaints against the insurer.

The agency’s investigation could result in fines against Blue Cross up to $1,000 per violation per day.

Blue Cross customers have fumed over being dunned overdraft fees by their banks and over being put on hold for hours by the insurer’s beleaguered customer service staff.

Wilson, the CEO, told employees he had personally spoken with more than 200 customers about their frustrations.

Wilson noted that “almost without exception” the enraged customers will calm down when Blue Cross apologizes and promises, “We’re going to fix it.”

“In virtually every case,” Wilson said, “the anger melts away.”

Blue Cross has yet to explain why the Facets software, which is used across the health insurance industry, failed so spectacularly for Blue Cross.

In the March employee meeting, Hughes said the company discovered a “fatal problem” with its Facets software when it was migrating individual customers from legacy technology systems. But the company pushed ahead with open enrollment, thinking the Facets problem could be patched as customers were enrolling this year.

Instead, Blue Cross was slammed with 147,000 customer calls on day one, and nearly half-a-million calls the first week.

Doctors have also been hit by the slowdown as Blue Cross stopped issuing checks on medical services provided to individual customers who are in the Facets software. That represents about 15 percent of all claims.

“We’ve pended claims processing for the most part,” Hughes told staff. “There are claims going out, but the bulk of claims are being held to make sure we change the configuration, we have the right plans, so that when we process claims the claims are paid properly the first time.”

As it became clear last year that Facets was not working, Blue Cross implemented a contingency strategy, but it quickly proved inadequate. The company added $2 million of phone capacity last November and assigned additional staff to handle customer complaints, Hughes said.

For the upcoming 2017 enrollment, Hughes told employees that “the enrollment engine should work.” But in case Facets crashes again, he said Blue Cross plans to boost customer service staff to handle 60,000 calls a day, twice the expected volume.

Blue Cross said it would conduct an internal review of the Facets meltdown and submit a self-assessment to the Department of Insurance.

Before Blue Cross came under scrutiny, Wilson shared his thoughts on health care technology and health care trends with the N.C. Institute for Emerging Issues. In the institute’s Jan. 11 newsletter, Wilson said that among the challenges facing health care organizations is rapidly dismantling legacy computer systems.

Wilson emphasized the need to take calculated risks that could lead to consequences he characterized as “noble failures.” He said rapid innovation requires the ability to “build the airplane while flying it.”

The interview was conducted Jan. 6, just as Blue Cross was inundated with thousands of phone calls from Blue Cross customers who couldn’t verify their coverage or had been enrolled in the wrong policies.

Wilson concluded: “Strategic thinkers will win out over task-oriented managers; bold creativity and rapid prototyping will be rewarded rather than cautious, sure-thing approaches to problem solving.”

John Murawski: 919-829-8932, @johnmurawski

Related stories from Charlotte Observer