On Feb. 24, Oxford Health Plans Inc. unveiled its bid for salvation. The health insurer that plunged from grace last year found a rescuer in Texas Pacific Group, a Fort Worth investment house that agreed to pump in $350 million in new capital, and a new CEO in Norman C. Payson, a doctor who once headed Healthsource Inc.
The prognosis remains murky. It's not clear that the bailout, including another $350 million that Oxford plans to hunt down in the debt markets, will pay all the bills. Oxford lost $291 million last year on $4.2 billion in revenues and still owes physicians hundreds of millions of dollars in unpaid fees. Cash flow will suffer at least through 1998 because Oxford is locked into premium prices too low to cover anticipated medical costs. Oxford has "a black hole" in terms of future earnings, says Paul S. Goulekas, a senior vice-president at insurance consultants Conning & Co.
LOSS OF CONTROL. This is the legacy of founder Stephen F. Wiggins, who resigned as chairman as part of the TPG deal. "I'm an entrepreneur first, a professional manager second," Wiggins told BUSINESS WEEK last August. (Oxford declined to make him available after his resignation.) Indeed, Oxford insiders and analysts blame Wiggins for misjudging the complexity and expense of a crippling computer-systems changeover and, more important, for losing control over the costs of medical claims.
But Wiggins also leaves important assets. He is responsible for innovations that have changed managed care for the better. These are moves that set the Oxford brand apart from rivals and can--if retained--leave a foundation to rebuild upon.
What made Oxford different? Wiggins recognized early on that patients hated the limits of traditional HMO networks. So he bet the company on a more expensive product that let members seek care outside a core network of physicians. It wasn't a new concept, but Wiggins was the first to make it a key part of his business. The payoff: Oxford's enrollment grew eightfold from 1993 through 1997.
OPEN EAR. Wiggins also understood that customers would pay more for decent service--an aspect of the business that insurers were infamous for ignoring. Modeling Oxford's marketing after consumer giants such as American Express Co., Oxford studied what its members wanted, and listened. One masterstroke: an alternative-medicine initiative that led members to discounts on such services as acupuncture. It cost Oxford almost nothing, but gained widespread attention.
Oxford still must clean up Wiggins' very ugly operational mess. "We've got some work ahead of us," Payson admits. Yet Oxford remains a vibrant presence in the market. For all the bad news, membership grew 8% between last Sept. 30 and Jan. 1, to 2.1 million. Give Wiggins some credit: If Oxford can survive the financial pitfalls of the next year, the legacy of his market savvy promises to help it make a full recovery.