Oracle Corp. sues Oregon over health insurance exchange, alleging breach of contract

Oracle Corp. has sued the state of Oregon in a fight over the state's health insurance exchange, saying government officials are using the technology company's software despite $23 million in disputed bills.

Oracle's breach-of-contract lawsuit against Cover Oregon was filed Friday in federal court in Portland. It alleges that state officials repeatedly promised to pay the company but have not done so.

The lawsuit seeks payment of the disputed $23 million plus interest, along with other unspecified damages.

Oregon's health-insurance enrollment website was never launched to the general public. State officials have blamed Oracle, but the company says the state's bad management is responsible.

Gov. John Kitzhaber has called for the state to sue Oracle and recover some of the $134 million it has already paid to the Redwood City, California, company.

In June, Oregon issued legal demands for documents that could become evidence in a possible lawsuit against Oracle under the state's False Claims Act.

"The governor is aware of the lawsuit and isn't surprised by it," Melissa Navas, a spokeswoman for Kitzhaber, said in a statement. "The state fully expected to end up in litigation over Oracle's failure to deliver."

Lawyers at the state Department of Justice were reviewing the lawsuit, spokeswoman Kristina Edmunson said. "We will continue to pursue all legal options," she said.

Oracle declined to comment.

The lawsuit lays out Oracle's side of the Cover Oregon fiasco in the most detailed terms yet.

The company says the project became a victim of bureaucratic infighting between two state agencies responsible for both the Cover Oregon website and a separate effort to modernize a complex state computer system.

It says state officials were unable to define requirements for the Cover Oregon system, an essential early step, and even went on a 60-day "retreat" to develop them but "returned empty-handed." State officials continued making requests for changes in the crucial final weeks before the website was supposed to launch in October 2013, the lawsuit alleges.

Then-executive director Rocky King was more concerned about the website's look than its function, the lawsuit alleges. It quotes from an email he sent in late September: "If the road is going to be bumpy, let me at least be driving a good looking car."

The lawsuit also faults the state's decision not to hire a systems integrator, who works as a sort of general contractor to coordinate and direct the work of multiple technology vendors. With the state acting in that capacity, the lawsuit says, Oracle programmers were at the whims of indecisive and warring state managers.

The website's problems have become a political liability for Kitzhaber, a Democrat who has built a national reputation as a health care reformer. His Republican rival, state Rep. Dennis Richardson, has used the Cover Oregon fiasco to argue that Kitzhaber is an ineffective manager and a poor steward of public funds.

Kitzhaber responded by firing several state managers, in some cases with a hefty severance, and blaming Oracle for work he's called subpar. Oracle's lawsuit repeatedly refers to Kitzhaber's statements as "slander." Even as Kitzhaber was publicly scolding the technology giant, Cover Oregon managers continued seeking assistance from Oracle programmers.

"Oracle gave that help for many months, in spite of the public excoriation, because it was committed to helping Cover Oregon complete the project and because Cover Oregon repeatedly promised to pay Oracle for its services," the lawsuit says. "In the end, though, Cover Oregon reneged on its promises, thus prompting this lawsuit."

Instead of signing up for health insurance in one sitting, Oregonians had to use a hybrid paper-online process that was costly and slow, and the state had to hire more than 400 workers to help them. Altogether, about $250 million in federal funds has been spent on Oregon's exchange, including technology development, salaries, advertising and rent.

Despite the exchange's technology woes, about 454,500 Oregonians have enrolled in coverage through Cover Oregon using the hybrid process. An estimated 97,000 of those enrolled in private health plans, while about 357,500 enrolled in the Oregon Health Plan, the state's version of Medicaid.

Earlier this year, the state decided to stop building the Oracle website and transition to the federally run enrollment website.

The FBI and the federal Government Accountability Office are also investigating Oregon's exchange problems.