By Maeve Reston

The legal battle over Oregon's dysfunctional health insurance exchange officially began this week when Oracle Corp. sued the state agency operating the exchange, alleging breach of contract and accusing Gov. John Kitzhaber of attempting to systematically "vilify the company in the media."

In a 21-page complaint filed Friday in federal court for the District of Oregon, Portland Division, Oracle charges that during the early months of this year, state officials privately continued to request Oracle's help to fix their system while engaging in a campaign of "constant public slander" against the tech company.

Although Oregon had appeared more prepared than many other states to implement President Barack Obama's Affordable Care Act, technology problems crippled Cover Oregon's online exchange. The Web portal where consumers were to purchase health insurance never went live after open enrollment began on Oct. 1. Instead, the state resorted to paper applications to allow Oregonians to access health insurance subsidies through the new federal program.

Cover Oregon officials voted to scrap the troubled exchange in April, despite spending $248 million, and opted to transition to the federal system. The state had dismissed Oracle, the lead web site developer for Cover Oregon, the previous month.

Kitzhaber, an emergency room doctor who is running for re-election, first asked the state's Attorney General to investigate the legal options and then in May publicly urged the office to sue.

But it was Oracle, a Delaware corporation headquartered in Redwood City, Calif., that fired the first shot against the state and Cover Oregon.

The company, which has built health insurance exchanges for half a dozen other states, claims that they are still owed $23 million by Cover Oregon under their contract.

The lawsuit notes that hundreds of thousands of Oregonians were enrolled in health insurance using the software built by Oracle and other companies. Customer service representatives and health insurance agents were able to use that software to enroll consumers in a back-office capacity, but the system was never made available for consumers to enroll directly on their own.

"While flogging Oracle publicly, Cover Oregon continued privately to ask for Oracle's help. (Indeed it continues to this day to seek Oracle's technical help with the project)," Oracle's legal complaint said. "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. In the end, though, Cover Oregon reneged on its promises, thus prompting this lawsuit."

Oregon ran into trouble in part because they attempted to build their health care exchange under the Affordable Care Act at the same time that they embarked on an ambitious project to modernize their health and human services programs.

Oracle alleges that the state made a series of mistakes, including the failure to hire a "systems integrator" that could manage the project_a mistake that federal exchange officials also made causing problems with the initial performance of In the lawsuit, Oracle said Oregon's decision to manage the project itself was akin to building "a massive multi-use downtown skyscraper without an architect or general contractor."

State officials were overwhelmed by the task of managing dozens of subcontractors, Oracle alleges, particularly as they tried to assemble the pieces of the complex system and merge it with the state modernization project.

Oregon's projects were also hampered by disagreements among state officials, as revealed by two independent reviews of the debacle_one of which was commissioned by Kitzhaber. Cover Oregon and state officials repeatedly changed their mind about the scope of the work they wanted, Oracle said. In addition, Oracle alleges that Rocky King, the former Cover Oregon executive director, did not seem to grasp the extent of the technical problems his agency was facing.

Days before the web site was supposed to launch on Oct. 1, King sent an email to an Oracle consultant underscoring that the Cover Oregon website should at least look good for consumers, even if it was not going to operate well.

"If the road is going to be be (sic) bumpy, let me at least be driving a good looking car," King's e-mail said.

But Kitzhaber repeatedly criticized the quality of Oracle's technical work. A federal technical review suggested that Oracle threw "bodies, rather than (a) skill set" at the web site problems. And King, who stepped down earlier this year, criticized Oracle's technical work, stating during one public meeting that the company had finally sent home the "C-Team" and replaced it with the "A-team."

Cover Oregon did not respond to a request for comment on the lawsuit. But Kitzhaber's office did not back down from his criticism of Oracle in a statement.

"The Governor is aware of the lawsuit and isn't surprised by it; the State fully expected to end up in litigation over Oracle's failure to deliver," Kitzhaber spokeswoman Melissa Navas said in the statement. "The Attorney General's Office will review the complaint filed by Oracle and continue to pursue legal remedies on behalf of the State."

Cover Oregon has paid Oracle $130 million so far, according to The Oregonian. That sum is more than a third of the federal grant money that Oregon received to build its independent exchange. The state was still able to enroll more than 430,000 people in new health insurance coverage or Medicaid through paper applications, with assistance from insurance agents, trained community partners and customer service representatives.

Cover Oregon recently signed an $18.4-million contract with Deloitte Consulting LLC to serve as the systems integrator as Oregon transitions over to the federal exchange before next year's open enrollment period begins on Nov. 15. Tina Edlund, Kitzhaber's transition project director said the new contract with Deloitte "has the strictest oversight and accountability to ensure the vendor delivers."

The federal Government Accountability Office is investigating what went wrong in Oregon, as well as several other states that chose to operate their own exchanges.

The performance of the independent exchanges in 14 has been uneven. California, Kentucky and Washington state had great success in enrolling consumers online, but states like Hawaii, Maryland, Massachusetts and Minnesota struggled to get their systems off the ground.

During a congressional hearing earlier this year, the troubled states said they would not need federal bailouts to fix their systems and would rely on existing grant money to do so.

(c)2014 Los Angeles Times