Oxford Health Plans, Inc.

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Oxford Health Plans, Inc.

800 Connecticut Avenue
Norwalk, Connecticut 06854
(203) 852-1442
Fax: (203) 851-2464

Public Company
Employees: 4,400
Sales: $1.77 billion (1995)
Stock Exchanges: NASDAQ
SICs: 6324 Hospital & Medical Service Plans; 6321Accident & Health Insurance

Operating in five northeastern states, Oxford Health Plans, Inc. is a leading provider of health benefit plans. The company primarily offers health maintenance organization (HMO) plans, but also provides dental, Medicare, and Medicaid plans and related products and services. The company has grown rapidly since the mid-1980s by acquiring competitors and increasing enrollment in its cost-efficient health plans.

The Companys Founder

Oxford Health Plans is primarily the creation of Stephen F. Wiggins, who founded the company in 1984. Wiggins was only 28 years old at the time, but had already gained valuable experience in the health care industry. A native of Minnesota, Wiggins had earned his bachelors degree at Macalester College in St. Paul before tagging on a Harvard MBA. He started his career in 1976 with Health Central, Inc., a company that owned and operated several mid western hospitals. After fewer than three years with Health Central, Wiggins followed his entrepreneurial calling and started his own company, Accessible Space, Inc. (ASI). ASI was a nonprofit health care organization that provided long-term care for handicapped and brain-injured people.

ASI would eventually grow to a leading midwestern provider of long-term care for the handicapped, with more than 15 facilities in five midwestern states by the mid-1990s. Although Wiggins remained executive director of the company, he remained in day-to-day operating control of ASI just long enough to get it started. Within a few years, in fact, he was engrossed in other health care ventures. For example, he founded Grasslands Housing, Inc., Osborne Apartments, and St. Marys Senior Housing, Inc., which were all nonprofit health care organizations that owned and operated housing for handicapped and/or elderly residents. Also during the early and mid-1980s, Wiggins became involved in various health care investment ventures through two New York venture capital firms.

Wiggins efforts during the early and mid-1980s exhibited his unbound optimism and empathy for health care consumers, as well as his forward-thinking, innovative naturetraits that would help to make Oxford Health Plans so successful. A major impetus for Wiggins to start ASI, for example, was his best friend in college, who had been paralyzed in a driving accident; observing the treatment his friend received, Wiggins found that existing care for handicapped people was of poor quality. Among other innovations, ASIs facilities were managed by the residents themselves, which helped them to regain their feeling of independence and worth. Another example of Wiggins experimental spirit was Grasslands Housing, which was the largest earth-sheltered housing project in the United States when it was built.

Driving Wiggins will to succeed in business was, in part, his experience with his familys business as a youth. While still in high school, Wiggins had helped to close down his familys struggling office supply store. He vowed to be a success after the humiliating experience. I still remember hanging up the going-out-of-business sign, Wiggins said in the March 21, 1994 Fortune. It was that desire to succeed, combined with his interest and experience in the health care field, that led to the formation of Oxford Health Plans. Wiggins incorporated the company on September 17, 1984, and Oxford began operations late in 1986. In less than a decade, Oxford would be generating nearly $2 billion annually in revenues as a leading provider of health care in the northeastern United States.

Company Origins in the 1980s

Wiggins teamed up to launch Oxford with Dr. Benjamin Safirstein. Their plan was to bring health maintenance organizations (HMOs) to New York. The HMO concept was becoming popular in the United States at the time as an affordable, efficient alternative to traditional health insurance and health care delivery plans. In short, HMO (or managed care) plans reduced health care costs by more closely managing each patients care, rather than simply paying medical bills as do traditional insurance companies. Doctors joined the HMO to gain access to, among other benefits, a large base of clients, while patients joined the HMO plan to receive lower health insurance premiums. HMOs and similar managed care options first became widely popular during the 1980s, when health care costs were spiraling at double-digit rates.

Despite their success in other areas, HMOs had been slow to catch on in New York (particularly New York City), reportedly because residents in that state feared that managed care would diminish the overall quality of their health care. Recognizing the potential of the largely untapped New York market, Wiggins and Safirstein decided to implement an HMO plan that would appeal to the New York market. To that end, Wiggins worked to form an HMO that included high-quality doctors and leading hospitals. He also implemented a number of innovative cost-reduction and efficiency measures that helped to make the plan attractive to companies seeking lower health insurance rates for their workers. By 1987, its first full year of operation, Oxford generated premiums of about $5.6 million.

Oxford would sustain meteoric growth throughout the late 1980s as membership in its HMO plans spiraled. Importantly, Wiggins developed a number of key innovations that not only contributed to the success of Oxford, but influenced and changed the entire managed care industry. Most notable was an option that Wiggins dubbed the Freedom Plan. The Freedom Plan overcame the common objection to HMOs that members were limited to using only the doctors who belonged to the HMO network. Through the Freedom Plan, Oxford allowed members to use their own doctors outside of the HMO network in exchange for higher deductibles and copayments. The innovation was a major hit and allowed Oxford to quickly overcome its competitors in the New York market and to sign up some high-profile accounts that would have otherwise never joined an HMO.

Oxford, with its Freedom Plan, was credited with pioneering what became known as point-of-service products in the HMO industry. The invention allowed tiny Oxford to compete with such deep-pocketed players in the insurance industry as Prudential and Aetna. Indeed, Oxfords revenues rose to $25 million in 1988, $45 million in 1989, and then to $61.4 million in 1990, when it showed its first profit. In 1990, in fact, Oxford was the second most profitable HMO in New York. During the year, the companys HMO membership climbed more than 80 percent in New York City and about 17 percent in the metropolitan area for a total subscriber base of nearly 65,000. Wiggins boldly predicted that Oxford would have 500,000 members by 1995.

As surprising as Oxfords success during the late 1980s was the fact that it had even survived as an independent company. Throughout the late 1980s and into the early 1990s, many of Oxfords startup HMO peers had been acquired by big insurance companies looking for a route into the growing managed care business. Oxford shunned takeover attempts, however, and was able to establish a presence. The company raised $11.2 million through a private stock placement in 1988 and used the money to beef up its sales force, to increase advertising and promotions, and to scout for some acquisitions of its own to bolster its product offerings. Meanwhile, Wiggins continued to try to innovate and stay ahead of the competition. The reason Im still alive is because I change with the marketplace, and we give the most innovative products, Wiggins said in the October 1, 1990 Crains New York Business.

Among Oxfords innovations were new ways to deliver cost-effective care to patients with asthma and other chronic conditions. In addition to those improvements, the company developed a reputation as a provider of high-quality care and good customer service. More than health care. HumanCare, became the companys slogan. In fact, Oxford was ranked tops in customer satisfaction surveys of HMO members and was also regarded by many health care organizations as one of the easier health plans with which to work. Its reputation helped it to enroll impressive clients such as the respected Fried Frank Harris law firm and the venerable Columbia-Presbyterian Medical Center. The companys membership ranks rapidly swelled past 100,000 in the early 1990s and then toward the half-million mark.

Continued Growth and Some Challenges in the 1990s

Many critics doubted Oxfords ability to profit and sustain growth in the early 1990s. By then, managed care had become an accepted means of insurance, and other managed care providers had implemented their own point-of-service options. Furthermore, Oxford was still operating at a distinct disadvantage to well-heeled companies that had huge war chests of capital to dump into aggressive HMO sales and marketing programs. Nevertheless, Oxford managed to rapidly grow its membership base, sales, and profits, and boasted the fastest growing stock price in the entire U.S. managed care industry between 1990 and 1995. Wiggins greatest problem, in fact, became keeping up with a growth rate of more than 50 percent annually.

Company Perspectives

Overall member satisfaction with our health plans is a key factor driving our growth. We attribute this largely to the high-quality, personal care and service our members feel they receive from Oxford.

Wiggins concern about keeping up with growth intensified going into the mid-1990s. After jumping from $95 to $156 million between 1991 and 1992, Oxfords sales more than doubled in 1993 to $311 million. Revenues more than doubled again in 1994, moreover, to $721 million. Net income rose during the same period from about $3.6 million (1991) to nearly $28 million. By early 1994 Oxford was boasting a roster of about 250,000 members. That number increased rapidly during 1994 and 1995, as Oxford acquired other companies and added members to existing plans. Furthermore, Oxford was offering other plans and services including Medicare and Medicaid plans, and an administration services division that helped other companies manage their plans. By late 1995, Oxford was serving a base of about one million customers and annualized sales had surpassed $1 billion.

Oxfords rampant gains came at a price. With the sudden surge in members, the companys infrastructure became overburdened. Some of its computer systems, for example, became bogged down by overuse. Youd press a button and wait 20 seconds for it to respond, said Robert M. Smoler, Oxford executive vice-president, in the August 28, 1995 Crains New York Business. You cant process a claim like that, he observed. The growth also put a strain on employee morale. The overall result was a perceived decline in quality of service, high standards for which had been Oxfords hallmark for nearly a decade. Some critics and customers feared that Oxford was finally delivering the inadequate service that had kept New Yorkers away from managed care for so long. Customers saw the highest-level service in the industry slip off, Smoler explained, adding a lot depends on how quickly we recover.

Much of Oxfords growth in 1995 was attributable to its purchase of OakTree Health Plan Inc., a Pennsylvania managed-care provider. That important buyout extended its reach to Pennsylvania and bolstered its presence in what had by 1996 become a five-state region including New York, New Jersey, Connecticut, New Hampshire, and Pennsylvania. During 1995, Oxford added about 25,000 physicians and about 200 hospitals to its network to serve a clientele of more than one million, or nearly double the members that Wiggins had predicted in 1990 that the company would have by 1995. Sales for the year grew to nearly $1.8 billion. Meanwhile, Oxford continued to scramble to absorb the additions, control growth, and maintain its service level.

For the mid- and late 1990s, Wiggins and fellow managers were focusing on whipping Oxfords operations into shape as part of an effort to minimize costs, improve service, and continue positioning Oxford for future changes in the marketplace. They were also working to sustain rapid growth as part of their plan to become a dominant provider of managed care and related products and services in the Northeast United States.

Principal Subsidiaries

Oxford Health Plans (NY), Inc.; Oxford Health Plans (NJ), Inc.; Oxford Health Plans (CT), Inc.; Oxford Health Plans (NH), Inc.; Oxford Health Plans (PA), Inc.; Oxford Health Insurance, Inc.

Further Reading

Agovino, Theresa, Innovative Oxford Finds HMO Cure, Crains New York Business, October 1, 1990, p. 3.

Benson, Barbara, Growth Causes Pain for the Industry Star, Crains New York Business, August 28, 1995, p. 19.

Dentzer, Susan, Inside the World of Managed Care, U.S. News & World Report, April 15, 1996, p. 56.

Dumaine, Brian, Americas Smart Young Entrepreneurs, Fortune, March 21, 1994, p. 34(9).

Fleischer, Jo, Oxford Needs More Room As Torrid Growth Continues, Fairfield County Business Journal, March 3, 1996, p. 1.

Hollreiser, Eric, New CEO a Foot Soldier for Oxford Health Plans, Philadelphia Business Journal, February 23, 1996.

Kenkel, Paul J., Stephen F. Wiggins, 36, Modern Healthcare, October 26, 1992, p. 48.

Oxford Health Inc. Tabs New President, Fairfield County Business Journal, May 25, 1992, p. 17.

Oxford Health Plans, Inc., The Wall Street Transcript, December 19, 1994, pp. 116,865952.

Wiggins, Stephen F., New Ways to Create Lifetime Bonds with Your Customers, Fortune, August 21, 1995.

Dave Mote