How Oregon's Obamacare Website Debacle Turned Into a Legal Blame Game

Oregon charges tech contractor on failed health law website with "racketeering, false claims, and broken contracts."


Cover Oregon

No state fared worse during the launch of Obamacare's health insurance exchanges than Oregon. The Beaver State was the first to announce a major delay in opening its online insurance portal, and the technology for the project—a $240 million project heavily funded through federal grants—never worked.

Earlier this year the state announced that it was scrapping the project in order to join the federal exchange.

What was intended to be one of Obamacare's biggest, boldest state-run exchanges, a model for the nation, turned out to be one of its most spectacular failures. Now the state and its contractor are both trying to escape fault—by blaming it on the other guy. 

Earlier this month, Oracle, the tech contractor behind the state's failed exchange, sued the state of Oregon. Oracle claims it is still owed $23 million for its work and claims that state officials have made the contractor a scapegoat, even while continuing to rely on its expertise behind the scenes. 

Oracle's case is that state authorities bungled the project's management: As the Los Angeles Times reported, the state never hired a project coordinator to make sure the different parts of the system actually worked together. And, as independent assessments of the botched project confirmed, state officials argued amongst themselves and altered the system requirements on multiple occasions. The person put in charge of the project was not tech savvy and did not grasp how serious the problems were. Oracle, which was dropped from the project earlier this summer, continued to attempt to fix the system, even as the state blasted the company's work.

"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 states, according to the Los Angeles Times. "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."

Oracle has a point. It's clear that state officials were, at minimum, wildly optimistic, and probably pretty clueless about how serious the tech troubles really were long after they ought to have known. Cover Oregon, the organization in charge of the state's exchange, awarded and even expanded a $21 million contract to an advertising company to create a series of goofy, twee ads for the exchange even as the site was publicly failing. A month in, with the site still not working, Democratic Gov. John Kitzhaber could still be found offering confident, positive spin to local media. "I think we're in really good shape here in Oregon," he told KATU News at the end of October. "Do we have some problems? Yes. Are we concerned? Of course. But I believe we'll come through this very well."

Obviously that didn't happen. But according to the state of Oregon, it's Oracle that made false claims about the state of the project. The state's response to the contractor arrived last Friday in the form of a lawsuit of its own. The suit accuses Oracle of performing its contractually obligated duties in a manner so shoddy and negligent that it qualifies as "racketeering, fraud, and broken contracts."

In the suit, the state argues that Oracle "repeatedly breached" contracts worth hundreds of millions of dollars "by failing to deliver on its obligations, overcharging for poorly trained Oracle personnel to provide incompetent work, hiding from the State the true extent of Oracle's shoddy performance, continuing to promise what it could not deliver, and willfully refusing to honor its warranty to fix its errors without charge." The tech company has attempted to bill the state and its exchange for more than $240 million, which given its performance, "amounts to a pattern of racketeering activity that has cost the State and Cover Oregon [the state's exchange] hundreds of millions of dollars."

Judging by the thoroughness of Cover Oregon's failures, there's little doubt that Oracle oversold its capabilities and delivered less-than-stellar work. But it's worth thinking about the state's charges for a moment. What the suit is saying is that when an organization promises a project it can't deliver and then spends hundreds of millions of dollars to produce a shoddy, incomplete product, that's racketeering? One might argue that that's basically what the promise-breaking, false-claim-making federal government did to the taxpayers—and to some extent what it's still doing—with the still-unfinished, still-incomplete, still-working-out-the-kinks federal exchange system. Oregon plans to spend about $5 million to connect to the federal exchange, but crucial back-end payment processing functionality, which was supposed to be complete in January, won't be completed until sometime next year.  

The dueling suits between Oregon and its contractor offer a reminder of how messy Obamacare's launch was, and how long it will take to deal with the damage. 

So who's to blame? We'll have to wait the courts to sort it all out, but neither side is particularly sympathetic. On the one hand is an incompetent bureaucracy attempting an ambitious, expensive vanity project despite the fact that state officials don't really understand how it's supposed to work. And other hand is an over-promising tech contractor attempting to make hundreds of millions of dollars off of taxpayers through a combination of tech-consultant hype-speak and shoddy programming work. It's kind of a shame they can't both lose.