Gov. Kitzhaber seeks lawsuit over Cover Oregon health exchange

SALEM, Ore. (AP) - Gov. John Kitzhaber said Thursday he's seeking a lawsuit against Oracle Corp. over Oregon's online health insurance enrollment system, the failure of which embarrassed the state and resulted in multiple investigations.

In a letter to Attorney General Ellen Rosenblum, Kitzhaber said he's fired state managers in charge of Cover Oregon, and now it's time to hold accountable the website's main technology contractor.

Kitzhaber made the surprise announcement Thursday during a Joint Committee on Legislative Audits, Information Management and Technology (JCLAIMT) hearing that was pre-scheduled to discuss state IT projects as well as the status of Cover Oregon.

{>}{>}{>} Watch portions of the hearing

"Oracle's failure is unacceptable to Oregonians who need and deserve access to quality healthcare and who have been faced with months of uncertainty," Kitzhaber testified before lawmakers. "The failed rollout of Cover Oregon has cast a shadow on these reform efforts, the success of which are absolutely crucial to the future of this state. So the time has come to hold Oracle accountable for failing to deliver technology that worked on the time lines that they agreed to."

Kitzhaber went on to blame Oracle for a laundry list of problems, citing missed deadlines, "many bugs in the system that still remain to be fixed," and what he called fundamental flaws in the system's architecture. The governor also referred to independent assessments and quality assurance reports that he said concluded, "the work was regularly incomplete, routinely late and below industry standards."

Kitzhaber said Rosenblum will make the ultimate decision about whether to file a lawsuit, but he believes the state has strong claims. Rosenblum responded in a letter to the governor that her legal team has been reviewing options and developing legal strategies.

"I share your determination to recover every dollar to which Oregon is entitled," she wrote. Cover Oregon and Oracle have agreed not to initiate legal action before May 31.

Oracle, which is headquartered in Redwood City, California, has said it's not to blame for the failed launch. And on Thursday it issued a blistering response to Kitzhaber's testimony.

"We understand the political nature of the announcement just made and that the Governor wants to shift blame from where it belongs," Oracle said in a statement. "We are proud of the work that we have done to enable over 420,000 Oregonians to enroll in health care. "We look forward to an investigation that we are confident will completely exonerate Oracle."

Oracle instead blamed the project's mismanagement on Cover Oregon and the Oregon Health Authority.

In a letter to Cover Oregon's temporary leadership last month, Oracle Corp. President and Chief Financial Officer Safra Catz wrote that Oracle provided "clear and repeated warnings" to Cover Oregon that the exchange website would not be ready to launch last October.

Oregon paid Oracle $134 million in federal funds to build what turned out to be a glitch-filled Cover Oregon website. Oregon is the only state that still doesn't have an online portal where the general public can sign up for health insurance in one sitting through a marketplace required under President Barack Obama's health care law.

The state is still withholding $25.6 million in payments from Oracle. Oregon abandoned plans for fixing the site and is switching to the federal portal used by most states,

The website's failure has been an embarrassment for the Democratic governor, who enthusiastically embraced Obama's health care law and has for decades been a respected voice on health care policy.

Kitzhaber declined to say how much money he hoped to recover from Oracle, but he said he's willing to pay for the portions of the website that do work.

A review commissioned by Kitzhaber placed blame on the state's contract with Oracle, which said the company would be paid based on its time and materials rather than specific content delivered. The review also faulted the state's decision not to hire a system integrator to oversee the project.

Kitzhaber acknowledged the state's failings but said Oracle shares the blame.

"I have acknowledged that oversight was a problem at Cover Oregon; we have addressed that problem," Kitzhaber testified. "But even better oversight, would have only have given us an earlier and clearer picture of the poor performance of Oracle. The fact is, that Oracle did not deliver for the State of Oregon."

Kitzhaber also admitted, it would not be an easy road ahead.

"I believe that the law is on our side, and I believe that justice is on our side, but I also recognize that Oracle is a very large company - the second largest software company in the world," he said. "I expect that they will fight us tooth and nail. But I will not allow that to stop us from recouping dollars that were sent to Oracle for technology that did not work and technology that was not delivered on time."

Kitzhaber also sent a letter to the inspector general of the Department of Health and Human Services urging the federal agency, which supplied the money that paid Oracle's bills, "to levy the appropriate fines and penalties to hold Oracle accountable.

In 2011, Oracle agreed to pay nearly $200 million to settle charges that it defrauded the U.S. government on a software contract. The Justice Department alleged that Oracle failed to tell the federal government about discounts available to other customers. The allegations initially were raised in a suit against the company under the False Claims Act, which provides financial rewards to private litigants who report alleged fraud against the government.

Kitzhaber urged U.S. Sens. Ron Wyden and Jeff Merkley to also use the authority of their offices to investigate Oracle's culpability. Wyden is chairman of the Senate Finance Committee.

Once the governor completed his testimony, several lawmakers asked him questions.

For instance, Rep. Chris Harker, D-Washington County, asked the governor if he was confident the state could file a lawsuit against Oracle and not jeopardize Oregonians' next enrollment, which begins Nov. 15. Kitzhaber said he was confident Oregonians would be able to receive insurance on time and suggested that he'd planned the timing of the lawsuit.

"We have now concluded our business with Oracle, the final contract has been signed," Kitzhaber said.

To that end, Sen. Alan Olsen, R-Canby, expressed his concern about the timing as well.

"My concern is that we're a day late and dollar short," Olsen said, while responding to the governor. "Why did we not have people in place, through the people you hired, that could have brought this problem out and got it solved when we needed to have it solved?"

Kitzhaber responded that he'd been "repeatedly assured" the Cover Oregon website would launch on time.

Rep. Dennis Richardson, R-Central Point, also raised questions. Richardson is not on the committee but is running against Kitzhaber for governor and has attended several recent JCLAIMT hearings.

Richardson questioned why Kitzhaber wasn't taking responsibility for what has been described as a "lousy" contract with Oracle, which only billed the company for its time and what it produced, rather than a finished product. Richardson also highlighted the fact that the state failed to hire a systems integrator, a sort of general contractor for IT projects, and instead decided to oversee its own project.

"There's no question that the combination of a failure to hire a systems integrator and time and materials contracts created a perfect storm on the state side that created this problem," Kitzhaber responded. "But no one can convince me that Oracle, with a straight face say, 'oh, we didn't know you hired us to produce a functional website.'"

At one point while responding, Kitzhaber hit his hand several times on the table and said, "You don't get to the be the second largest software company in the world with that attitude."

(Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

On Your Side Investigator Chelsea Kopta and KATU staff contributed.

Below is Oracle's full response to Kitzhaber's testimony Thursday:

"Contrary to the story the State is promoting, Oracle has never led the Oregon Health Exchange project. OHA and Cover Oregon were in charge and badly mismanaged the project by consistently failing to deliver requirements in a timely manner and failing to staff the project with skilled personnel. The Governor admitted as much in his statement, and these facts are supported by extensive documentation. We understand the political nature of the announcement just made and that the Governor wants to shift blame from where it belongs. We are proud of the work that we have done to enable over 420,000 Oregonians to enroll in health care. We look forward to an investigation that we are confident will completely exonerate Oracle."

Video: Kitzhaber's opening statement:

Video: Lawmakers question Kitzhaber on Cover Oregon:

Full coverage of the troubled Cover Oregon website: