Insurer sues, claims KPMG mismanaged billing project

Health insurer Highmark Inc. is suing KPMG Consulting Inc. for what is likely to be tens of millions of dollars over what it claims was the consultancy's failure to create a critical electronic billing and accounts-receivable system. Highmark said KPMG abandoned the two-year, US$15 million project this summer after it missed deadlines and created cost overruns through mistakes.

The $5 billion insurance company brought six charges against McLean, Va.-based KPMG Consulting, including malpractice, fraud and breach of contract. In its complaint, filed Nov. 2 in U.S. District Court in Alexandria, Va., Highmark said KPMG Consulting ran behind schedule by more than a year and attempted to charge the insurer an additional $8 million to complete the first phase of the project.

"We're still calculating what we're going to need should we move forward on the project," said Highmark spokesman Bill Miller. "What we're telling people at this point is that Highmark is alleging it suffered tens of millions [in losses] as a result of this." The amount of damages being sought wasn't specified in the lawsuit.

Pittsburgh-based Highmark claims that KPMG completed less than 20 percent of the project and that it was done in an unsatisfactory manner, "despite receiving $12 million." The insurer says KPMG then abandoned the project, leaving Highmark to complete it.

Assigning Blame

KPMG responded to the charges last week by placing at least half the blame on Highmark.

"Most of our engagements are collaborative between us and our clients. Each of us bears an equal responsibility to help the project succeed or fail," said KPMG spokesman John Schneidawind. "If either party fails to deliver, it can break down.

"We've been able to deliver on our part of the project, but through much of the engagement, Highmark hasn't done its part to ensure a successful implementation of the payment system on time and on budget," Schneidawind said.

Highmark chose KPMG for the project in May 1999. The four-stage project, known as HighBAR, was supposed to be completed in the first quarter of next year but never went beyond the second stage.

Highmark said KPMG informed it in April for the first time that it would need another $8 million to complete the first stage of the project.

Highmark refused to pay the additional fees, and KPMG stopped work on the project in mid-June. That was the most "disruptive point" at which KPMG could have chosen to stop, because Highmark was attempting to move into the "production portion of the system [KPMG] allegedly completed," according to Highmark.

Schneidawind last week said that because KPMG had only received the complaint a day earlier, it wouldn't be able to elaborate on its position. However, "lawsuits are a part of doing business," he said. "We still hope to rectify the problem and stand ready to work with them if they want us to."