(Bloomberg) -- Oracle Corp. tricked Oregon into signing $240 million worth of contracts for products and services to develop a health-care exchange that has never worked, state officials said in a $2 billion lawsuit accusing the software company of fraud and racketeering.

The state lobbed the case against Oracle and five executives including President and Chief Financial Officer Safra Catz two weeks after the company sued Oregon over $23 million in unpaid bills in a feud over who is to blame for the botched website.

Technical flaws in the “Cover Oregon” site, the portal to a $305 million state-run insurance exchange, caused thousands of consumers to file paper applications until the state gave up in April and directed enrollees to the federal website.

Oregon Governor John Kitzhaber, a 67-year-old Democrat who has come under political attack over the failed system, asked state Attorney General Ellen Rosenblum in May to take legal action against Oracle to recoup the state’s payments.

“The lawsuit filed today against Oracle by the Attorney General of Oregon is a desperate attempt to deflect blame from Cover Oregon and the governor for their failures to manage a complex IT project,” Oracle said in an e-mailed statement.

Oracle executives, including Catz, repeatedly said the system would be ready in 2013 and then earlier this year, all the while demanding to be paid, Oregon’s lawyers said in the complaint filed yesterday in state court in Salem, the capital.

Catz Meeting

In February, Catz said in a meeting with state officials that the system was almost ready to begin operation, and in April claimed in a letter that the “functionality required to enroll the vast majority of Oregon residents is operational,” both of which were false, according to the lawsuit.

Oracle, hired in 2011 to build the insurance exchange and modernize the state’s social-service computer systems, missed deadlines, did shoddy programming work and hid that the products it recommended for the project didn’t work together, creating the need to use custom-made software, according to the complaint.
Oregon is seeking repayment of the $240 million and more than $2 billion in penalties under the state’s false-claims, breach-of-contract and racketeering laws.

Rosenblum said in an e-mailed statement that Oracle “repeatedly lied and defrauded the state.”
Oracle, the primary developer responsible for setting up Oregon’s health-insurance exchange website under the Patient Protection and Affordable Care Act of 2010, said in its Aug. 9 lawsuit that the state continued to ask for its help while criticizing its handling of the site.

The case is Oregon v. Oracle America, 14C20043, Circuit Court of Oregon, Marion County (Salem).

--With assistance from Alison Vekshin in San Francisco.

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