CODE BLUE AT OXFORD

By Stacy Perman

Even against the backdrop of last week's staggering market slide, the dive of Oxford Health Plans' stock was spectacular. Oxford, long considered the healthiest managed-care organization in the U.S. and the envy of the industry, went into cardiac arrest when an unexpectedly poor earnings forecast sent its stock crashing more than 62%, from $68 to $26--the worst performance in a day that saw some beauts.

What went wrong? Just about everything. Three days earlier, the Connecticut-based HMO discovered that it was hemorrhaging money through a computer glitch that had caused the company to overestimate its membership enrollment and miscalculate the costs of medical care. The problem first surfaced 14 months earlier, which led to payment delays , but in August chairman and founder Stephen Wiggins agreed to pay all outstanding claims and pronounced the computer system cured. It wasn't, and Wiggins had the bad luck to announce that Oxford would have to take a charge of some $50 million against earnings on the very day the whole market collapsed. Investors fled en masse, making Oxford the most traded stock in a record-setting rout. "It's difficult to stumble and be humbled so publicly," says Wiggins.

It was even harder for Oxford's investors. Seth Resnick, 40, a Boston photographer, lost $32,000 on his 800 Oxford shares, the bulk of it in college accounts for his two daughters. "I was on a plane when I heard the share price," he says. "I thought, 'I don't remember hearing that it had split.'" Chairman Wiggins, for his part, exercised 420,000 options in July and sold shares worth $15.3 million more in August, just weeks after the shares reached a record high--although he still lost more than $115 million (at least on paper) in last week's bloodletting.

Oxford's grand mal was all the more extraordinary because the company had been a textbook success story. Wiggins, fresh from Harvard Business School, started Oxford out of his bedroom in 1984. While other HMOs antagonized doctors, Oxford nurtured its relationship with physicians, allowing patients to visit out-of-network doctors for an additional fee. Oxford emphasized flexibility and quality care while pioneering innovative coverage for alternative therapies such as acupuncture and yoga. Its network swelled to 36,000 physicians and 1.9 million members--109,100 of them recruited in the past three months alone. "People have been clamoring for Oxford," says the benefits director of a large New York City company. "It's the only network where doctors say, 'Get your company to go with Oxford.'"

As the rest of the market began to rebound last week, Oxford was still reeling, closing at $25.81. Its earlier computer snafu nearly ruined its relationship with network doctors and hospitals, and this week the company is expected to announce a grim earnings prognosis: its first quarterly loss ever--about $65 million--and revenues $111 million lower than anticipated. "It takes a long time to rebuild the credibility of a company," says Erik Anderson of Sit Investment Associates in Minneapolis. "Investors will have to be shown that it has really recovered from all its problems."

--By Stacy Perman