DeNovis Inc. of Lexington shut its doors yesterday, sending all 110 employees home and washing away $125 million in venture capital and years of effort to overhaul the way medical claims are paid, executives involved in the shutdown said.
The software maker's demise marks a setback for three large clients, including the federal government. The Centers for Medicare and Medicaid Services was a DeNovis client, and had been more than a year into testing new technology to handle $1 billion in claims paid daily for senior citizens. Locally, Tufts Health Plan also had been testing the DeNovis system, which was designed to eliminate common administrative errors that cause waste and delays in most claims-paying programs. Industry analysts say poor technology eats up one-third of every healthcare dollar.
''It's disappointing," said Catherine Grant, a spokeswoman for Tufts Health Plan in Waltham. ''The goal of their work was to develop an innovative claims-paying system. That would have put us far ahead." Tufts has continued to work on improving its systems, and will see no disruption in its claims paying, Grant said. But DeNovis would have provided a great leap forward: the ability to pay claims instantly, as they come in the door, from doctors and hospitals; and to settle basic questions of coverage and plan eligibility when patients arrive at a physician's office. Further, the DeNovis system used plain English, instead of the typical arcane codes that dominate the claims business.
Bradford C. Burkett, the firm's chief executive, did not return a call seeking comment yesterday afternoon. In a Boston Globe interview in January, he had indicated that the company's financial performance was a pressing concern. He said the $22 million in venture capital the company raised nine months ago was effectively its last chance.
But having spent such a large sum of venture capital, DeNovis needed to go public or find a deep-pocketed buyer to return a large profit to its investors. Burkett said at the time, ''I only hear that about 11 times a day."
Venture capitalists have long shied away from healthcare-related start-ups, because the problems in the system are so vexing. Yet DeNovis managed to raise more than $100 million from well-known venture firms, such as Advanced Technology Ventures and Audax Group, because its technology seemed promising and the market potential appeared vast.
Executives at DeNovis's biggest venture backers did not return telephone calls yesterday.
One former DeNovis executive, who spoke on condition of anonymity, said the company spent too much money in its early years, in 2000 and 2001. Michael A. Carusi, a general partner at Advanced Technology Ventures, said as much in a January interview: ''They probably spent money in some places they didn't have to."
But at that point, Carusi said, he was sticking with the company. ''We still see a tremendous opportunity in trying to come up with a solution to automate the processing of claims."
So did the government. In early 2003, the Medicare agency committed to a contract worth as much as $100 million over the coming years with DeNovis and its larger partner, IBM. DeNovis's board and the head of Medicare at the time, Ruben J. King-Shaw Jr., had gathered in late January to celebrate the deal at Grill 23, the upscale Back Bay steakhouse.
But software takes more than a year to test, and Medicare wasn't scheduled to start processing claims across its offices on DeNovis's system until 2005. DeNovis was not going to be able to hang on long enough to get paid, the executive said.
Gary Karr, a spokesman for Medicare, said the agency still has its relationship with IBM and that finding a way to redesign the claims system ''will continue to be important." But for now, the innovative work DeNovis was doing is at a standstill.
DeNovis executives are hopeful, people involved in the company said, that its technology will be purchased by another company.
Beth Healy can be reached at bhealy@globe.com.