For those following the healthcare IT market, you will more than likely already be aware of what has happened between Cognizant and Health Net. For those who are not, I shall quickly set the scene.
In August 2014, Cognizant won a seven year, $2.7b engagement with California-based care management provider Health Net. Service was due to commence in the second half of 2015 but in July, it was announced that Centene Corporation was intending to acquire Health Net, which would delay the contract until after the merger had been completed and may not even go ahead at all due to the overlap with Centene's current IT services vendor landscape. Cognizant instead was able to extend its existing applications outsourcing (AO) and business process outsourcing (BPO) services for Health Net out till 2020 at a value of $520m as well as being able to licence some of Health Net's IP.
So what can we learn from this?
All IT service providers must be on red alert: The chart at the top of this page was produced by Everest (link to the article at the bottom) and shows how deeply entrenched IT vendors are within Healthcare Payer organizations. This chart acts as a warning to all vendors that they should be wary of their current client base and how it could potentially be affected by a merger/acquisition.
The Healthcare Payer ecosystem is shrinking: Centene's intent to acquire Health Net is just one of a series of acquisition announcements in the Healthcare Payer market this year. This was followed by Aetna's $37b purchase of Humana as well as Anthem's $54b purchase of Cigna. Suddenly, we're faced with a market where the top 7 have consolidated into a top 4 in a matter of weeks. There's even speculation that UnitedHealth Group may put in a counter offer for Health Net, which, if higher, would dissolve Centene's offer. These deals have been driven by market changes such as the Accountable Care Act (ACA) and the Supreme Court’s recent decision to subsidize poorer Americans. Keep an eye on UnitedHealth Group to see what its next move will be.
Consolidation equals both opportunities and threats for IT service providers: Although Cognizant's deal may have gone sour after the announcement, it looks as though they will survive after renegotiating the existing AO & BPO contract. As other Payers consolidate, existing deals may come under threat and clients may look to consolidate their vendor landscapes but new opportunities will arise as the newly merged organizations require IT support to ensure the transition goes smoothly and that IT systems are integrated properly.
Thank you once again for taking the time to stop by, I hope you found this interesting and thought provoking. If you have any comments, feel free to leave them below and share via social media.
Best Regards,
Jonathan Cordwell
Research Analyst, Healthcare Strategy
ResearchNetwork, CSC
- Everest, Health Net – Centene Merger Leaves a (Slightly) Bitter Pill for Cognizant, 6th July 2015, http://www.everestgrp.com/2015-07-health-net-centene-merger-leaves-a-slightly-bitter-pill-for-cognizant-sherpas-in-blue-shirts-18205.html
I recently saw an infographic from Genpact (available here) on the top concerns for Payers and found it very interesting and insightful. The survey was conducted across 920 senior executives in Payer organizations in North America.
The survey found that the top three concerns were: Compliance, Customer Satisfaction and Cost Reduction. It then goes into what solutions Payers believe would have a material effect on these concerns. At this point, I'd like to present the data in a slightly different way. The table below shows the percentage of survey respondents who believe that the solution on the left can have a material impact on the top three concerns at the top.
* Colours represent heat mapping from low response % (red) to high response % (green)
There are several ways of looking at this but one of the biggest takeaways for me personally is in the BI & Analytics row.
Almost 3/4 of survey respondents believe that BI and Analytics can help reduce costs. This may not be where your eye is immediately drawn to from this table but when you read further down, it then shows you that Payers' BI & Analytics capabilities are still viewed as immature by almost a third of respondents and that 40% believe they are unprepared. It seems as though, even across industries, we have only just scratched the surface of what is possible through the use of analytics and so it is understandable that Payers will require support to achieve the full potential of this solution area.
If we work our way down the infographic, we then see that 51% of respondents believe that an improved use of Information Technology can have a material impact on the function and that 70% have initiatives underway in BI & Analytics. Although this is a large percentage, why isn't it higher? Presumably, some Payers are holding back to see what lessons are learned by early adopters but at this stage, surely they are risking falling behind the pack.
If we finally look at the last two rows, interestingly we find that respondents do not believe that BI & Analytics doesn't necessarily require Business Process Re-engineering or Advanced Organizational Structures. Other areas such as Customer Service and Claims Processing & Adjudication score much higher as necessary for improvement.
If we therefore look at BI & Analytics in its entirety, in regards to this infographic, we see that the potential value to the Payer is huge as is the opportunity for IT vendors to support them in making this a reality.
Best Regards,
Jonathan Cordwell
Research Analyst, Healthcare Strategy
ResearchNetwork, CSC
- Genpact, Healthcare COO’s untapped strategic lever: Advanced operating models, http://www.genpact.com/docs/resource-/healthcare-coos-untapped-strategic-lever-advanced-operating-models
