It’s not as though no one was paying attention to the Teaneck, N.J.-based Cognizant before September 2014. After all, the company had already been making waves as a provider of IT services across many industries, with an already-significant presence in the health insurance world.
Still, the announcement that Cognizant (number 5 on the Healthcare Informatics 100 list, with $2,689,427,000 in U.S. healthcare revenues in 2014), was acquiring the Englewood, Colo.-based TriZetto for $2.7 billion in cash was seen as some in the industry as a harbinger of things to come, as the concepts of managed care, population health, and accountable care, begin to blend together, with health insurers and providers collaborating to manage patient’s care, and as providers take on more financial risk, in the broad effort to improve outcomes and cut costs in U.S. healthcare.
As a report in Bloomberg Business put it on Sep. 15, the day the news broke, “Cognizant, one of the largest providers of outsourcing services, is tackling its biggest-ever acquisition to bulk up in information technology that helps providers streamline processes, improve the cost and quality of care and cope with an industry overhaul. The takeover follows Cognizant’s 11 percent share decline this year, driven largely by the company reducing its annual revenue forecast in August because of tech-service deals taking longer to close.”
Meanwhile, in a Sep. 17, 2014 analysis of the acquisition announcement entitled “How Cognizant’s TriZetto Deal Could Trigger the Next Wave of Consolidation in the IT Services Industry,” Harichandan Arakali wrote in the International Business Times online, “There is an accelerating shift in customer expectations: they want vendors to move from merely deploying software packages and maintaining them to implementing technology solutions that solve real business problems and provide additional value, such as insights that can drive new revenue streams.”
In addition, Arakali wrote, “TriZetto’s cloud-based software-as-a-service platform for hospitals accounts for about 20 percent of its revenues, Cognizant's president Gordon Coburn told analysts on a call on Sep. 15, after the deal was announced. Further, including software licenses for packages used by insurers, about 60 percent of TriZetto’s sales represents recurring revenue, he said.” What’s more, Arakali wrote, “Cognizant is setting the pace in acquiring the intellectual property in terms of software around which its... services team can go where Indian outsourcing services providers have never gone before.”
Krish Venkat, president, Global Healthcare & Life Sciences, at Cognizant, says the acquisition of TriZetto fits in perfectly with the company’s broader trajectory. “What Cognizant is trying to do is obviously synchronize to where we believe the industry is heading, and where the various participants in the healthcare ecosystem are making their moves,” he says. “When you look at changes in the Affordable Care Act, they’re forcing many changes: the lines are blurring between payers and providers; a lot of consolidation is occurring; a lot of providers are taking on more risk to fully become health systems; and there’s a lot of consolidation on the payer side as well.”
Venkat says that while Cognizant was already all in, in terms of the provision of IT services for health insurers, “One of the things we didn’t have in our repertoire, as late as last year—one aspect we see emerging, and we didn’t have the full suite of product offerings—when we look at large and small customers and those in between, we look at the challenges we have in terms of what is imposed on them under the ACA [Affordable Care Act], in terms of the administrative costs and medical loss ratios. And many health plans are operating with dated technologies—and they have a smaller footprint, and want to have the support of somebody with a much larger challenge.” In other words, he believes that many health insurers, in order to expand their capabilities in their markets, will need the kinds of enabling services that the combined Cognizant/TriZetto can offer.
Observers See Opportunities
Industry observers see Cognizant’s trajectory, post-TriZetto-acquisition, as one offers great opportunity for the company—along with certain specific challenges. Ben Rooks, an industry analyst and observer who heads up the ST Advisors consulting firm based in Northern California, and who in the past provided consulting expertise to Cognizant executives, says, “Cognizant has a great asset in that they are providing services to probably nine out of the top ten payers. Traditionally, the services were outsourcing services.” After a series of complicated business moves, TriZetto acquired a very important asset, a core claims processing system that helped turn the company into a “powerhouse,” as he puts it. What’s more, he says, “Cognizant and TriZetto were both originally spun out of Dun & Bradstreet, so by acquiring TriZetto, they basically reintegrated things. It was a very smart move; and now they’re one of the very dominant payer services companies. They’ve got services and they’ve got product; they’re positioned to be one of the top players in the space.”
As for challenges, Rooks says that “I think for a predominantly IT sourcing services business, to acquire a more traditional software business is always challenging. So I think the biggest challenge is for an IT outsourcing organization acquiring a software company, the cultures are different, the business styles are different and the margin profiles are different. That probably drives a lot of it.”
Still, he adds, “The biggest opportunity is that they really can provide a 360-degree solution to their health plan customers. And the nature of a health plan is becoming more blurry. Deb Gates, the CEO of MEDecision, talks about ‘pay-viders,’” Rooks says. “So, say that I’m a multispecialty medical group taking on $150 million in risk contracts, am I a payer or a provider? So the ‘payer’ market really is growing, but it’s also consolidating; and meanwhile, lots of hospitals and medical groups are taking on risk, which is blurring the lines.”
Customer executives are both intrigued and excited by the company’s trajectory. “I do think it’s a very interesting company, just because of the depth of skill involved; and it’s a very large company,” says Lee Marley, senior vice president and CIO at the eight-hospital Presbyterian Health Services in Albuquerque (a spokesperson for Cognizant confirmed for HCI that Cognizant currently encompasses 217,000 employees worldwide). “And,” she adds, “with the acquisition of TriZetto, that really does make them very interesting to watch. And any vendor with provider and plan expertise is going to be able to bring those companies together in ways that companies that don’t have both of those sets of expertise won’t be able to do.” She describes her organization’s relationship with the company as “a very long-standing, successful” one.
Going forward, Cognizant’s Venkat sees two very broad areas of opportunity for the company. “One area is with provider organizations, as they take on greater risk and develop accountable care and population health initiatives,” he says. “Population health is certainly one area where we’ve developed a solution, and we’re integrating that with the TriZetto platform.” The other broad area of opportunity, he says, is in what he calls “consumerism”—the broad range of health plan member engagement possibilities around “improving consumers’ ability to select plans,” and to better manage their interactions with health plans.
Some aspects of the population health trajectory yet remain to be fully sketched out. But it’s a good bet that a company with a full range of both IT services and software capabilities, and one able to help both traditional health insurers and the newer risk-bearing provider organizations, will be well-positioned going forward into the new healthcare.