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TriZetto Going After Big-Name Customers, Red Ink Narrowing

TriZetto Going After Big-Name Customers, Red Ink Narrowing

By VITA REED

TriZetto Group Inc., the Newport Beach-based healthcare technology company, is going after large healthcare organizations as a way to grow revenue and turn its first profit.

“In the second quarter, we signed new contracts with a total value of $74.1 million, including contracts with UnitedHealth Group Inc.,” said Jeffrey Margolis, Tri-Zetto’s chief executive, in a recent financial release.

TriZetto didn’t give specifics but said the pacts with United-Health were the largest deals signed in the second quarter. Minnetonka, Minn.-based UnitedHealth counted sales of $23 billion last year. Getting larger customers “was one of the things our shareholders asked of us,” Margolis said. “They wanted us to move up-market.”

Up to now, TriZetto has mainly attracted smaller healthcare providers. The company helps health plans, benefits administrators and doctors manage data by providing software and developing Web sites for insurers and provider groups. Clients pay a monthly fee to the company.

Going after larger clients has “pluses and minuses,” said David Francis, a healthcare technology analyst with Jefferies & Co.’s Nashville, Tenn., office. On the up side, “When you land a large insurance company as your client, you typically ensure a fairly robust revenue stream for several years. It makes it easier to manage your revenues and your expenses.”

The down side, according to Francis: large insurers take more effort to court and take longer to make a decision.

“You could be waiting several months, several quarters, for the deal to get signed,” he said. “Also, bigger deals attract more competition.”

Margolis, on the other hand, said that TriZetto didn’t necessarily have to wait for one central decision because large organizations have many parts that are potential customers. In a report issued last week, Francis called the UnitedHealth contracts early evidence that TriZetto was meeting its goal of winning more business from “behemoth” payers.

Picking up contracts with the UnitedHealths of the world “is going to be an important part of their strategy,” said Raymond Falci, an analyst with Bear, Stearns & Co. According to Falci, TriZetto has improved its software and other products, particularly with the company’s midsize customers.

Large health plan payers such as UnitedHealth, WellPoint Health Networks Inc. of Thousand Oaks and Anthem Inc. of Indianapolis are becoming more likely to outsource portions of their technology operations, Falci said in a June research note.

“Further, we see clear opportunity for (TriZetto) to use this ‘foot-in-the-door’ to provide a broader range of services to the parent,” he wrote.

“UnitedHealth’s HMO business has gotten so much more complex,” Falci said when asked why companies such as UnitedHealth would seek the services of TriZetto.

Because of enrollment growth, along with having to deal with Medicare and other government regulations, UnitedHealth and other large HMOs “need to keep upgrading their IT capacity,” he said.

“You have to ask, am I an IT company or am I a HMO company? If I’m a HMO, let me do that and outsource the IT,” Falci said.

TriZetto is providing its core Facets program and other software for businesses in UnitedHealth’s specialized care services division under one of the contracts. The other deal is a licensing and software support deal under which TriZetto will provide maintenance and support for CommerceBroker, a software application that automates transactions between payers and insurance brokers.

Channel Point Inc., Glendale, Colo., developed CommerceBroker; TriZetto acquired personnel, intellectual property and assets from Channel Point earlier this year.

TriZetto mentioned the UnitedHealth and other contracts in the context of its second-quarter financial results. For the quarter, the company posted a net loss of $3.7 million on revenue of $66.8 million, which was up 25% from a year ago. In the same period last year, TriZetto lost $15 million. The company counted a market value of around $275 million as of last week.

In the release, Margolis said the results showed TriZetto “continued to make steady, consistent progress toward profitability, as has been our pattern since going public in 1999.”

TriZetto said its more than 550 customers represent 40% of the country’s population with health insurance. Rivals range from Perot Systems Corp. of Plano, Texas, and Cerner Corp. of Kansas City, Mo., to big consulting firms.

In the past, TriZetto had to battle against the so-called dot-com stigma. TriZetto, along with more traditional Internet companies, saw a large run-up in its stock after going public about three years ago. TriZetto’s stock crashed after a proposed deal to buy IMS Health Inc., a healthcare information giant from Westport, Conn., was scrapped.

Instead, TriZetto instead acquired IMS subsidiary Erisco in 2000. IMS owns around 12.1 million shares of TriZetto as a result of the transaction.

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