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Oct 2015 - Perspective - Doc # HI259498

Perspective: Cognizant Worries About Losing Centene Contract; Cognizant's Competitors Should Worry About Much More Than Losing Single Contracts

Authors: Sven Lohse, Xiao-Fei Zhang
Abstract

The leaders of the giant IT outsourcing and BPO firms — from Accenture through Wipro — are likely still struggling to control the fallout from the wave of health insurance payer consolidation from the summer. Deals that grabbed summer headlines include Anthem-Cigna, Aetna-Humana, and Centene–Health Net. Cognizant likely has not found satisfaction with respect to the fallout from the Centene–Health Net deal, announced July 2, 2015. Centene's CEO Michael Neidorff said he would upset the record seven-year, $2.8-billion outsourcing deal that Cognizant had struck with Health Net in the months prior. Cognizant is likely still in crisis mode because of Centene CEO's intentions to in-source the IT functions in question rather than outsource them to Cognizant.

By the time the Centene–Health Net deal closes in early 2016, Centene senior management may very well have decided to reverse or significantly roll back the massive Health Net and Cognizant deal (previously due for regulatory approval in early July 2015). Centene's business is largely in Medicaid and Medicare business, lending weight to arguments that Health Net's comparable business should be combined in onshore processing facilities. In addition, Centene's CEO has said that the new Centene–Health Net entity can save the same amount that Cognizant promised to save Health Net in its seven-year master agreement ($150 million to $200 million annually) plus an additional $150 million annually by moving the acquired Health Net IT services onto the Centene platform.

While highly worrisome for Cognizant in the near term, these worries likely shouldn't be equated with the consternation that must be stalking Cognizant's smaller IT outsourcing competitors. Less entrenched IT outsourcing firms have to be even more worried — and not necessarily about the prospect that M&A deals will blow up existing contracts. Instead, the smaller and less entrenched competitors have more to fear than Cognizant that more payer consolidation will drive rationalization of portfolios of IT outsourcing service providers within any additional payers preparing for M&A.

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