Cognizant’s $2.7 billion acquisition of insurance software vendor TriZetto significantly increases its footprint in the healthcare industry, but the price is very steep considering the acquired company has about $700 million in annual revenue.

The buy itself is not surprising; Reuters announced a month ago that private equity firm Apax Partners--which bought TriZetto for $1.4 billion six years ago--was shopping the company and hoping to get as much as $3 billion.

Teaneck, N.J.-based Cognizant offers a suite of information technology services to companies in multiple industries including healthcare, which generates about 26 percent of revenue. The services include IT implementation, application development, analytics, consulting, quality assurance and business outsourcing services that include Medicaid management information systems, among other projects. It has extensive off-shore operations in nine cities in India. A Cognizant spokesperson told Health Data Management that the majority of its healthcare and life sciences work is in the United States.

TriZetto is best known for its suite of payer software products including core transactions processing and care management systems. The company, however, also conducts substantial business with health care provider organizations through its three claims clearinghouses—Gateway EDI, Claim Logic and NHXS. Substantially all of Trizetto's business is in the U.S. Together, the companies have more than $3.2 billion in healthcare revenue and serve 245,000 providers along with more than 350 insurers covering about 180 million lives.

But Cognizant gets a lot back for the high price paid. The company expects adding TriZetto will generate $1.5 billion in “potential revenue synergies” during the next five years.

Payer consultant Pat Kennedy, president of PJ Consulting in Rockville, Md., says TriZetto has traditionally been difficult for other vendors to work with as it sought to block the vendors from getting to its clients, but now Cognizant will have full access. That means it can integrate with TriZetto’s information systems--including the flagship FACETS enterprise core administration platform--and have access to TriZetto payer clients.

TriZetto also brings Cognizant access to more than 150,000 providers who use TriZetto for clearinghouse services, “including a great relationship with Epic sites,” Kennedy notes. The combined company also brings many opportunities for cost savings and revenue growth. So to Cognizant, TriZetto is worth the money being spent, he believes.

TriZetto has been slow to move to cloud-based hosting of information systems, which recently has cost them some contracts as providers and payers increasingly move away from standalone information systems and seek to have vendors manage data, says John Osberg, managing partner at Informed Partners LLC, a consultancy specializing in facilitating partnerships, acquisitions and divestitures.

“With payers having to cope with more change today than ever before, with the exception of the advent of Medicare, they need to have a stronger technology services company than TriZetto has been,” he adds. Consequently, Osberg expects Cognizant to quickly migrate TriZetto to the cloud. “There will be more usage of off-shore assets.”

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