Health Net Enters into Seven-Year Master Services Agreement with Cognizant

LOS ANGELES--()--Health Net, Inc. (NYSE:HNT) today announced that it has entered into a master services agreement with Cognizant Healthcare Services, LLC, an indirect, wholly owned subsidiary of Cognizant Technology Solutions Corporation (NASDAQ:CTSH) (Cognizant), a leading provider of information technology, consulting and business process services.

Health Net previously announced on August 6, 2014, that it had signed a Letter of Intent with Cognizant as part of Health Net’s commitment to address its scale issue and reduce administrative costs.

Under the terms of the seven-year master services agreement, Cognizant will provide consulting, technology and administrative services to Health Net in the following areas: claims management, membership and benefits configuration, customer contact center services, information technology, quality assurance, appeals and grievance services, and medical management support. As part of the agreement, Cognizant will be responsible for meeting specific targets for improving the quality, effectiveness and efficiency of many of Health Net’s operating metrics. Such metrics include claims processing and routing times, customer contact center response times, and contact center customer satisfaction targets.

Under the agreement, the services Cognizant will provide must meet all regulatory compliance requirements, which will be monitored through Health Net’s dedicated governance and oversight structure.

In addition, Health Net and Cognizant have entered into an asset purchase agreement for the sale of certain Health Net software assets and related intellectual property to Cognizant, including Health Net’s technology platform. Cognizant expects to use and develop this technology platform to provide enhancements to Health Net’s operations.

The master services agreement is currently expected to generate approximately $150 to $200 million in annual general and administrative and depreciation expense savings by 2017. During its third quarter 2014 earnings conference call on November 3, 2014, the company will provide more details as to the timing of the expected savings.

The master services agreement is expected to accomplish several goals:

  • Continue and enhance Health Net’s delivery of high service levels for Health Net’s members and providers;
  • Create new opportunities for innovation in Health Net’s products and services;
  • Strengthen Health Net’s technology platform;
  • Allow Health Net to more efficiently use its capital resources; and
  • Enhance Health Net’s ability to effectively meet all regulatory and health care reform compliance requirements.

“What’s important about this new agreement with Cognizant is that there are specific, measurable outcomes that we believe will contribute to reduced administrative costs and support future growth and innovation,” said Jay Gellert, president and chief executive officer of Health Net.

“Once implementation begins, we will pay Cognizant on a fixed fee basis. We will eventually pay Cognizant on a per member per month basis. With such predictable costs for us, we believe we will achieve the necessary scale advantages to enhance our product development and service capabilities, thus strengthening our competitive position for the long term,” he added.

The transaction, including the related asset purchase, is expected to close in the first half of 2015, subject to receipt of required regulatory approvals.

About Health Net

Health Net, Inc. is a publicly traded managed care organization that delivers managed health care services through health plans and government-sponsored managed care plans. Its mission is to help people be healthy, secure and comfortable. Health Net provides and administers health benefits to approximately 5.9 million individuals across the country through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as “Part D”), Medicaid, U.S. Department of Defense, including TRICARE, and Veterans Affairs programs. Health Net also offers behavioral health, substance abuse and employee assistance programs, managed health care products related to prescription drugs, managed health care product coordination for multi-region employers, and administrative services for medical groups and self-funded benefits programs.

For more information on Health Net, Inc., please visit Health Net’s website at www.healthnet.com.

Cautionary Statements

The company and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act (“PSLRA”) of 1995, including statements in this and other press releases, in presentations, filings with the Securities and Exchange Commission (“SEC”), reports to stockholders and in meetings with investors and analysts. All statements in this press release, other than statements of historical information provided herein, may be deemed to be forward-looking statements and as such are intended to be covered by the safe harbor for “forward-looking statements” provided by PSLRA. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to changes in circumstances and a number of risks and uncertainties. Without limiting the foregoing, statements including the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend,” “feels,” “will,” “projects” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those expressed in, or implied or projected by the forward-looking information and statements due to, among other things, health care reform and other increased government participation in and taxation or regulation of health benefits and managed care operations, including but not limited to the implementation of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA") and related fees, assessments and taxes; the company’s ability to successfully participate in California’s Coordinated Care Initiative, which is subject to a number of risks inherent in untested health care initiatives and requires the company to adequately predict the costs of providing benefits to individuals that are generally among the most chronically ill within each of Medicare and Medi-Cal and implement delivery systems for benefits with which the company has limited operating experience; the company’s ability to successfully participate in the federal and state health insurance exchanges under the ACA, which have experienced technical challenges in implementation and which involve uncertainties related to the mix and volume of business that could negatively impact the adequacy of our premium rates and may not be sufficiently offset by the risk apportionment provisions of the ACA; increasing health care costs, including but not limited to costs associated with the introduction of new treatments or therapies; our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance, including through our master services agreement with Cognizant; whether we receive required regulatory approvals for Cognizant’s provision of services to us and any conditions imposed in order to obtain such regulatory approvals; our ability to recognize the intended cost savings and other intended benefits of the Cognizant transaction; and the risk that Cognizant may not perform contracted functions and services in a timely, satisfactory and compliant manner; negative prior period claims reserve developments; rate cuts and other risks and uncertainties affecting the company’s Medicare or Medicaid businesses; the company’s ability to successfully participate in Arizona’s Medicaid program; trends in medical care ratios; membership declines or negative changes in our health care product mix; unexpected utilization patterns or unexpectedly severe or widespread illnesses; the timing of collections on amounts receivable from state and federal governments and agencies, including collections of amounts owed under the T-3 contract; litigation costs; regulatory issues with federal and state agencies including, but not limited to, the California Department of Managed Health Care, the Centers for Medicare & Medicaid Services, the Office of Civil Rights of the U.S. Department of Health and Human Services and state departments of insurance; operational issues; changes in economic or market conditions; failure to effectively oversee our third-party vendors; noncompliance by the company or the company’s business associates with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized use or disclosure of confidential information; impairment of the company’s goodwill or other intangible assets; investment portfolio impairment charges; volatility in the financial markets; and general business and market conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included within the company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the SEC and the other risks discussed in the company’s filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by law, the company undertakes no obligation to address or publicly update any forward-looking statements to reflect events or circumstances that arise after the date of this release.

Contacts

Investor Contact:
The Abernathy MacGregor Group
David Olson, 818-917-1469
dwo@abmac.com
or
Media Contact:
Health Net, Inc.
Brad Kieffer, 818-676-6833
brad.kieffer@healthnet.com

Contacts

Investor Contact:
The Abernathy MacGregor Group
David Olson, 818-917-1469
dwo@abmac.com
or
Media Contact:
Health Net, Inc.
Brad Kieffer, 818-676-6833
brad.kieffer@healthnet.com