Cognizant reaffirms guidance for FY 2015 after Health Net acquired by Centene

After the merger between Health Net and Centene, the seven-year master services agreement would not be implemented

Nasdaq-listed Cognizant is expected to take a $100-million loss in incremental revenue in the second half of this year.

Its master service agreement with California-based managed health care firm Health Net will not get implemented. It has reaffirmed its forecast for the year on hopes of strong demand and much better performance in other parts of its business. The company on Thursday said the earlier planned implementation of a seven-year master services agreement with Health Net would not take place after the latter was acquired by Centene Corporation. The agreement for end-to-end administrative services was announced in August 2014 and scheduled to begin in mid-2015.

FUTURE TENSE?

• Company reaffirms guidance due to ‘continued strong demand and projected over-performance in other parts of business’
• Its master service agreement with California-based managed health care firm Health Net will not get implemented
• Its revenue in FY15 is expected to be at least $12.24 billion

“Despite the anticipated loss of approximately $100 mn in incremental revenues during the second half of 2015, we are pleased to reaffirm our guidance (forecast) for the year due to continued strong demand and projected over-performance in other parts of our business. Today’s announcement by Health Net will not impact our ability to achieve our goals for the year,” said Karen McLoughlin, chief financial officer, Cognizant.

 

The company reaffirmed its 2015 financial year forecast, previously stated on May 4, that revenue is expected to be at least $12.24 billion. At the beginning of the year, it had projected its FY15 revenue to grow 19 per cent, to touch $12.21 billion.

It may be noted that in August, 2014, Gordon Coburn, president, Cognizant said, "The Health Net engagement is a seven year deal, and following contract finalisation and applicable regulatory approval, is expected to represent approximately $2.7 billion in total contract value, the largest in our history."

The company today said that it expects that if the merger of Health Net and Centene is completed, the existing master services agreement will not be implemented as there will likely be overlaps in services and capabilities planned to be provided by Cognizant.

“As we congratulate Health Net and Centene today, we look forward to continuing to partner with them to support their technology and operations requirements,” said Coburn today.

Last year, Health Net had announced the master services agreement with Cognizant Healthcare Services LLC, an indirect, wholly owned subsidiary of Cognizant Technology Solutions Corporation.  Cognizant was to provide consulting, technology and administrative services to Health Net, in areas including claims management, membership and benefits configuration, customer contact centre services, information technology, quality assurance, appeals and grievance services, and medical management support.

"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," said a press release issued by Health Net on November 3, 2014, while announcing the master services agreement.