Genex Buys Intracorp: More than Just Another Deal

Thursday, November 11, 2010 | 0

By Joe Paduda
Health Strategy Associates and CompPharma

In what has to go down as the worst-kept secret in the investment community "EH-ver" (say out loud like a 14-year-old female), Genex announced today that they will buy Intracorp's workers' comp business from Cigna.

I'm particularly pleased, as I predicted this as an addendum to my annual "Hope I don't Make a Fool of Myself with these Predictions" post, and time was running short.

So what's the deal.

Well, Intracorp has some pretty solid management folks who may be looking for jobs soon. Despite a notable lack of investment (and attention) from mother Cigna, they've managed to keep body and soul together, won back a bit of business and done some pretty innovative things in the network area. If you're looking for talent...

Genex has to grow or its private equity owners will be very unhappy and buying a competitor is a time-honored and pretty effective way to do that in what is an overly-mature market dealing with declining claims volume and too many vendors chasing too many of those claims.

There's a larger lesson to be learned here, one straight out of "The Innovator's Dilemma" (as long time readers know, my favorite business book).

This more-than-a-theory holds that companies that are very successful in their fields keep improving their products, believing that what their customers want is more and better versions of the same. What these companies don't do is think up new ways of meeting their customers' needs; ways that are cheaper/faster/easier. Instead, they work diligently on making their existing product a tiny bit better every year. And in the process, they don't pay attention to what their customers actually need the problem they are trying to solve.

Intracorp dominated the managed care world in the mid-eighties, believing its business was nurse case management. It owned the space for at least a decade afterward. Upper management made a couple ill-fated attempts to get into the network business, neither of which had adequate commitment or resources behind it. As the comp managed care business became increasingly network-centric, IC was relegated to renting other vendors' networks.

At first that was fine. But as time went on, the networks got more powerful, and the case management companies (which was really what IC was) woke up one day and found out they were no longer driving the bus.

Intracorp also failed to commit to a serious upgrade of their original, in-house, homegrown bill review system, patching it together and struggling along until the wheels finally came off and they had to switch to a third-party system. By then, it was too late. Several large customers had left, and when ACE/ESIS started to move away, the writing was on the wall.

Why?

I'd posit that Intracorp didn't understand its real business was managing medical costs. It thought it was in the case management and bill processing business a typical product/service centric mistake made every day probably by most of the companies in this space.

What does this mean for you?

What business are you in? If you just said something about what you do, you're wrong. You are in the business of solving a customer's problem. And there may well be other products and services out there, or in development, that also attack that problem.

Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers, and owner of Health Strategy Associates, an employer consulting firm in Connecticut. This column was reprinted with his permission from his blog, http://www.managedcarematters.com