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 afterwards. 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.
Nov
4
This is what drives me nuts about the Internet…anyone with a blog can pontificate about things they know very little (if anything) about and the world assumes they are experts.
Joe, as someone who spent the better part of two decades at IC, including those “dominating” mid-eighties, I can tell you with absolute certainty that their eventual problems had nothing to do with The Innovator’s Dilemma.
The company was not somehow obsessed with WC case management just because their founder, George Welch had invented the idea for our industry. Intracorp’s leadership always understood that they were in the business of managing their clients’ claim costs. And not just medical costs, but also indemnity costs, as their several hundred vocational counselors would surely attest. The problems the led to the end of Intracorp’s leadership in the industry had nothing to do with an Innovator’s Dilemma, but everything to do with their parent company.
At first, Intracorp (originally IRA) was owned by INA, an insurance company that actually wrote WC and P&C business. Shortly after the merger with CT General that created CIGNA, the parent company decided to sell off most of its P&C business (thus creating ACE). Intracorp remained behind within its predominantly healthcare-oriented parent despite the fact that the majority of Intracorp’s revenues still came from the WC market.
Initially, it did not matter that Intracorp’s core markets were not aligned with those of its parent, but over time it became increasingly difficult to convince that parent to invest in product and services that did not apply to the healthcare market. Once CIGNA divested itself of its WC portfolio, they had no interest in continuing to invest in products that were unique to the WC space. Hence the loooonnnnggg delay in upgrading their in-house bill review software.
Likewise, CIGNA was never really interested in re-contracting their provider network to incorporate WC (which would have dramatically changed Intracorp’s position in the WC PPO battle), simply because the massive effort it would have required would not have benefited CIGNA’s core businesses.
Th only product area that CIGNA was willing to let Intracorp continue to invest in was the case management & UR business, because those investments had direct benefits to CIGNA’s healthcare and disability product lines.
Fundamentally, its relationship with a healthcare-oriented parent disconnected from the WC market is what led to Intracorp’s long decline. In many ways, I see the same thing playing out now with the former Concentra operations that were swallowed by Coventry. The true lesson here isn’t from The Innovator’s Dilemma, but from George Santayana…”Those who cannot remember the past are condemned to repeat it.”
Fed up – thanks for the comment and insights into the situation. Your experience and knowledge of the situation is impressive. That said, an external examination provides a somewhat different perspective – and one that is also based on long experience in this business
I respectfully disagree with your assertion that the problems had nothing to do with a failure to focus on what customers wanted. We may actually agree that the cause was a failure to invest, to innovate, because the company’s leadership couldn’t see the business it was in.
Perhaps the disagreement lies at least in part in defining who was leading, or managing, the business.
Lets go thru the points.
1. Most importantly, IC’s direction was certainly set in large part by parent CIGNA, and I would wholeheartedly agree that CIGNA’s priorities were not aligned with IC’s. In fact, that’s where a good chunk of the problems originated – and what prevented IC from evolving.
2. IC certainly was focused on nurse case management from the mid eighties thru the mid nineties and beyond. There’s no disputing they dominated the business and were quite successful, and much of the company was focused on demonstrating the value of that approach (lots of research and white papers and cost savings reports and PR). That focus also delivered decent financial returns to the parent, which were used to help cover CIGNA’s overhead allocation. That’s all too typical of subsidiaries; owners don’t see the opportunity, just the dollars contributing to the corporate coffers, and thereby forgo future success.
3. I noted several times in the post the lack of investment in and commitment to IC on the part of ‘mother CIGNA’; in a post earlier this year I specifically discussed the inherent problems brought on by that situation coupled with CIGNA’s desire to keep IC on the books for its contribution to overhead.
4. I challenge the reasoning for the delay in upgrading accumed; while I don’t have knowledge of the actual discussions at that time, I’d think that IC management could have made a compelling case for dumping that technology and outsourcing much earlier. This may well have freed up internal resources that could have been employed elsewhere more profitably.
5. Re the network, there were, and are, relatively inexpensive ways to identify and select out providers that deliver superior outcomes. Large self-insured employers and a few insurers have been doing this for years. It isn’t perfect, but it could have been done, with minimal resources from mother CIGNA. This was a life or death choice, and one that management/leadership failed to commit to.
6. In summary I agree that CIGNA failed to invest, and in that failure squandered a major opportunity. This was certainly attributable to their inability to understand what business IC was in, where that business was going, and what they needed to do to ensure future success. In addition, faced with the lack of support from CIGNA, IC management could have, and should have, made different choices and focused in different areas.
I also understand it’s much easier to see what should have been done with the benefit of hindsight. But good management has good foresight – something that was lacking here.
Joe