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IT Expenses Hurt Health Net

Health Net Inc. reported a third quarter loss on Monday after the health insurer incurred big expenses associated with a new information technology system that will allow the company to handle more clients and process more claims. The Woodland Hills insurer reported a net loss of $8.9 million (-11 cents a share) in the third quarter ended Sept. 30, compared to net income of $66.8 million (83 cents) for the same period a year earlier. Revenue grew 37 percent to $3.8 billion. Excluding one-time impairment costs, the company would have had earnings of 75 cents a share. Analysts on average expected earnings of 73 cents a share on revenue of $3.7 billion, according to Thomson Financial Network. Health Net announced a letter of intent on Aug. 6 with Cognizant Technology Solutions Corp. to implement a program helping the company manage a larger number of clients and reduce administrative costs. The company blamed its quarterly loss on expenses of $106 million associated with the Cognizant deal. That figure includes an $85 million non-cash impairment charge for old computers and technology that the company will sell to Cognizant, and $21 million in other expenses. Under the seven-year master agreement, Cognizant will provide consulting and technology to improve claims management, membership communication, quality assurance, and appeals and grievance services. Cognizant must meet specific metrics for improving quality and efficiency. “We believe the Cognizant transaction will help us address our scale issue and enhance Health Net’s product development and service capabilities. This in turn should strengthen our competitive position for the long term,” said Health Net Chief Executive Jay Gellert, in a statement. Shares closed down $1.37, or 2.9 percent, to $46.14 on the New York Stock Exchange.

Joel Russel
Joel Russel
Joel Russell joined the Los Angeles Business Journal in 2006 as a reporter. He transferred to sister publication San Fernando Valley Business Journal in 2012 as managing editor. Since he assumed the position of editor in 2015, the Business Journal has been recognized four times as the best small-circulation tabloid business publication in the country by the Alliance of Area Business Publishers. Previously, he worked as senior editor at Hispanic Business magazine and editor of Business Mexico.

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