HealthEdge, Rising from the Ashes of DeNovis, Reaps Benefits from Healthcare Reform

People who paid close attention to the healthcare reform debate know that it was really about bringing sweeping changes to health insurance in the United States. It includes all kinds of new laws about who is eligible for coverage and other health benefits. For Burlington, MA-based HealthEdge, the legislation has created a new reason for health insurance firms and other outfits that pay for care to adopt its technology, according to Rob Gillette, the firm’s co-founder and CEO.

Even before healthcare reform passed this year, HealthEdge was gaining new business from health insurers who were trying to keep up with demand for customized health plans for employers. Long gone are the days when the only differences between health plans were the amounts of co-pays required of subscribers at the doctor’s office and the pharmacy. Today, it’s not uncommon for a health plans to come with a special savings account (also called a health savings account, or HSA), varying deductibles, and incentives for staying fit, among other things. HealthEdge provides the software and technology for the insurance companies to rapidly design such health plans to the specifications of the employers they serve.

What healthcare reform has done in the past several months is dial up the need for insurers to quickly adjust their offerings to comply with the new laws. For example, insurance firms will need to reconfigure their plans to comply with a new reform that allows young adults to stay on their parents’ insurance until they turn 26 years old. To hear Gillette describe it, this one provision alone could keep an insurer’s programmers busy for months to reconfigure their core systems. Yet HealthEdge reduces the time to make such adjustments from months to hours because of its unique programming rules that are designed to let programmers make changes easily.

“There was a bit of a quiet time while people were waiting to see what was going to happen in the [healthcare] reform legislation,” Gillette says. “Since its passage, business has gone nuts. Everybody is out looking for a new system.”

HealthEdge doesn’t share financial information or the names of its customers, so it was difficult to get Gillette to provide specific numbers on this trend or even anecdotes. But it’s clear the firm appears to be on the right side of history because its technology caters to health payers that need to constantly change and update their plans to meet the requirements of their customers and regulations. With certain provisions of healthcare reform taking effect over the next several years, there’s going to be a need for health payers to adjust their own policies for a long time to come.

The capabilities of the firm’s technology have even helped it snag business away from its chief competitor, TriZetto, Gillette says. HealthEdge appears to punch way above its weight class. TriZetto has 1,900 employees and a long menu of products for health payers, while HealthEdge operates with 45 to 50 workers and offers fewer products. However, HealthEdge has formed partnerships with several other companies with complementary software, Gillette says. This presumably enables HealthEdge to offer customers a more competitive offering than what TriZetto has built in-house.

In fact, Gillette even runs one of those partner companies. Click4Care, a Powell, OH-based provider of software for healthcare management, named Gillette its chief executive in June 2009. But the firm and HealthEdge remain separate companies. While HealthEdge’s software provides health payers with core administrative systems that can quickly customize their coverage offerings, for example, Click4Care complements those capabilities with the ability to track claims data and other information to predict the costs of caring for patients.

HealthEdge says there’s been more than $125 million invested in its technology, but Gillette says that his firm has only raised about $30 million. How could this be? Gillette and healthcare investor Al Waxman formed HealthEdge in late 2004 to acquire the technology of former Lexington, MA-based DeNovis. DeNovis (where Gillette was a senior executive and Waxman was chairman) folded in 2004 after raising about $125 million in venture capital to develop its technology to for administering health plans, according to an October 2004 article from the Boston Globe. Waxman’s New York-based private equity and venture firm, Psilos Group, bankrolled HealthEdge’s purchase of the DeNovis assets in 2005—apparently for a relative bargain. Waxman is chairman of HealthEdge.

“People thought we were nuts when we founded HealthEdge,” Gillette says. “They were like, ‘core administrative systems, what are you guys thinking?’ And now we’re in a place where there’s huge demand for new, innovative, and agile systems that is unprecedented.”

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