Technology

TriZetto's Rx for Health-Care Costs


By Arlene Weintraub Most entrepreneurs can point to one defining moment when they decided to risk it all and follow their dreams. Jeff Margolis, founder and CEO of health-care technology provider TriZetto Group (TZIX), found his unlikely inspiration in a moment of extreme pain.

At 19, after a mysterious bout of severe stomach discomfort, he was confronted with a scary diagnosis: Crohn's Disease, a chronic, incurable inflammation of the digestive tract. Margolis knew then that his days as a carefree young adult would be replaced by multiple surgeries, trips to the emergency room, and frequent bouts of agony. But he didn't let the diagnosis knock him off his feet. "I decided I could use it as a crutch, or I could use it as a motivator to maximize my time," he says. "I chose the second."

Margolis didn't waste a moment putting his new resolve into action. He took summer classes so he could graduate a year early. He quickly obtained his Certified Public Accountant designation. And at 21, he married his high school sweetheart, Debbie.

Soon after, Margolis launched his career at Andersen Consulting (now Accenture), where he set out to learn as much as he could about two of his passions: technology and, based on his own personal experience, health care. He then served as the chief information officer at health-maintenance organization FHP. At 34, he decided to start a company that would use technology to help health-care providers become more efficient.

TAILORED SOLUTIONS. Now TriZetto is emerging as a leading provider of software, services, and Web-based technology for health-care providers and insurers. TriZetto's products help customers automate functions that have traditionally been done on paper, such as claims processing. It also offers products like HealthWeb, which allows HMOs to exchange information electronically with physicians, hospitals, pharmacies, and patients over the Internet. The company acts as a consultancy, tailoring individual systems to each customer's needs. "TriZetto doesn't just send in drones with one shrink-wrapped solution," says John Fargis, senior managing director of Bear Sterns, which took TriZetto public in 1999.

Although most of TriZetto's customers are small to mid-size health-care companies, the big guns are starting to take notice. In the second quarter alone, TriZetto was awarded nearly $75 million in new business, including two contracts from UnitedHealth Group. That puts the five-year-old Newport Beach (Calif.)-based company on track to increase revenues 29% this year, to $268 million, analysts say -- and to turn a net profit by the end of this year.

There are still challenges, though. TriZetto faces competition from some tech giants, including Computer Sciences Corp. and EDS. And many of the small players TriZetto serves are struggling to stay afloat amid a recession and skyrocketing drug prices and hospital fees. Some customers could bail simply because they can't afford to follow through on planned technology upgrades. "If the economy continues to plod along at an anemic rate, that could have a big impact on TriZetto," says Anthony Vendetti, an analyst for Ryan, Beck & Co.

PATIENTS' PERSPECTIVE. So far, though, Margolis has managed to turn the sour economy into gold by convincing customers the more they automate their processes, the further they'll cut costs. Take TriZetto customer Blue Cross Blue Shield (BCBS) of Tennessee, for example. Using TriZetto's technology, it has slashed the time it takes to process the average claim from 30 days to 10. And TriZetto has helped BCBS use the Web to communicate with doctors, employers, and patients.

Today, BCBS facilitates 110,000 transactions a month via its site. All told, it's saving about $5 million a year and scoring the highest customer-satisfaction ratings in its 57-year history. "Our systems are more integrated, we can better leverage our data, and we can simplify everything," says Bob Worthington, senior vice-president of corporate and information services for BCBS.

Customers say much of TriZetto's effectiveness comes from Margolis' deep understanding of the health-care system. Between 1990 and 1995, he had eight surgeries to remove his large intestine. "There's no better way to learn about health care than to lay on a gurney in the ER," he says with a laugh.

Margolis says he was most struck by the overwhelming amount of new technology that health-care providers are faced with every day -- from drug-delivery methods to testing equipment. "Their body of knowledge has to grow so fast that they're constantly behind." Much of his work experience was at FHP (which was eventually bought by PacifiCare). Margolis led the design of a system that linked the company's health plan with the clinics, pharmacies, and hospitals that FHP owned.

EYE OF THE STORM. TriZetto has experienced some growing pains. A planned merger with IMS Health fell through in March, 2000, when IMS's shareholders voted down the deal. The deal, which would have added $1 billion in cash to TriZetto's shrinking coffers, didn't go through because IMS's shareholders gave the deal the thumbs-down. "We were facing a bear market with negative cash burn and no way to raise money," Margolis recalls. "Our competitors were telling customers we were going to die. I felt like I was in the tornado scene in The Wizard of Oz."

Six months later, Margolis bailed TriZetto out by acquiring a unit of IMS called Erisco Managed Care Technologies. The addition brought in $32 million in cash and a popular software product for managed-health plans. Today, TriZetto has $92.6 million in cash, is cash-flow positive, and on the road to profitability, Margolis says.

Margolis acquired a gift for problem-solving early in life. As a pre-teen in Boulder, he started a landscaping business at the urging of his father, who was then a patent attorney for IBM. By junior high, Margolis and a buddy he hired as a partner were designing lawns and sprinkler systems for new houses and offices. The business was so successful Margolis had to file his first tax return at the age of 13.

KEEPING THE BEAT. After college, when he joined Andersen, he often stunned his bosses by taking on more responsibility than was expected of him. He once turned a $12,000 contract to do a small technology installation for a health-care company into a deal worth over $100,000. "In a short amount of time with the client he impressed them so much they expanded the contract. He's a master at that," says Margolis' then-boss Bill Johnson.

Now Margolis is focused on what could be his most challenging task yet: making TriZetto profitable. For inspiration, he often reminds himself of the meaning behind the name he developed for his company. Margolis -- an amateur musician who plays piano, baritone horn, and trombone -- derived the name from "terzetto," which is a three-part musical composition. "Tri" refers to the three principals of success Margolis drew up to motivate himself and his team: providing infrastructure, software, and expertise to help turn complex data into useful information. His ability to win over customers, even in tough economic times, has more and more health-care providers singing TriZetto's praises. Weintraub covers technology and health care in BusinessWeek's Los Angeles bureau.


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