November 21, 2005

Covisint has presented a plan to troubled General Motors Corp. that could potentially save the car manufacturer millions a year in health costs. Peter Karmanos, CEO of Compuware says Covisint's proposed plan could cut GM's health costs by about $660 million or more a year.

Karmanos, chairman and CEO of Compuware Corp., said on Nov. 7 that Covisint submitted the proposal to GM. He revealed the information during the Goldman Sachs Software & IT Services Retreat 2005 tech conference in New York City. Compuware bought Covisint for $7 million in 2004.

Covisint CEO Bob Paul said during the conference that the savings would come by making health care more manageable through more efficient information-sharing among private care physicians, hospital networks and insurance companies via a secure network fully compliant with the Health Insurance Portability and Accountability Act. The potential is to provide real-time information about health care costs to the company, Paul said.

Crain’s did not attend the conference, but listened to the comments from an audiotape. GM confirmed the proposal.

“We have received a proposal from them,” said Carey Osmundson, assistant manager for health care communications at GM. “However, we have not had the opportunity to evaluate it. We are certainly going to review it and will know something at a later date.”

In a written statement, Karmanos objected to Crain’s reporting the figure that he used during the conference. “The projection that Compuware discussed at the Goldman Sachs Software and IT Services Retreat remains exactly that — a projection based on government and industry data to form a basis of discussions with our customer,” the statement said.

Covisint was started in 2000 by GM, Ford Motor Co., DaimlerChrysler AG, Renault S.A. and Nissan Motor Co. Ltd. They’d hoped to create an online trade exchange that would link suppliers and automakers and essentially make car parts a commodity.

Paul said the companies poured $400 million into developing the technology. But Covisint floundered as suppliers questioned its value.

The trade exchange part of Covisint’s original business was sold to Pittsburgh-based FreeMarkets Inc. in January 2004. Terms were not disclosed.

Compuware bought Covisint’s remaining assets in March 2004. Covisint sells in three areas: messaging and Web services, identity security, and portal platforms, which are highly secure, custom-made networks. Much of the technology was developed before Compuware bought Covisint.

Since being purchased by Compuware, Covisint has been trying to sell into new markets, such as health care and finance.

Paul said during the presentation that studies from the federal government indicate that 30 percent of health care costs in the U.S. could be saved by consolidating information and improving the flow of communication among the entities involved in providing health care.

“For the first time in a long time, you’re seeing these corporations actually proactively invest in health care information technology — giving it to the providers, to the hospital networks, the primary care physicians and everybody else — because they know it’s going to have an impact downstream on overall health care costs,” Paul said at the conference.

General Motors has made cutting health care costs a priority after losing nearly $4 billion so far this year. GM and the UAW agreed to a deal Oct. 17 in which $1 billion in health care costs would be cut annually.

As Crain’s first reported May 23, health care is an area where Covisint executives see huge potential. In early September, Blue Cross Blue Shield of Michigan said creating a statewide health care portal through Covisint would be part of its plan to spend $200 million to $300 million modernizing its information technology.

During the presentation to investors, Paul said the company also is now looking into expanding into financial services and government.

In an Oct. 27 conference call for Compuware, Paul said Covisint continues to grow. GM and DaimlerChrysler expanded the scope of existing contracts with Covisint in the company’s second quarter.

The company also added six new supplier contracts, opened an office in Shanghai and said it plans to open an office in Frankfurt, Germany, in January. Also, it added three new logistics customers.

Karmanos said during the call that Covisint will “easily” have revenue of more than $100 million within four years.

"We think Covisint should be able to grow its bookings around 100 percent per year over the next few years … given its growth profile, dominance in the auto sector and the potential around the health care vertical,” David Rudow, senior research analyst in the Minneapolis, Minn. office of Piper Jaffray & Co., said in a Nov. 4 report.

Source: Crains Detroit.com