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Healthways Losing CIGNA, Gaining PPACA

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Healthways Inc. is saying goodbye to CIGNA Corp. but expecting to say hello to many new health plan clients.

Executives from Healthways, Nashville, Tenn. (Nasdaq:HWAY), the parent of the SilverSneakers wellness and exercise program and other wellness and condition management programs, talked about the changes Monday during the company’s third-quarter earnings call.

Healthways is reporting $9.5 million in net income for the latest quarter on $176 million in revenue, compared with $11 million in net income on $170 million in revenue for the third quarter of 2010.

CIGNA, Bloomfield, Conn. (NYSE:CI), a major Healthways wellness program client, recently announced that it will be running its own wellness programs and winding down the Healthways contract starting Jan. 1, 2012.

Healthways President Ben Leedle Jr. said during the earnings call that he believes the CIGNA departure is the result of a strategic decision that has nothing to do with Healthways’ performance or prospects for future sales.

During the third quarter, Healthways won many new contracts without going through any bidding process, and request for proposal (RFP) activity was up 60%, Leedle said.

Customers signed 12 new contracts during the quarter, expanded 3 existing contracts and extended 13 contracts, Leedle said.

If anything, the pipeline for new business seems to be getting stronger, because health plans “are getting clearer about how they’re going to place their bets on their long-term strategy to address the population health management problem,” Leedle said.

The Patient Protection and Affordable Care Act of 2010 (PPACA) already is starting to affect health plans and will affect them even more as the country moves toward the Jan. 1, 2014, start date for many PPACA provisions, Leedle said.

Because of PPACA provisions, such as new constraints on price increases, “outcomes finally matter financially,” Leedle said.

Healthways has peer-reviewed studies showing its programs work, and many competitors do not, Leedle said.

The difficulty of developing a comprehensive health management program for huge numbers of people creates a significant barrier to entry, and, even if a newcomer tries to copy Healthways, chances are the new program will be outmoded by the time it comes to market, because Healthways will have moved on and raised the bar, Leedle said.