Definity Health posts positive cash flow
David Phelps
Star Tribune
Published November 20, 2003
Definity Health, a five-year-old provider of health benefits
to self-insured
companies, reported its first-ever quarter
of positive cash flow Wednesday, news
that was widely
seen as proof that its business model is gaining widespread
acceptance.
Revenue during the quarter jumped 350 percent as the
company rapidly added
members and projected that
320,000 people would be enrolled by January.
Industry analysts said the financial results for the three
months ending
Sept. 30 were impressive and evidence that
Definity has reached the size to
become a player in the
field.
"It's huge. It validates them," said Sander
Domaszewicz,
senior
consultant at Mercer Human Resources
Consulting. "They've forced major
providers to have
them on their radar screen."
St. Louis Park-based Definity was created in 1998 and had
its first full year
of commercial operations in 2000,
serving 5,000 members.
The company provides benefits programs in which
employers set up health care
accounts for employees
who use the money in those accounts for their health
needs. Employees can pay for health care services of
their choice out of the
accounts. Unused amounts roll
into the account for the next year. If an
employee's
expenses exceed the account, additional coverage kicks
in after a
deductible is paid.
"Our consumer-driven model has delivered against its
value propositition
-- cost control for employers and
a better health plan for employees," said
Definity Chief
Executive Tony Miller.
Miller said employers renewing coverage with Definity for
2004 will face cost
increases of less than 5 percent
while the industry average next year is around
13 percent
higher.
The privately held company reported year-over-year
revenue in the last
quarter of more than $9 million, a
320 percent increase over the same period in
2002.
Current enrollment is at 190,000 employees, with
320,000 expected by January.
Definity expects the
320,000 figure to double by 2005.
"Definity was viewed initially as a potential flash in the
pan,"
said Dave Delahanty, a principal in the Minneapolis
office of Mellon Financial
Corp. "Now they're for real.
They can actually make money. They have a
sustained
membership, so they can actually pay for their own
operations."
So far, Definity has relied on about $70 million of venture
capital from a
handful of institutional investors to fund
its operations.
Sustained strong cash flow could lead the company to
sell stock to the
public, Delahanty said.
Chris Delaney, Definity's vice president for marketing, said
a public
offering could come as soon as 2005.
The
Definity program currently is offered by 80
organizations, including 28 Fortune
1000 companies,
Delaney said. Definity, whose plan usually is offered
along with
other coverage options by individual
companies, was selected by 40 percent of
the employees
during enrollment at Whirlpool Corp., he said.
