Absence Makes Company Stronger
Business-to-business plays too often involve a whiz-bang technology in search of a problem. Core Inc., a 10-year-old company that’s now billing itself as a B2B player, believes it has a solution for the very real problem of employee disability cases that cost more than $340 billion annually in lost productivity.
Disability management is an inherently messy process because injured employees generally don’t know where to turn and harried front-line supervisors are likely to foul up the paperwork. The picture isn’t going to get any better, because health-care experts say workplace absences will soar 37% during the coming decade as the work force ages.
Core, a publicly traded spinoff of Baxter International Inc., manages disability benefits for 1.7 million employees at companies such as Apple Computer Inc. and DaimlerChrysler and the state of Virginia. Most of Irvine-based Core’s $64.1 million in 1999 revenue was generated by fees paid for employee absence-management services.
The company sees continued growth in the case management sector, where it acts as a liaison for injured and ill employees and tracks medical and therapeutic care for employers. But Core sees potential for new revenue by blending the Internet and proprietary software to help employers predict when employees will be unable to work and how long they’ll be out.
Several Wall Street analysts have issued “buy” ratings on Core. First Union Securities in Charlotte, N.C., described the company as “a first mover in the emerging absenteeism/disability management field, possessing exciting opportunities to expand its customer base while also up-selling and cross-selling to existing clients.”
Core Chief Executive George C. Carpenter IV believes the new technology will help such diverse employers as auto manufacturers and software development companies to better manage employee absences. “The lightbulb went off late in 1998 and early in 1999 when we realized what we had in terms of a database,” Carpenter said. “Then we realized what we could do with that data if we gave customers real-time access to it.”
What Core has is a decade’s worth of data gleaned from all sorts of disability cases. The company knows what types of accidents and illnesses are likely to occur, what time of the workday they will happen and how long an employee might be out recovering. That’s definitely worrisome for those who fear that Big Brother already knows too much about their lives. But Carpenter maintains that the goal is a healthy one: getting employees back to work.
Core’s data are being used to create “predictive algorithms” that would give employers insights into what’s likely to happen when an employee is injured. Core credits NetBase Computing, an El Segundo-based company that has changed its name to Syncata, with helping it gather and manipulate data.
Syncata helped Core develop a simple interface that lets customers access Core’s system with a PC and modem. The system is expected to dramatically reduce the costs of gathering disability information now taken over the phone. Syncata also is helping Core log a far greater amount of data that can be used to further hone the algorithms.
Less than 5% of the company’s revenue this year will come from the predictive technology, but Carpenter believes the potential is enormous, particularly in a society increasingly dependent upon workers who use brainpower rather than sheer muscle to get their jobs done.
“Employees are one of an employer’s most valuable assets in a skill-based economy,” said William Molmen, general counsel for the Integrated Benefits Institute, a nonprofit group in San Francisco that researches how employee benefits are delivered. “It’s very important for them to keep workers engaged, to bring them back to productivity as soon as possible when they’re injured.”
Using its software, Core hopes to be able to tell employers what to expect when a 24-year-old loading-dock worker suffers a back injury or when a software engineer throws out his back playing soccer. Core’s technology, Carpenter said, also will help predict how the outcome might differ if it’s a 54-year-old hit with the same kind of injuries.
Disability insurance industry players say that kind of data might help employers determine which health-care regimes are the most effective. Employers might find that employees who see specialists relatively early--rather than wait for an HMO gatekeeper to approve the expense--return more quickly.
A larger company could compare illness and disability rates at different factories. A plant in a rural area could accurately determine how many employees are likely to call in sick on the first day of the hunting season.
Employers are hungry for that kind of information. “You could know upfront the expected duration for an injury, or if the length of treatment is starting to deviate noticeably from treatment usually accompanying that sort of injury,” Molmen said.
Most of Core’s customers now reach the company through toll-free telephone numbers. But that’s changing rapidly as access to desk-top computers spreads. By 2002, Carpenter said, most of Core’s business will flow through computers.
“The beauty of the Internet is that you file a single report to a single place that takes the burden away from employees and supervisors,” Molmen said. “They know almost immediately if it’s a workers’ comp case or not, how to get care effectively. Plus, supervisors who don’t do this kind of thing very often--or very well--become de facto caseworkers.”
Core expects its software to help front-line supervisors rearrange remaining workers after an absence occurs. Say a loading-dock worker who is qualified to pick up packages heavier than 50 pounds wrenches his back. Core hopes to be able to tell the manager which remaining employees have the same rating, and outline the ripple effect that would occur if an employee is shifted into the vacant job.
Armed with knowledge of how long the injured employee might be out, the manager also could make a better case for hiring a long-term replacement or making do with temporary help.
As predictive models grow more accurate, Carpenter said, companies will be able to fine-tune employment levels. “Auto companies have long dealt with absences by hiring an extra 10% to keep lines going,” Carpenter said. “And, in Silicon Valley, they’re worrying about how absences will impact things like [software] shipping dates.”
“We’re watching those future directions very closely,” said Donna Blatecky, assistant director of benefits programs and services for Virginia’s retirement system, which is a Core customer. “There’s a whole wealth of information that you can’t track when you’re dealing with paper slips that aren’t computerized.”
Blatecky expects the system to eventually help the state “become more proactive when it comes to different areas--say the Transportation Department, some of the medical facilities or the correctional institutions, where you have certain illnesses or injuries that occur because of the specific environment.”
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Core Business
Irvine-based Core Inc. manages disability services for such customers as Apple Computer and DaimlerChrysler. Its revenue in recent years has grown steadily, but profitability has been erratic.
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Stock price (Quarterly closes and latest): Friday close: $7.00
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Revenue (In millions): $64.13 million
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Net income (In millions): $1.74 million
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Source: Bloomberg News
