Interview: CEO Doug Klinger Talks about Zelis Healthcare, “String of Pearls” Strategy, and Appreciating Founders

In January 2016, Bedminster-based Premier Healthcare Exchange (PHX), Stratose, Pay-Plus Solutions and GlobalCare merged their operations to create a healthcare information technology company delivering healthcare claim solutions to payers, providers and individuals.

At that time, the company, which had been formed by Parthenon Capital Partners (Boston, Mass.), a leading private equity firm and investor in the combined company, said that it would be headquartered in New Jersey. Later, the company was rebranded as Zelis Healthcare, and in March of this year Douglas E. Klinger signed on as an investor, board member and CEO.

Klinger came to Zelis with a background of running companies in tech and healthcare. Most recently, he had worked with the controlling shareholder of Sears Holdings, leading Sears and Kmart’s retail stores as well as digital health and wellness businesses worldwide. Previously, Klinger had been president of Monster North America, a diversified group of internet media and software companies; president of CIGNA Health Services, a $6 billion revenue group of diversified healthcare services companies; and CEO of CIGNA Dental Health.

His background seemed tailor-made for this new position, which would involve combining four cutting-edge healthcare tech companies into a seamless solution for clients. Klinger calls this a “string of pearls strategy,” focused on putting four high-performing healthcare technology growth companies under one corporate umbrella to get their technologies talking to each other, and then expanding the mandate with other innovative startups that can fill gaps or provide additional services.

Zelis’ goal is to be a market-leading cost-management company in healthcare that helps consumers, employers and insurers get good-quality care at an affordable price. It is also involved in making sure doctors and hospitals get paid. “Many doctors and hospitals in this day and age are paid using faxes and paper checks, so it isn’t unusual for a million-dollar claim payment to happen by check,” Klinger told us. Zelis wants to change all that.

NJTechWeekly.com interviewed Klinger last month.

ES: What have been your biggest challenges in melding these four cutting-edge startups into a single company?

Klinger: I believe you have to be sensitive to the companies’ points of origin. All these businesses started out as an idea in the mind of a founder who wanted to disrupt a market and deliver a better solution to the market than was available. One of the most important things in merging businesses is to maintain what I call the “founder’s insurgency,” the sense that we are here to do something better. And we need to remember that our business only exists because we did something better. As soon as we get lazy or complacent, there will be someone else out there waiting to take our place.

Closely related to this is having an appreciation for the people working in these companies. We are in a service business, and most of our assets are walking out the door every night. These people all came to work in a founder-led company, which was probably much smaller in the beginning. And they stuck around. So it’s really important to help them understand that what they’ve done is appreciated; help them understand where we are going; and help them understand what they need to do, not only to survive, but to prosper given what is coming.  We are trying to be as sensitive as we can to giving people the opportunity to grow as we grow.

ES: How is the merger of the four companies going?

Klinger: We are really in the business of helping America with its very big problem of spending too much time and money on healthcare, more than we need to spend. We are going to spend around $3 trillion on healthcare this year. About $900 billion of that is going to be spent in error or on waste or even fraud and abuse. Our business is trying to protect those of us who pay the bills—you and me, our employers and the insurance companies—from paying more than we should. Each of our businesses helps chip away at the problem, while Zelis Payments helps ensure that doctors and hospitals get paid in a more timely and efficient manner.

It is important to note that, when we put these companies together, we really weren’t interested in getting rid of technology expenses or people. We were looking to bring together these successful growth companies, which had independent operating environments. So, we are actually nurturing each of our businesses and building the connections between them, preserving what’s special and enabling connectivity that will unlock even more value. We are enabling these systems to talk to each other, and that’s really exciting because there aren’t many companies in our industry that are doing that.

ES: Since you are putting together four companies into Zelis, how did the headquarters come to be in New Jersey?

Klinger: When we purchased Premier Health Exchange in January and the payments business in Clearwater, we saw an opportunity to combine the businesses in Atlanta with the PHX business and to form a new approach—an end-to-end solution. We chose to put the new headquarters for Zelis here for a lot of reasons. We have a significant number of clients in the New York metro area. While we are national, of course, the legacy business built its customer base in this regional market, with a significant concentration in New York, New Jersey and the surrounding areas. PHX has a really nice technology platform that we think is leading-edge, so we’ve begun to connect the technology here with the payments business, creating something different that enables clients to buy products together and over time, and have those products talk to each other for better results.

ES: What do you think of New Jersey as a place to do business?

Klinger: We love New Jersey. It’s a beautiful state. We are fortunate to be in an absolutely spectacular section of the state here in Bedminster, Somerset County. We have over 200 people in our primary location, and are expanding our footprint as we speak. We continue to recruit aggressively in this market. The New York metro area is full of terrific talent—healthcare talent, technology talent, you name it. So I don’t think we are going to run out of great people any time soon. We can offer a really nice work environment that can eliminate the bigger commutes to Manhattan and Philadelphia. We like our position here and we plan to grow here. We plan to grow high-value, high-compensation service sector technology-based jobs. We are interested in any incentives the state government might offer to retain us because I think we are the kind of employer the state is looking to retain and grow.

ES: What’s next for Zelis?

Our goal is to expand our portfolio of businesses. There are a lot of other CEOs and founders who are very interested in Zelis and in an opportunity to join us. In many cases, as happened with the founders whose companies we’ve acquired, they continue on with us as investors; and, in some cases, they continue operating their businesses. As I mentioned, we are running a string of pearls strategy; and each of the businesses that we have now are like pearls, each one special and unique, and our goal is to connect them. The thread between them is capital to help them grow, sales and marketing resources, and brand resources; that’s what we really provide. So you can imagine that, for people who realize they need help, that they need more distribution capability, or that they need money to grow their businesses, this becomes an attractive umbrella to get under.

Our goal is to add businesses that will give us more capability. We will acquire companies because we have the deep financial ability to do that; and we’re always looking for companies that are leaders in their space. So we will wind up doing more things around the healthcare-cost-management idea. We are already substantial in terms of market share in all of our businesses, but growing is never a bad thing, provided you maintain that entrepreneurialism and closeness to the clients.

We’ve hired a significant number of very talented leaders in a short amount of time, including a chief medical officer, chief people officer, chief financial/administrative officer and a general counsel/chief compliance officer. We are going to continue to add people to the terrific people who came with us when we formed Zelis. We will continue to focus on talent.

In 2017, we will deliver new, innovative cost-management and payments products that will leverage technology and our terrific clinical teams.

ES: As a leader, what is your secret sauce? Why were you right for this position?

Klinger: It all came together for me in this assignment. There was a group of investors whom I’d known for many years, and we had talked about doing something together. In addition, they had retained a major search firm, with whom I’d worked for 20 years, that places senior executives in the healthcare industry. I had heard about these businesses, and was looking for an opportunity to make a difference in healthcare with my next opportunity. … I really love technology, and I’ve been in and around the building and running of technology-based businesses since I started. Also, I’m from the mid-Atlantic area, having grown up in Philadelphia. I have family all around New Jersey, including at the Jersey Shore and near Bedminster.

I felt that I could add value here because I’d done this kind of thing a lot. You get into a situation where you have a lot of nice businesses, with a lot of nice people, and you just try to figure out how you can put them together so that you don’t lose anything, and also how you put them together so that something new emerges. Then you figure out how, when something new develops, you can make it so interesting that other people will want to be a part of it: people who want to work here, people who want to sell companies to us, people who want to invest with us, clients who want to use our products.

I’ve been lucky to get to work for a lot of smart, successful people; and the one thing they had in common was that they were all builders. That’s who raised me, business people who look at something and see an opportunity. They look at a business and see what they can do with it. And that’s why I sometimes can’t sleep at night. I want to get in here and do it.