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Advice and Information for Finance Professionals

Achieving Economies of Scale Faster with Cloud: A Guide for Healthcare Payers

@Leeza2020

Whatever your opinion about the Affordable Care Act, it’s hard to dispute that it enables more Americans to obtain health insurance. From its peak at 18% in 2013, the number of U.S. adults without health insurance has dropped 5.2 percentage points since the ACA went into effect, according to the Gallup-Healthways Well-Being Index.

For consumers as well as the nation’s health insurance industry, ACA has been a bit of a mixed blessing. Yes, it did make services available for consumers to enroll who didn’t have health insurance. Yet, for healthcare payers, not all of the new services have been profitable. In January 2016, UnitedHealth Group reported that a $720 million loss on its individual exchange product drove overall 2015 profits below the company’s previous year’s results.

Ensuring profitable growth in the wake of ACA is challenging every healthcare payer. In addition to finding ways to create new revenue streams, health insurers are looking to manage all costs better. For many healthcare payers, optimizing their business processes is the first step—and many of them are looking to the cloud with modern best practices for help.

Cost-Cutting Expansion

Some payers are seeking efficiency and cost savings by expanding into related businesses, such as providing pharmaceutical services. Mergers and acquisitions among healthcare payers and their business partners will continue at a breakneck pace as companies strive to gain a larger share of the market while reducing costs. In times of rapid change, without an agile IT infrastructure, these and other competitive strategies can be difficult to implement.

Payer consolidation is one of the key drivers for cloud adoption; companies that are eager to absorb other organizations want to rapidly consolidate IT infrastructures and all the financial and HR processes that go with it. At the same time, companies eager to be acquired are striving to make their operations more transparent, and thereby more attractive. By adopting modern finance and HR best practices in the cloud, along with real-time financial reporting dashboards, smaller payers can show that they have the operational and financial controls in place that attract and inspire investor confidence.

Bigger is Better for Business

When operations can be merged for economies of scale, the business benefits can be dramatic. In July 2015, when Aetna announced its merger with Humana, the company forecast that it expected $1.25 billion in annual cost savings by 2018. Anthem’s acquisition of Cigna is estimated to cut costs by $2 billion annually.

Savings like these can be even greater when the merging organizations use cloud technology that supports gaining economies of scale faster. It’s a simple formula. By consolidating operations and optimizing finance and HR through shared services, merged enterprises can significantly reduce costs and manage operations more efficiently.

Achieving this kind of scale is much faster with the cloud. Instead of adding more servers or expensive hardware, the business consolidates financial and HR data in the cloud, securely sending information back to on-premises systems when needed. The cloud provider owns and operates the IT infrastructure, freeing the payer to focus on its core competencies.

The Top Line Matters

The benefits of cloud go beyond cost reductions. As more health insurance companies merge into larger organizations, modern best practices in the cloud will be crucial to integrating and supporting incoming staff, especially sales.

For health insurance companies, managing a high-performing sales organization is mission critical. Every sales representative must be fluent in the expanded company’s offerings, and the departure of key sales people can have a significant impact on the near-term financial performance of an organization. Built-in, robust, multi-dimensional financial reporting capabilities can help the finance team, HR and sales management swiftly identify potential shortfalls and take appropriate action.

This is where unified finance and HR in the cloud can be a key differentiator. Using a unified data model—which acts as a single source of information across all departments—can not only make the business run more efficiently, but provide deeper, more accurate insights into profitability and workforce analytics.

Unified finance and HR in the cloud can help companies expedite the hiring of new sales agents. As an example, one diversified health company uses Oracle Applications Cloud suite to build talent pools for high-volume positions and to decrease the number of “quick quits.” An increased retention rate can, over time, yield lower training costs, stronger relationships with customers, and higher rates of renewal.

Walk, Or Run. You Decide.

With the rapid pace of change in the U.S. health insurance industry, payers are investing in the cloud to ensure a competitive edge and to gain rapid economies of scale. When making these investments, it’s important to consider the breadth of capabilities of the cloud provider you choose.

Other cloud providers have finance and HR offerings in the cloud, but only Oracle has the most complete suite of cloud applications on the market today, with built-in modern best practices that can span your entire business. With Oracle, you can be assured of a viable cloud partner that invests in development and support of industry-based cloud offerings that you can choose from as you expand now and into the future.

If you’re thinking about migrating your on-premise systems to the cloud and need advice on how to get started, read our CFO Guidebook, Best Practices for ERP Cloud Migration, and find out how to remove barriers to cloud adoption with Oracle’s Customer to Cloud Program.

Lisa Schwartz is senior director, suites and industries for Oracle’s cloud business group. Follow her on Twitter, @Leeza2020

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