Digital Transformation Piece by Piece A Game Plan for the Unshakable Healthcare Payer

ORACLE WHITE PAPER / AUGUST 2018

2 WHITE PAPER / Digital Transformation Piece by Piece

INTRODUCTION

Developments in the healthcare industry are unraveling like the plot twists

of a suspense thriller. In an eight-month span alone, U.S. healthcare policy

came to the brink of a systemic overhaul, major carriers pulled out of public

exchanges, and the courts blocked two mega-insurance mergers. And yet,

those events are merely a glimpse into what’s happening in health

insurance.

Never before has business agility been as critical to the healthcare industry

as it is today. Insurance leaders are facing fundamental changes in

payment models and business models. Meanwhile, consumers are

becoming savvier shoppers, comparing health plans directly through online

marketplaces.

Insurers are pivoting from one action plan to another, preparing to go one

direction while actively exploring alternative plans. No matter what is

happening in the market, the regulatory agencies, or the economy,

companies capable of moving swiftly will manage to stay profitable.

That’s why digital transformation must be the top priority for health insurers.

Modern technologies are reinventing business processes in ways that were

unthinkable a decade ago. Automation, for example, generates immediate

answers to insurance stakeholders such as quotes, claims pricing, and

claims adjudication. Analytics help insurers to understand their operations

more intimately and make more informed decisions. And cloud solutions

completely eliminate the need for hardware and infrastructure, software

maintenance, and much more.

In this white paper, we offer a practical strategy for healthcare payers to

transform their organizations cost effectively with minimal risk: one

component at a time. A walk through Oracle Health Insurance

components—available on-premises and the cloud—shows payers the

advanced capabilities on the market today.

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THE HESITANT HEALTH INSURER

Insurance CIOs are undoubtedly well aware of the urgency to transform, and IT budgets are gradually

evolving to reflect that awareness. McKinsey predicts that digital transformation will account for more

than 50 percent of IT budgets within the next three to five years.1

Given the rapid pace of change in healthcare, digital transformation isn’t happening quickly enough.

Fifty-eight percent of payers are pursuing digital transformation. However, many of them are still in the

experimental stages, according to IDC’s recent survey. Over 25 percent are merely evaluating their

options, still unsure of how to move forward.2

Apparently, health insurers understand why they need to transform their IT systems. Signs show that

they want to transform. But, as in many industries, the problem is how to approach digital

transformation in crippling conditions.

BREAKING DOWN BARRIERS ONE PIECE AT A TIME

Harvard Business Review researchers recently conducted a global survey of 682 corporate decision

makers from various industries to study digital transformation. Among the most common barriers to

digital transformation were an inability to experiment quickly and coping with legacy systems.

Although the majority of companies reported that they would have to replace some or all of their

legacy systems, most didn’t have effective processes in place to replace them. Evidently, companies

from various industries are struggling with rigid, antiquated systems incapable of supporting quick

pivots.

Researchers also interviewed a subcategory of “digital leaders” who scored highest in their

organization’s ability to achieve positive business outcomes through digital technologies. Sixty-two

percent of digital leaders reported the opposite: they did have an effective plan.3

Health insurance companies can formulate a plan by identifying their transformation barriers,

analyzing each one closely, and developing an approach for that particular obstacle. Part of that

process is identifying the technological capabilities required to resolve those problems.

1 McKinsey & Company, “Why Digital Transformation Should Be a Strategic Priority for Health Insurers,” May 2016, http://bit.ly/1TtOWnr

2 IDC, “IDC Survey: Payer and Provider Investment Plans for Digital Transformation,” February 2017, http://bit.ly/2ofOAfP

3 Harvard Business Review, “Accelerating the Pace and Impact of Digital Transformation,” 2016, http://bit.ly/2nRaLs3

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Here is a game plan to address two common barriers to digital transformation:

OBSTACLE: Inability to experiment quickly

ANALYZE: The idea of experimenting quickly may not sound enticing for most risk-averse insurance

executives. Some decision-makers conflate change with risk, or simply feel handcuffed to old ways of

doing things. However, the test-and-learn approach is proving to be effective to avoid substantial risks

such as losing entire market segments or arrangements with providers. A major factor that prevents

insurers from experimenting at all is cost. Because IT budgets are stretched so thin maintaining legacy

systems, there typically are no disposable funds for experimentation.

APPROACH: Seek IT systems with built-in flexibility, so that users are not dependent on vendors or

need programming expertise to set up business rules and calculations. Systems that enable rules-

based configuration and flexible payment models are ideal. Find budget-conscious solutions such as

cloud-based systems that eliminate hardware costs and legacy system maintenance fees.

OBSTACLE: Coping with legacy systems

ANALYZE: Although most healthcare payers agree they need to replace their aging legacy systems,

they also couldn’t fathom a sudden systemwide replacement, especially involving core business

processes. Limited IT budgets make major IT overhauls nearly impossible. Insurance CIOs are also

typically squeamish about the risks they associate with the “rip and replace” approach.

APPROACH: Identify specific steps in the insurance lifecycle that need improvement or simply faster

turnaround times. Carefully prioritize the importance of each step. For example, is the quote process in

desperate need of fixing compared to enrollments or provider payments?

Seek health insurance IT systems that allow flexible deployment, specifically a modular approach

where users may implement one component at a time. These components should integrate with

existing applications and additional components the company plans to implement. Then deploy new

digital capabilities one at a time, in order of priority. Each new implementation will inform the order of

implementing future components, which will gradually replace old applications.

THE CLOUD POSITIONS HEALTHCARE PAYERS FOR FUTURE TRANSFORMATIONS

In a perfect scenario, a health insurer’s digital transformation would start in the cloud. Because the

cloud eliminates dependence on hardware, it opens up a world of capabilities: faster deployments,

higher customer satisfaction, improved collaboration and productivity, the list goes on.

For healthcare payers facing unstable conditions, cost reduction may be the most urgent priority.

Cloud solutions eliminate many of the additional costs that come with on-premises systems including

software maintenance fees, upgrades, infrastructure, and IT staff to manage the on-premises systems.

Among the most common

barriers to digital

transformation were an inability

to experiment quickly and

coping with legacy systems.

HARVARD BUSINESS REVIEW

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The Iceberg of Underlying IT Costs

Example Cost Comparison Between On-Premise and Cloud Service

Figure 1. Sample cost comparison of annual total cost of ownership between on-premises and cloud solution. The

figure is not based on actual prices or costs. TCO = total cost of ownership

Cost savings, digital transformation, and business agility are inextricably linked. Healthcare payers on

the cloud are able to free up financial resources and IT expertise to focus on innovation. Essentially,

the cloud positions healthcare payers for transformation now and in the future.

There is no longer a debate on whether the cloud is the best option for enterprise organizations.

Multiple studies show resounding agreement among analyst firms, research organizations, and IT

experts: the future is in the cloud. Large enterprises are expected to move workloads into the cloud “at

a rate and pace that is expected to be far quicker than in the past,” according to McKinsey.4 According

to IDC's 2016 CloudView Survey, the number of organizations that identify as heavy cloud users

increased 129 percent from 2015 to 2016.5 IDC also predicts that by 2020, 67 percent of all enterprise

IT infrastructure and software spending will be for cloud-based offerings.6

“Understanding and having a long-term, methodological view of your future endeavors in the cloud are

absolutely crucial for successful and sustainable digital transformation,” according to IDC.7

A FLEXIBLE SOLUTION FOR HEALTHCARE PAYERS: ORACLE HEALTH INSURANCE

Oracle equips healthcare payers with advanced IT solutions, so that payers facing unstable market

conditions can act with lightning speed. Oracle Health Insurance (OHI) is a product line of best-in-

class applications for insurers seeking transformation on their own terms. Health insurers decide

whether they want to implement individual components or as a full suite, either on-premise or on the

cloud. And because OHI’s architecture is based on service orientation (SOA), every component can

integrate with existing applications.

4 McKinsey & Company, “IT as a Service: From Build to Consume,” September 2016, http://bit.ly/2cq9OUb

5 IDC, “IDC PlanScape: Cloud Vision,” March 2017, http://bit.ly/2ofvtSR

6 IDC, “IDC Sees the Dawn of the DX Economy and the Rise of the Digital-Native Enterprise,” November 2016, http://bit.ly/2f0YcGk

7 http://bit.ly/2ofvtSR

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Each of Oracle Health Insurance’s components takes health insurers one step closer to full digital

transformation and business agility. Through automation, payers eliminate manual, paper-based

processes and the costs associated with those slow-moving processes. Every component also

embeds transparency in every transaction, so tracking down information about every member, claim,

and payment is only a few clicks away.

Components of Oracle Health Insurance

MEMBERSHIP: New members can enroll either through the user interface or a dedicated web service

available out-of-the-box. They can also enroll in cafeteria-style benefit plans, which clearly lay out the

individual’s benefit options and cost-share values. Oracle’s solution is capable of handling high-volume

memberships.

AUTHORIZATIONS: The authorization process requires health insurers to balance multiple priorities:

managing the cost of medical services, ensuring the effectiveness of medical services, and explaining

to members how the payer decided to cover or not cover certain services. Oracle’s auto-authorization

capability drastically reduces the amount of manual steps needed to accomplish all these tasks.

Because Oracle Health Insurance components are rules-based, users can easily dictate the

processing logic to implement the clinical rules.

CLAIMS PRICING: Complex provider networks and various contracts typically add difficulty to claims

pricing. Oracle’s claims pricing component enables insurers to eliminate unnecessary human

intervention altogether with automated claims pricing. Authorized users can set up the pricing engine

to accommodate all kinds of arrangements, including contract-specific configurations, shared

configurations, even retrospective or prospective bundled payments across multiple claims. Oracle’s

pricing engine can also recognize certain conditions such as a service having been paid through a

capitation arrangement.

A not-for-profit health plan with more than 1.2 million members increased its automated claims

processing rate to 92 percent, which allowed the organization to drastically expedite claims payments

to members. Freeing up resources also allowed the organization to develop innovative health

insurance products and services.

CLAIMS ADJUDICATION: Variations in benefit plans can often pose challenges for healthcare

payers. Oracle’s claims adjudication component offers a benefits engine that’s flexible and keeps

benefits organized no matter what. The component uses a central definition of health services used by

all plans. Like all components in Oracle Health Insurance, every transaction is traceable. Every claim

comes with a status history and users can easily see the calculations that led to the final result. As an

added benefit, insurers can explain claims decisions more easily to members.

Pay for value models, which incentivize providers to deliver quality care at the lowest cost, are

becoming the preferred approach in healthcare. Oracle Health Insurance is designed to adapt to new

payment models such as bundling, capitation, shared savings, accountable care organizations

(ACOs), and pay for performance. Because Oracle’s flexible configuration makes any reimbursement

scenario possible, insurers now have the freedom to innovate their payment arrangements with

providers.

CLAIMS ANALYTICS: Oracle’s claims analytics helps healthcare payers uncover new insights, which

in turn, helps executives constantly find new ways to improve. The analytics component can uncover

valuable information on hundreds of areas such as reimbursed claims, the number of adjustments on

processed claims, claims utilization by provider or by product, and much more. Digital technologies

like Oracle’s claims analytics can make a huge impact on an insurer’s bottom line. In Harvard

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Business Review’s digital transformation study, nearly 70 percent of digital leaders used digital

technologies to improve decision making.8

ORACLE HEALTH INSURANCE IN THE CLOUD

Because every component of Oracle Health Insurance is available as a cloud solution, healthcare

payers can benefit from:

• up to 100 percent less technology staff depending on employee size

• speedy deployments

• improved user experience

• higher customer satisfaction

Oracle is the only large-scale cloud provider that builds the entire stack in-house: hardware, firmware,

software-defined networks, and business software. Some vendors may advertise “cloud enabling” their

existing software products. However, cloud enabling merely transfers the ownership of IT outsourcing

to a third party.

So far, Oracle Industry Cloud serves more than 17,000 customers with more than 3 million end users

spread across 100 countries. Oracle’s industry SaaS offerings address the global regulatory and

security needs of each industry that we serve. Our heightened standard of security and compliance,

based on an ISO 27000 framework, safeguards data from cybercriminals and unwarranted

government demands. Oracle SaaS offerings are designed to meet market compliance standards

such as HIPAA, PCI, and SOC 1 and SOC 2 certification.

FLEXIBLE SYSTEMS MAKE AGILE PAYERS

Volatile market conditions will always be a risk for the health insurance industry. And while

technologies continue to advance at accelerating rates, payers will have to aggressively prioritize in

order to direct resources wisely. The smartest investments will be those that position the organization

for further transformations and reduce spending. Digital leaders will use every opportunity to move

forward, while the laggards will eventually become irrelevant. Incremental steps toward digital

transformation will ultimately create agile payers, prepared for the turbulent road ahead.

This white paper represents the views of the author, not America’s Health Insurance Plans (AHIP).

The publication, distribution or posting of this white paper by AHIP does not constitute a guaranty of

any product or service by AHIP.

8 http://bit.ly/2nRaLs3

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Digital Transformation Piece by Piece: A Game Plan for the Unshakable Healthcare Payer

Revised August 2018]