The rapidly changing healthcare landscape, along with unrelenting pressure to control costs, challenges payers to find better ways to manage the complex cost allocation processes.
Alithya's methodology works with Oracle Enterprise Performance Management (EPM) to deliver the flexibility, transparency and reporting that today's insurers need.
During an Alithya-sponsored session as part of Becker's Virtual Payer Issues Summit in January, Mike Killeen, senior vice president of technology and strategy at Alithya, and Russ Papparotto, principal at Information Software Solutions, discussed healthcare market pressures and the importance of cost allocation.
Four takeaways:
1. Health insurers are under tremendous pressure. Insurers are operating in a volatile and fluid environment. New government legislation could alter the way benefits are funded and delivered, and insurers face growing pressure to control costs. "Payers have to spend about 10 percent of overall premiums on administrative costs," Mr. Papparotto said. Organizations are expected to provide services even more cost-effectively and deliver business value while operating under increasingly tight budgetary constraints.
2. Existing cost allocation systems are complex and inadequate. According to Mr. Papparotto, managing cost allocations is extremely complex because they need to satisfy internal financial requirements, meet governmental reporting needs and maximize expense reimbursement. "Cost allocations need to serve many different people, both internal and external to the company," he said.
While using Excel spreadsheets is one common approach, it is manual, can be difficult to govern and modify, and is often understood by only one or two people. "Other people attempt to manage cost allocations in ERP," Mr. Papparotto said. "The biggest problem is a lack of transparency because you're locked into the general ledger segments and structures that were defined when the ERP was put in place." Custom-built applications have a similar issue with very rigid design and coding methodology that forces users into a process and ties them to IT. "It's very slow to adapt," he added.
3. Alithya's tiered cost allocation methodology for healthcare insurers solves those issues by expanding the Office of Management and Budget's Uniform Guidance on the types of costs. Direct costs, indirect shared costs, indirect operational costs and overhead costs are managed in detail within this methodology, resulting in improved support dimensionality, better transaction coding, multiple stored allocation rules, basis type flexibility and unlimited cost center profile business rules. "One of the key principles to this solution is we're loading the underlying statistic one time, and then using these organizational relationships to derive the allocation percent," Mr. Killeen said. "That means if a business is changing over time, there's much less maintenance while we're still preserving transparency along the way."
4. Oracle EPM provides the architecture for connected planning, comprehensive financial close, analytics and reporting and enterprise data. Mr. Papparotto explained the F-A-S-T benefits of Oracle EPM: Flexibility, Accuracy, Shared methodology and Transparency.
"We'll be providing business-user-driven flexibility, which means we can quickly and effectively create additional scenarios and analyze results," he said. "We will provide accuracy by having necessary data controls and methodology, and shared methodology supports a consistent allocation sub-ledger for financial close as well as budgeting and forecasting. Most importantly, transparency allows service providers to have the insight they need."
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