Treasury Today Country Profiles in association with Citi

Health Care Service Corporation

Health Care Service Corporation, Winners, Judges’ Choice

David Deranek, Health Care Service Corporation

Our judges felt the scale of projects undertaken by David and his team at HCSC warranted a most deserved winner as Judges’ Choice, given the manner in which the team had gone about responding to the challenges of the US Affordable Care Act (ACA) that went into effect in 2014. The projects span eight key areas across treasury, a remarkable effort.

Photo of David Deranek, Health Care Service Corporation.

David Deranek

Senior Manager of Treasury Operations and Control

HCSC, the fourth largest healthcare insurer in the US, operates Blue Cross Blue Shield in Illinois, Texas, Montana, Oklahoma, and New Mexico in addition to 30+ operating subsidiaries. The company, founded in 1936, serves nearly 14.7 million members across five states and employs nearly 23,000 people in over 60 local offices.

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Judges’ comments:

Although HCSC submitted several entries in a number of categories, our judges felt the scale of projects undertaken warranted a most deserved overall Winner of Judges’ Choice given the manner in which the team had gone about responding to the challenges of the US Affordable Care Act (ACA – also known as Obama Care) that was passed into law in 2010 and came into effect in 2014.

The challenge:

Against the backdrop of US healthcare reform, HCSC treasury prepared itself proactively to anticipate transformative change in the industry.

As David T. Deranek, Senior Manager of Treasury Operations and Control at HSCS explains, “for its part the company’s treasury organisation launched its own plan to evolve from a process-oriented treasury function to a consultative think-tank treasury function focused more towards solving problems throughout the business and bringing value-added treasury solutions to our internal stakeholders and process partners.”

The catalyst for this change involved multiple projects that focused on creating a leveraged and customised TMS tool that would centralise all treasury activity from over 14 bank portals and over 150 bank accounts, eliminate Excel-based uploaded accounting process and automate manually intensive transactions, accounting, and reporting. Further, the TMS would provide the basis for a forecasting tool to more efficiently manage working capital and thereby increase incremental returns on the $10bn investment portfolio.

HCSC treasury decided that in order to improve its ability to manage liquidity and properly support the company in a changing healthcare industry environment, it needed to re-engineer how it administered its treasury operations. In addition, centralisation of company treasury functions across their member Blue Cross Blue Shield organisations, including over 30 subsidiaries, made this task to reformulate treasury’s working model absolutely essential.

The HCSC treasury team faced a crossroads to accomplish more through automation and therefore participate in transformational healthcare industry change via their role as financial consultants for the business enterprise. Treasury leadership determined that a fully leveraged and automated solution was imperative. A new working model was required to replace the multiple stand-alone systems – none of which communicated with one another, resulting in manual keying of data multiple times, creating data integrity concerns and requiring additional resources. Due to the disjointed technology infrastructure, management also had limited ability to obtain and analyse key treasury data soundly, efficiently, and reliably.

In short, it was clear that all cash and liquidity management processes, together with the deployment of talent resources, needed to be re-engineered.

The solution:

The solution was a three-year transformational programme, which incorporated treasury process improvements spanning:

  1. Treasury operations-cash management.

  2. Cash forecasting.

  3. Investment management.

  4. Corporate governance and audit controls.

  5. Treasury systems architecture.

  6. Balance sheet management.

  7. Business continuity practices (bcp).

  8. Most importantly – staff development and enrichment.

HCSC treasury department’s transformation project is a unique combination of technology, process and talent improvements. And today, HCSC treasury is now a centralised department supporting all five state plans (Illinois, Texas, Oklahoma, Montana, and New Mexico) of Blue Cross Blue Shield including its 30 plus subsidiaries and 20,000 employees. “Principal to our success is that the new treasury operations working model established comprehensive, enterprise services now centralised out of our Chicago headquarters with no duplication of treasury services in its member business units or subsidiaries,” explains Deranek.

Throughout the course of the project, HCSC treasury team was restructured from 2011 through 2014, to comprise 15 diverse professionals that include advanced graduate and undergraduate degrees, CPAs, CFAs, CTPs, and have backgrounds in banking, finance, tax, investing, accounting, and IT. Deranek notes: “together we comprise a dynamic and balanced team of subject matter experts that have been a guiding force behind a centralised treasury organisation modelled to emulate a centralised financial services model.”

Also, by reducing 86% of the treasury staff’s daily manual transaction volume through automation, treasury has transformed itself into a knowledge centre of subject matter experts who are much more nimble to participate in enterprise wide project teams that bring value where it was previously missing. In 2014, treasury operations consulted on no less than 150 cross functional initiatives ranging from the Affordable Health Care Act, Industry Prompt Payment requirements, OSC outsourcing initiatives, business unit profitability, enhanced investment returns, Medicaid payment regulation and cash forecasting. Previous participation on such projects was typically limited to the directors and treasury consultants.

Another important aspect of the success of this transformation project is the close development and understanding of requirements necessary between Treasury, IT, and HCSC’s banking partners, including Bank of America Merrill Lynch. Because of this, HCSC treasury processes have reached a high level of functional performance and automation which not only creates seamless transparency of transaction flow for treasury but also cultivates an environment of continuous improvement.

Photo of David Keswick, Kyriba, George Hoffman, PNC Bank, Alex Young, Bank of America Merrill Lynch, Forrest Vollrath and David Deranek, Health Care Service Corporation and Simon Jones, J.P. Morgan
David Keswick, Kyriba, George Hoffman, PNC Bank, Alex Young, Bank of America Merrill Lynch, Forrest Vollrath and David Deranek, Health Care Service Corporation and Simon Jones, J.P. Morgan

Best practice and innovation:

The completeness of this treasury transformation project embodies best practice. It allowed HCSC to restructure the staff, to emulate a centralised financial services model, to serve as a treasury knowledge centre by assigning staff resources to their business partner teams to provide specialised levels of treasury talent and financial support to the organisation. With this pioneering spirit, 100% of the treasury team now is deployed to support the business enterprise.

On the innovation front, HCSC has also developed a financial services vendor relationship scorecard which allows for the transparent sharing of information and open conversation on the mutual benefits of its many financial services relationships. By developing a scorecard based on agreed-upon metrics, there is a clear understanding of the existing relationship along with a roadmap for the future. HCSC is able to discuss with each vendor the share of credit commitment compared to the share of direct/indirect HCSC spend (share of wallet) along with the estimate of the relationship profitability (RAROC). The scorecard was developed entirely in-house without the services of outside parties.

The development of an innovative Cash Application Hub (CAH) delivered some impressive benefits too:

  • On a monthly basis, approximately 700,000 payments for $4bn are processed through the CAH.

  • Cycle time of processing of paper cheques reduced from seven days to same-day for cross referenced items and manually dis-positioned items are now processed next day.

  • Virtually all (97%) paper cheques and electronic payments are cross referenced and go through the dis-positioning process. Only those payments that are received without account information or that are paying multiple accounts cannot be auto-dis-positioned.

  • Forty five percent of electronic payments posted automatically with no manual intervention.

  • Using the CAH has allowed for centralised financial reporting and balancing of all accounts receivable systems, improving audit controls.

Key benefits:

  • Reduced reliance on bank credit lines.

  • Reduction in bank charges.

  • Cost savings.

  • ROI.

  • Process efficiencies.

  • Yield enhancement.

  • Interest savings.

  • Pricing enhancements.

  • Satisfies evolving regulatory requirements eg Dodd-Frank).

  • Time taken to implement solution and realise benefits.

  • Improvements in days sales outstanding (DSO).

  • Improvements in the cash conversion cycle (CCC).

  • Risk removed/mitigated.

  • Improved payment processing time to comply with insurance industry prompt payment requirements.

  • Business Continuity Plan (BCP) – Business Disruption.