Southern Cross buys company for its computer system

By Aimee McClinchy

Friday 20th October 2000

Health insurer Southern Cross says Aetna's four-year-old computer system is still the key prize in its takeover plan, despite a ruling it cannot have access to the system's database.

Southern Cross, which approached the Commerce Commission three times before its proposal to buy competitor Aetna was accepted, has been planning a major e-commerce and technology programme.

Aetna's system - based on US software but developed and customised by staff and several technology companies including RHE & Associates - will form the basis of the plan.

The commission's ruling that Aetna's 40,000 medical insurance policy holders must be divested and that Southern Cross cannot have access to their information means Southern Cross will only be able to copy the system, not join it and its content to its own.

Letting go of Aetna's insurance policy holders was Southern Cross' main concession to the commission.

"But being able to use a copy of their version, customised for New Zealand, is better than having go back to scratch and us having to buy the standard version," Southern Cross chief information officer Graeme Osborne said.

Mr Osborne said Southern Cross had shortlisted the Nasdaq-listed Health System Design (HSD) product for its own use 12 months ago, and when Aetna came on the market "it became part of the reason we looked at them."

Aetna's US parent is restructuring its holdings worldwide.

The health insurance market and the Commerce Commission had originally feared the two organisations combined would have an 80% market share - Southern Cross has an estimated 60% of the annual $500 million health insurance revenues and Aetna around 18%.

With this final scenario, Southern Cross has got rid of its closest competition in that sector and gained its "killer app," although it will not disclose a time-frame for the divestment process.

Mr Osborne said the other two main reasons for the acquisition were the high-value contracts in its First Health and Prime Health public sector contracting businesses - which provide specialised administration services for doctors - and Aetna's disease management and research team.

Aetna began implementing the multimillion dollar system from HSD in 1996 with Auckland-based RHE & Associates. It has been customised and a "front end" built on so staff can mine through information and extract data.

The huge IT project, which caused a massive culture and management change at Aetna, covers data warehousing, all hospital data and patient care and insurance and compensation claims and allows analysis and underwriting of risk.

Aetna chief executive Steven Goldburg said it had been used for the last two years to develop and change products.

Southern Cross' IT staff has been stepped up from 25 to 55 to run its technology programme, in which Mr Osborne said Aetna's system would be integrated over the next nine to 12 months.

Part of his plan is to link the system through to the First Health and Prime Health contractors and allow them access. Another part of the plan is to build a huge information portal for stakeholders and shareholders.

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