AP Automation: Driving Savings, Revenue and More in Healthcare Supply Chain

Key takeaways:

  • Cost reduction remains a key priority among stakeholders across the healthcare industry.
  • Some healthcare organizations are turning to accounts payable (AP) automation as a means to find savings, maximize efficiencies and optimize labor.
  • AP automation is not only delivering value to the healthcare organizations that embrace it, but also enhances alignment with the strategic suppliers they’re doing business with.

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As cost reduction efforts continue to escalate across the healthcare industry, some healthcare organizations are finding success in the accounts payable (AP) department. By automating and digitizing legacy processes opens in a new tab with the use of new cloud-based technologies, these providers are:

  • Cutting down on human error and the expense associated with it.
  • Refocusing human and capital resources on more strategic opportunities.
  • Building stronger supplier relationships while maximizing payment discounts and rebates.

In a recent webinar, Chaun Powell, Group Vice President of Remitra®, spoke with Marian Favors, Executive Director of Customer Support at KARL STORZ and George Godfrey, Corporate VP and Chief Supply Chain Officer at Baptist Health South Florida, about the current state of AP in healthcare and the potential AP automation has to drive significant savings and revenue in supply chain.

Where Things Stand Today

Maintaining low operating costs is critical to the mission of healthcare providers. Yet, back-office supply chain operations like purchasing, processing invoices and paying suppliers are frequently overlooked as opportunities to lower costs and drive revenue. Three key reasons for this:

  • The existence of large silos between supply chain and finance departments.
  • Intense electronic health record (EHR) investment consuming budget and resources.
  • Payments focus on revenue cycle management rather than outbound payables optimization.

The real price the healthcare industry pays as a result comes into sharp focus when we look at all the waste created by processing invoices and payments the old-fashioned, manual way versus processing with AP automation.

On the current state of AP, what stands out for Favors is “the fact that we’re still using paper.” As indicated in the above video, approximately 70 percent of invoices in healthcare supply chain are paper based and 85 percent of payments are made via paper check. “It’s been a big challenge to get some healthcare providers to even receive invoices electronically,” Favors says. “How do we get our customers to accept e-invoices?”

Godfrey calls out the opportunity for “leveraging technology to eliminate paper and errors” and notes “healthcare is a very unique field.” Errors, including match exceptions that result when a supplier’s invoice doesn’t match up with a provider’s purchase order (PO), pull paperwork out of the normal processing queue. These errors create excess work and expense to fix and delay payment to suppliers.

Favors points to the need for collaboration between suppliers and providers and the importance of managing and mining pricing data, saying that data is “what drives all the match exceptions.”

Technology-driven AP automation can help solve these issues by enabling better collaboration, standardizing data and replacing error-prone paper processes with digitized e-invoices and e-payments. Greater efficiencies can then be achieved, resulting in saved time and money.

The Elements of an Automated AP Process

Automation is extremely effective when it comes to minimizing processing errors and maximizing payment efficiencies between providers and suppliers. Powell says “most progressive institutions we interact with are exploring how automation can help them today and connecting the dots between supply chain and AP. We’re seeing more and more of that. That’s going to lead to more collaboration and integration of processes.”

The following illustrates the points within the AP process where automation can be most beneficial in enabling that essential collaboration and integration of processes:

Some of the ways AP automation can help healthcare organizations opens in a new tab include:

  • Relieve administrative burden.
  • Reduce expenses.
  • Create the opportunity for prompt pay discounts.

For healthcare suppliers opens in a new tab, automation helps to:

  • Improve the order-to-cash (O2C) process.
  • Increase the predictability of cash flow and unlock working capital.
  • Optimize visibility into receivables.

What’s more, automation can significantly reduce the risk of fraud and theft opens in a new tab, benefiting healthcare providers and suppliers alike.

How AP Automation Enhances Supplier Relationships

In a December 2021 survey opens in a new tab of over 150 healthcare suppliers, data revealed that late payments, lack of visibility and match exception errors were among suppliers’ top pain points. During the webinar, Favors and Godfrey closely examine match exceptions, looking at the data flowing between their two organizations and the impacts it has.

Clearly, the pain felt on both sides of the healthcare supply chain is real. AP automation can provide relief and enhance provider-supplier relationships. Here’s how:

  • Business is conducted more efficiently. Harnessing the power of artificial intelligence (AI) and electronic data interchange (EDI) technology – which standardizes and communicates business information electronically between suppliers and healthcare organizations, automation processes most invoices straight through. Those that have match exceptions can get the attention they need quickly, as the technology enables suppliers to receive early notification of errors that need to be resolved.
  • Payments are secured and sped up. Paper checks, which can get lost in the mail, damaged or intercepted, duplicated or rerouted, are replaced with reliable e-payment (EPay) solutions such as automated clearing house (ACH) and virtual credit cards. These electronic payments are delivered directly from a healthcare organization’s enterprise resource planning (ERP) platform to the supplier’s integrated platform for automatic processing and reconciliation.
  • Cash flow is unlocked, helping to keep business running smoothly. Automation gives suppliers better control over their receivables, increases the predictability of working capital and improves overall financial performance. With an automated platform, suppliers can easily look up and track invoices and payments on-demand 24/7 as well as extract payment details for on-the-spot reconciliation.

Baptist Health South Florida’s AP Transformation Story

To conclude the webinar, Godfrey shares how Baptist Health South Florida transformed their AP process by focusing on the fundamentals of people, process and technology. “Most people view the AP department as a function within the P2P process that’s necessary but unlikely to create a competitive advantage,” he says. “However, a company can transform the traditional AP cost center opens in a new tab into a cost savings driver. We instilled a culture of continuous improvement. People need to know what their purpose is and not just come in to do transactions.”

Godfrey goes on to explain how Baptist Health South Florida does that, as well as the processes the system uses, and the workload management tools that have made it such a success:

Final Thoughts

Our presenters strongly agree AP automation is improving invoice accuracy and speed to payment, creating operational efficiencies and growing profit margins. But most importantly, AP automation is helping healthcare organizations get back to what matters most – focusing on patient care.

“When a [match] exception occurs, it doesn’t matter if it started with the supplier or the healthcare provider, we have to fix it,” explains Favors. “If it gets to the point where invoices are aging, then it becomes a problem for patients. When invoices age, [as the supplier] my system is going to trigger and I’m going to put the hospital on credit hold. When I put the hospital on credit hold, they can’t get the products they need in order to take care of their patients.”

Putting customers on credit hold isn’t something Favors chooses to do, it’s something the system is automatically set up to do across almost all suppliers in healthcare. Beyond the financial risk to healthcare organizations, there is patient risk opens in a new tab as well.

And that’s where the true power of AP automation comes in – enabling an efficient and reliable healthcare supply chain to enable efficient and reliable patient care.

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