Published in: The Journal of Healthcare Contracting Sandra Monacelli, Vice President, End-to-End Supply Chain, Value Analysis,…
Although the U.S. has one of the most sophisticated healthcare systems in the world, it’s far from the most efficient. Our latency, as an industry, in adopting modern technology integrations leads to significant inefficiencies in operations and in finance opens in a new tab.
Take accounts payable (AP) as an example.
When looking at the AP department of health systems nationwide, we continue to rely on slow and inefficient invoice and payment processing, lack of electronic data interchange (EDI) integration, less than ideal vendor management platforms and lack of a universally adopted Materials Management Information System (MMIS).
While many health systems have accepted this as a part of doing business, they fail to see how much these challenges negatively impact their bottom lines.
The price paid as a result of these AP inefficiencies becomes clear once we look at the data.
For years, Premier members have shared their frustrations. Many pointed to the industry’s antiquated and largely paper-based AP processes as the culprit, but the true cost to the industry wasn’t concrete until Premier partnered with Baptist Health South Florida opens in a new tab (BHSF).
BHSF is a not-for-profit healthcare organization that operates hospitals, outpatient centers and community health programs in southern Florida. George Godfrey, Senior Vice President and Chief Supply Chain Officer, was aware that invoicing errors led to a tremendous burden on the staff and the bottom line, but he wanted to know the specifics so he could deploy resources to create real solutions.
To uncover the root cause and begin solving the problem, George and his data and analytics team joined forces with their AP leadership to conduct a retrospective analysis, looking back at the past 180 days of their current vendor contracts.
Together, they created a tool that wouldn’t just give them historical perspective, but would allow them to track, in real time, the source of invoicing errors and create solutions.
The team’s initial review and data analysis yielded some eye-opening results.
- Roughly 25,000 match exceptions on an annual basis.
- Roughly 2,400 pricing errors on an annual basis tied specifically to current contracts with four-way pricing match through the distributor, the supplier, the group purchasing organization (GPO) and the health system.
- One particular item had to be manually price-corrected by BHSF’s staff 56 times in the 180-day timeframe.
The net impact: $7 million in annualized overcharges after aggregating all pricing errors with undercharges and overcharges.
Extrapolated across healthcare, the findings at BHSF would suggest $4 billion to $6 billion in unnecessary overcharges annually tied specifically to invoicing errors on current contracts with four-way price matches.
This figure doesn’t include the number of manhours spent rectifying the match exceptions. Based on a recent study opens in a new tab suggesting that 30 percent of all time in AP is spent researching and aggregating data tied to invoices, the findings at BHSF would also suggest that there are billions in additional savings tied to AP if we, as an industry, develop a new solution.
Enter Remitra – Premier’s new cloud-based, data-empowered, automated e-invoicing and e-payables platform.
Here’s how we’re working together to bring BHSF’s AP processes into the modern age.
Challenge: The current state of the health system’s AP process is complex and fragmented, which leads to errors starting at order origination, through to invoicing and payment.
- Solution: A digitized e-invoicing and e-payables technology that streamlines a provider’s entire AP process, from sourcing all the way to payment, and ensures every invoice is accurate.
Challenge: There are numerous products and processes currently at play within the health system, with supply chain information living in numerous, disparate systems.
- Solution: A single platform that houses all supply chain information, eliminating the need to re-enter data into multiple systems, makes it easier for providers to mine data for insights and savings opportunities, as well as ensure accurate ordering off best-price contracts.
Challenge: While enterprise resource planning (ERP) platforms like BHSF’s are effective for managing core supply chain functions like contract standards, on their own, most ERPs lack the sophisticated capabilities essential to seamlessly process invoices, payments, discounts and exceptions.
- Solution: An ERP agnostic solution that interacts universally with providers’ and suppliers’ ERP systems. Health systems can quickly deploy the AP tech, rapidly increase efficiencies throughout the organization and achieve optimal results.
Here are seven additional ways health systems can benefit from embracing AP automation.
- Reduce invoice processing time (from 14.3 days to 3.7 days on average) through the elimination of paper invoices.
- Eliminate paper invoices and checks (saving $12 per e-invoice and $3 per e-payment).
- Maximize prompt pay discounts and rebates.
- Eliminate late payment penalties.
- Increase workforce productivity.
- Increase predictability of working capital.
- Improve overall financial performance.
“When we realized that we were overcharged $7 million due to invoicing errors that were completely avoidable, there was no question we had to make a major change to the way we process invoices and payments. We now know what our target is and how we’re going to fix the problems we uncovered through our analysis. Between the visibility that we unlocked combined with the collaboration that Premier is bringing to the market with the launch of Remitra, we are optimistic that the industry is on the precipice of tackling this systemic issue.” – George Godfrey, SVP and Chief Supply Chain Officer, Baptist Health South Florida
“As we all know, healthcare expenditures are 20 percent of our national GDP. The feedback from our members, our board and our advisory councils has been clear – we need to think differently to revolutionize and tech-enable the procure-to-pay space to drive efficiencies that can scale locally as well as nationally. This issue commands industrywide attention and we are pleased that Premier can partner with our strategic members as well as our progressive-thinking suppliers to drive this solution.” – Andy Brailo, Chief Customer Officer, Premier
Ready to join Baptist Health South Florida and modernize your health system’s AP processes? Get the details on our recent investment in electronic procure-to-pay solutions opens in a new tab.
Want more? Discover how our e-invoicing and e-payables technology helped Henry Ford Health System recognize more than $1.8 million in savings in fewer than three years.