AP Automation: A Ripe Opportunity for Reducing Healthcare Admin Costs

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Technology Every Healthcare Facility Needs

By Vijay Ramnathan, President, MineralTree

The U.S. healthcare system has been under unprecedented strain in the face of COVID-19. Hospitals and healthcare systems have stepped up to face the challenges of testing and treating hundreds of thousands of Americans, implementing new procedures to safeguard the health of patients and hospital staff, and setting up large-scale vaccination sites.

These challenges have created historic financial pressures for healthcare providers made worse by lost revenues from cancelled elective procedures and disrupted supply chains. Hospitals across the U.S. saw their median 2020 operating margin drop 55.6 percent, without taking into account federal relief aid, according to a new report from healthcare consulting firm Kaufman Hall. 

Now, more than ever, hospitals and healthcare systems are looking to find financial predictability in an industry that might no longer be recession-proof. 

Opportunities for Optimizing Costs and Cash Flow

Every day, hospitals and healthcare providers evaluate opportunities and make decisions to operate more efficiently, without eroding patient care or staff safety. These evaluations can be long, challenging processes. Every function of a healthcare system incurs a cost, and that includes the accounts payable (AP) department. Ironically, AP is also a ripe opportunity for cost savings. 

In order to properly appraise the opportunities for optimizing the efficiencies in healthcare AP departments, it’s important to quantify the costs associated with manual, paper-based AP processes. Start by asking what the organization’s current invoice and payment processing costs are. How long does it take to approve a single invoice? How many invoices does your organization’s AP department process in an average month? How much is your organization spending to process a single payment?  If the majority of your payments are still made via check, how much time goes into printing, signing, stuffing, sealing, and mailing each payment? 

The simple fact of the matter is that only 30% of companies use automation to assist with accounts payable invoice processing, and only a marginally better 32% actively monitor and analyze the performance of their AP departments. It’s also estimated that on average, 50% of early payment discounts from suppliers are missed by businesses due to their struggles to execute payments in a timely manner.

To break it down further, 62% of invoice processing costs represent staff labor—time that could be better used on spend analysis, forecasting, or supply chain financing. AP automation can reduce invoice processing time and costs by as much as 80%.

Enhancing Supplier Relationships with AP Automation

How a healthcare system begins a relationship with a supplier can determine how long-lasting — and profitable — that bond becomes. Employing AP automation can smooth onboarding and streamline the data collection and analysis processes, removing a lot of the friction points that are inherent to legacy accounting systems. AP automation also ensures payments to suppliers are made on time, which goes a long way toward building trust and keeping relationships healthy and profitable for both parties.

Just like healthcare systems, healthcare suppliers are under immense pressure to improve working capital and cash flow. In order to retain business, healthcare suppliers frequently find themselves having to accept suboptimal payment terms and contracts. This means that, for the supplier, order-to-cash cycle optimization is a top priority. 

Suppliers are directly affected by healthcare organizations’ manual accounts payable processes. For example, a supplier might have to wait on overdue receivables or commit time to follow up on late or incorrectly keyed invoices. Moreover, every healthcare system has a particular paper-based or electronic set of best practices, meaning that suppliers must invest time into responding to the unique complexities of each organization’s payment process.

Just as digital payment options have been widely adapted in healthcare for patient billing, they have also proven beneficial for suppliers by facilitating better collaboration and streamlining payment and receivable processes. Additionally, when healthcare systems deploy an AP automation solution, the solution provider often handles the brunt of the back-end supplier management, recruiting, and onboarding of various vendors over time. This means a lot less effort is required from the healthcare organization to reap the benefits.

Digital Solutions for Manual Processes

AP automation solutions enable healthcare providers to capture any invoice in digital form and check for duplicates in the system, saving time and manual effort and eliminating entry errors and other unnecessary headaches. This is especially important for providers that order large quantities of medical supplies and other goods where multi-page invoices include lines and lines of detailed information.

Faster invoice approval is another benefit of AP automation, especially for distributed or multi-site healthcare organizations. Rather than manually chasing each approval, AP automation routes invoices to one or more department heads for approval based on pre-configured rules, such as department and amount thresholds. All outstanding invoices are centralized in one view for each designated approver, enabling invoices to be approved easily and from anywhere. Not only does this make it easier to stay on top of approvals in a timely fashion, but it also prevents unpaid invoices from getting lost.

AP automation also provides standardized electronic payment options and virtual cards. These single-use digital cards create auto-generated numbers that are automatically sent to the supplier in an email along with remittance details. The supplier can then process the payment like a standard credit card. In addition to being highly secure, virtual cards also provide healthcare organizations with valuable cash-back rebates. 

By digitizing and automating the AP process, healthcare organizations also get easy access to a rich dataset about invoicing and payments that can make a big difference in how the business operates.

Perhaps most importantly, eliminating manual tasks, such as data entry, improves organizational efficiency and allows finance staff to focus on more value-added efforts and strategic efforts.  Many healthcare organizations that adopt AP automation are able to re-assign staff to more meaningful, investigative roles, allowing former AP clerks a path to career growth in what has traditionally been a stagnant role. 

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As healthcare systems nationwide look for new ways to reduce costs, AP automation offers immediate opportunities for savings and more. By streamlining the accounts payable process, hospitals and health systems can better manage their cash flow and working capital, improve operational processes, and enhance relationships with key suppliers. This combination of efficiency and strong partnerships is productive for a more efficient and reliable supply chain.

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About the Author

Vijay Ramnathan is the president of  MineralTree, a company specializing in AP and payment automation for middle-market and enterprise-level companies. A self-professed fintech and payments geek, Vijay has spent over 20 years in the space including strategic leadership and operational roles at companies including US Bank, Fifth Third Bank, and COMDATA/Fleetcor.

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