ANALYSIS: COVID relief credits and COVID-related distractions clear the way for a 70% increase in transaction errors (and cashflow losses) at major U.S. Health Systems

Written By: Rob Heminger, President

The Impact of COVID Relief Credits

Last December I wrote an article about the impact of “COVID-19 Relief Credits” on healthcare.  At the time, we were seeing that a significant percentage of healthcare suppliers were generating and issuing credits back to U.S. health systems.  In too many of these cases, the credits were issued but the health systems were improperly notified and unable to collect the credits.

In just the month of November 2020, through our recovery audit work, we identified and delivered over $2M in bottom-line, hard-dollar value to our clients – just based on this subset of COVID-related credits.  That number increased steadily in December, January, and February.

In that first article I wrote about the challenges that suppliers were experiencing in their sincerest efforts to correct transaction errors and return COVID-related credits back to hospitals.   Our frequent communication with suppliers revealed that AR departments were in no way bad actors, but rather they were often struggling to properly route communications and credit memos to appropriate parties at the health system.  The problem was multiplied because of layoffs, competing priorities, growing complexity, scarce resources and other preoccupations related to COVID-19.

The problem becomes more complex

Since that December article we have learned that COVID-related credits are only part of the story.  Through our ongoing recovery audit projects at over 100 U.S. Healthcare Systems, we have observed an overall increase in all recovery types, not just COVID-related credits.

The issue is a multi-million-dollar problem for many health systems, and although the ultimate size of the problem is still unknown, we have been able to complete several months of analysis on client data and a few key metrics have emerged.

Quantifying the Problem

For context, I will state that the typical industry benchmark for any health system performing a profit recovery review is about .1% of spend.  That is to say, on average, hospitals can expect to recover $1 million in bottom-line recoveries per every $1 billion of annual spend.

In the past six months, a period marked by many challenges attributable to the COVID-19 pandemic, we have seen a sharp increase to .17% in recoveries. Based on our research and root-cause analysis we can conclude the recovery spike is due only in part to COVID-19 relief credits.  The bulk of financial leakage arose because the staff members and operational systems that were typically in place to detect errors have been severely distracted with matters related to the pandemic, such as reduced staff, shifting attentions on PPE, onboarding new suppliers, distributing vaccines, treating COVID patients and much more.

After several strategy meetings with clients to discuss our results, we’ve realized that prior to the pandemic, Hospitals were dedicating far too many resources to retroactively identifying and correcting errors.  Our most recent benchmarking survey has revealed that cost cycle staff members were spending 2.1 hours per day on retroactive reviews, corrections and remediation.  (Just imagine if you could avoid all that effort.)

Without the resources available to perform those retroactive reviews, cashflow losses have been left unattended and increased sharply as a result.  In the words of one CFO representing a Top 50 U.S. Healthcare client, “COVID isn’t causing our problems, it’s revealing them.”

How Should a Hospital Respond?

No matter how you look at it, these numbers and insights should demand your attention.  Before COVID-19, and by industry averages, hospitals were losing $1M per every $1B spent in a year. And now, over the past six months, as the attention of cost cycle staff has been diverted, that number has shot up to $1.7M per every $1B in annual spend and climbing.

First and foremost, you should take measures to recover lost dollars.  We recommend that you engage a firm that can help you reclaim time-sensitive COVID-related credits, while also also delivering insight and visibility into why the financial leakage was occurring in the first place.  Without gaining context into why the problem has occurred, your ability to exert control over your process is severely challenged and limited.

How Can SpendMend Help?

For the past several months we have been working to identify and recover COVID-19 relief credits while at the same time we have been inspecting the impact of COVID-related distractions on the financial health U.S. health systems.  Our insights have led us to develop a flexible 3-step process to help clients recover unseen credits, gain access into costly Dark Data, and implement meaningful improvements to prevent future profit losses.

Contact SpendMend today and let us help you with your cashflow goals in 2021 and beyond.  At minimum, give us a chance to discuss your current environment and show you some new ways to assess the scope of your Dark Data and fix financial leakage throughout your cost cycle.