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.

COVID-19 Relief Credits May Be Disappearing Without Your Knowledge

Written by: Rob Heminger, President

SpendMend partners with more than 100 healthcare systems spanning over 2700 hospitals across the U.S.  In a given quarter, we receive several terabytes of client spend data comprising billions of dollars in transactions while at the same time we are also supporting over 60,000 vendor interactions and touchpoints.

By normalizing, organizing, and analyzing these massive sets of information, we are able to provide our clients an enriched viewpoint specifically related to their position in the healthcare industry.  Much of the value we deliver is uncovered from “data pockets” or “themes” that are not easily visible from a client’s perspective.  We take pride in shining a light on this “Dark Data.”

In recent months we’ve started to see a new trend arise within the data we are reviewing.  A growing subset of vendors are working as best they can with health system procurement departments to make available a wave of COVID-related credits, helping to offset some of the economic pressures being experienced in the market.  The credits can be material in nature and the growing trend speaks to the sound partnership established with each health system and its vendors.

The cause of these credits varies widely from the reversal of pre-payments based on under-utilizations, to the re-instatement of suppressed rebates/discounts, to the discovery of hastily-made COVID-related duplicate/overpayments and much, much more.  In our observations, there is not one single, predictable process in place to report the diverse set of COVID-related credits.  The process is proving inconsistent (and, at times, rushed) across vendors and as such, much of the detail associated with these transactions remains “dark” to our clients. Through our reviews, we have observed that our clients are not always receiving the notification of these credits (into the appropriate departments) and as a result they are frequently not receiving the economic benefit.

The dollar volumes associated with these COVID-19 credits can be significant.  In our communication with just one single vendor, we identified over $90 million of credits (all aged over 90 days) which had not yet been realized by the appropriate health systems.  In only a few months of monitoring vendor communications across our client base, we estimate that there are, conservatively, hundreds of millions of dollars going unaccounted for between vendors and health systems related to COVID-19.

Outwardly this is a good development for health systems.  There seems to be a large correction of credits coming back from vendors related to the COVID-19 challenges.  But, due to a lack of communication and standardization (and resources) across the vendor population we are observing that too many health systems are simply not receiving the benefit of these credits and they are either continuing to age on the vendors’ books or they are being used unilaterally by the vendor against open invoices of their choosing.  Unfortunately, these invoices may be disputed or the offsetting credit may go unseen until the health system dutifully pays their invoice anyway, thus creating a new credit which is as invisible to the health system as the original COVID-19 Relief credit.

In the month of November, through our investigations and in coordination with vendors, we were able to return over $2 million in unrealized COVID-19 credits – with significantly more returns still under review.  Though we have observed that many of these credits exist only in the vendors’ records and are difficult to uncover, we have worked to bring our clients data together with the appropriate vendor to resolve these issues.  The vendors are cooperating and are committed to helping the health systems through this crisis.  However,  the return of these credits remains a difficult task being administered by a group of professionals that are already short staffed and working overtime to keep up with the day to day challenges of payment application.  And let’s face it – like many of us, vendors were simply not ready for a project of this magnitude.  How could they have been?

For more details on COVID-19 Relief Credits and for help ensuring you are aware of any monies your health system may be owed, please reach out to a SpendMend representative and we can help you to understand which of your vendors are likely candidates for these credits; how much is potentially available; and what steps you need to take to realize the credits.

Happy Thanksgiving From SpendMend

Written by: Dan Geelhoed, CEO and Rob Heminger, President

2020 has been an extremely challenging year for all of us and it can be difficult to find things to be thankful for with COVID-19 continuing to impact families and businesses.  In light of these unprecedented challenges, we find it is still helpful to take a moment during this time of year to reflect on the things we have to be thankful for.

At SpendMend, our mission is to help hospitals improve patient care through the delivery of our cost savings solutions, transaction analysis, and improved visibility.  Through our work in 2020, We feel like we’ve been able to make a real difference and provide relief to hospitals in terms of cash flow and key insights for supply chain improvements.  We are sincerely grateful for the opportunity to serve our community.

We are also extremely thankful to frontline workers and healthcare staff from every corner of client population (and every other healthcare network, for that matter) that continue to meet the ongoing challenges of COVID-19 every single day.  They are all facing the impacts of the virus directly and we thank them for their courage.

On a more personal note, We are also very thankful for the kind and open hearts within the SpendMend organization.  Many charitable organizations have been hit hard by the pandemic and have greater needs than in previous years.  We were impressed by the way our staff stepped up, in 2020, by supporting Van Andel Institute’s Bee Brave 5K and Kids Food Basket- Grand Rapids when those organizations really needed support.

We have another chance to make an impact with our Toys for Tots drive starting next week.  We are so fortunate to be in a position to help others and I am thankful (and inspired) to have a team that really cares about others.

The novelist, James Lane Allen once said, “Adversity doesn’t build character, it reveals it.”  We reflect on this quote from time to time as we look back over the past year and think about all the ways in which so many people have stepped up to face the challenge in front of them.

Like many, we are ready for 2020 to be over, but we are still thankful for all of the great people who have worked so hard to do amazing things through this difficult time.  It has us feeling very hopeful about what lies ahead in 2021.

Happy Thanksgiving!

With OIG Waivers Lifted, Hospitals Face Steep Penalties at the Worst Time

On March 30, 2020, in reaction to the President’s declaration of a national health emergency due to the COVID-19 pandemic, the Department of Health and Human Services (HHS) waived several CMS and OIG program requirements and their related audits.

Several months later CMS signaled the reversal of their order announcing their intention to “discontinue exercising enforcement discretion beginning on August 3, 2020, regardless of the status of the public health emergency.”

Translation:  At the direction of CMS, OIG is back doing audits to ensure hospitals are following procedures and one of their key focal points is Medical Device Explant Warranties, an initiative that, alone, is projected to recover billions of dollars from U.S. hospitals.

While there isn’t clear guidance on exactly how the rollout of the audit programs will take place, it’s clear that CMS and the OIG are intent on trying to eliminate fraud, waste, and abuse in pursuit of recovering monies they feel are owed back to Medicare.

All U.S. hospitals are in scope and there have been cases where some systems have been blindsided by claims in excess of $40M.  Your hospital has likely been in violation of the credit handling process and will owe significant dollars based on the OIG audit.  In a recent sample of 296 hospitals, the OIG found that 100% of hospitals were in violation.

Unseen errors can come in many different forms and are based on several factors.  For example, in 2017 Abbott Laboratories recalled a Coronary Dilation Catheter which was experiencing a protective balloon inflation malfunction.   The recall resulted in thousands of replacements and subsequently resulted in thousands of potentially mismanaged warranty credits.  The OIG will be checking to see if your hospital handled these (and many other recall-based credits) correctly.

Are you prepared?

SpendMend recommends calling in one of our tenured specialists to perform a Mock OIG Audit to assess your compliance and any risk you might have. Program oversites are as common as they are costly – and they happen every day.

Fiscal Heroes to the Rescue — YOU Can Make a Difference

By: Tim Berkey

We have all seen and heard countless examples of courage from front-line workers and other medical professionals during the Covid-19 pandemic.  As our nation has experienced an unprecedented (in our era) medical challenge, we have found new respect for those who sacrifice themselves so that others may live.  And even while these amazing stories of human compassion give us temporary reprieve during this difficult time, the resulting impact of Covid-19 has created a gaping financial hole that further threatens the fiscal solvency, and in some cases, the mere existence of certain healthcare organizations.

In predictable response to this challenge, healthcare leaders have spent tireless hours making difficult decisions about the best use of time and resources, as well as creating future plans for dramatic expense reduction and revenue enhancement. In rare cases, these plans and their proper execution will be enough to offset up to a 50-percent reduction inpatient revenue since the early stages of the pandemic.  However, in many cases, even the best plans and execution will still render the organization unable to recoup the entirety of previously lost revenue.  For all organizations, there has been much opportunity to lament these harsh fiscal realities, though there are still strategies to consider which may give financial relief during this challenging time.  And like the creativity and drive, we have seen from those “healthcare heroes”, these other fiscal strategies will likely require a fresh way of viewing traditional problems through a non-traditional lens.  They will require a new group of “fiscal heroes”.

If you are reading this and wonder how you can make a contribution, you can be assured that those opportunities are equally within your reach — even as they may require challenging traditional paradigms.  One such notable example includes the recovery of dollars that already belong to a healthcare organization (either in tangible or contractual form).  For example, the examination of AP transactions for “leakage” (aka, “recovery) is a strategy not foreign to most organizations. Though, it is my experience that some organizations may presume that the potential opportunity is either too difficult to uncover, too small to matter, or that, “we already do a good job finding recovery opportunities.”  It may surprise even the most seasoned financial executives to know that recoveries in excess of $500,000 – $1,000,000 are common and do not reflect “poor AP performance”.  What may need to change in this climate is the manner in which the pursuit of such opportunity is evaluated.  I would argue that the pursuit of this “last-mile” opportunity is an absolute requirement.  Related, how many instances typically avail themselves in which your organization can achieve a significant fiscal bump for something that is already contractually protected and for business already transacted?  The speed-to-value aspect of such a strategy is paramount in a post-pandemic period of cash-flow optimization.

If you are an AP Manager/Leader reading this and have not recently engaged a recovery partner (of your own accord or at the direction of your senior financial leaders), you have the opportunity to be a fiscal hero.  You can begin by engaging in a conversation about achieving last-mile recovery dollars through a vendor partner review of your AP transactions.  Perhaps even more importantly, if you are a financial executive reading this you can enhance your fiscal hero status by temporarily suspending the temptation to judge the potential of realizing a significant revenue increase, and instead, embracing any potential opportunity as a platform from which your future performance standards in this department will be based.  It is human nature to both enjoy a financial recovery and lament that a recovery was even available in the first place. A new paradigm might reflect a culture of “amnesty” for even the largest recovery opportunities so that there is literally no chance that staff are hesitant to engage in future, similar pursuits of financial improvement.  And, to be clear, my experience is that most fiscal leaders are already willing to consider that last-mile recovery dollars in an area like AP are commonly a function of the sheer volume of transactions that this important department must touch, as opposed to inferring that the identification of any material recovery dollars represents a failure of existing management or personnel.  Ninety-nine percent (or more) current transaction accuracy will still yield valuable last-mile dollars to the organization.  Are you ready to realize them?


About the Author

Tim Berkey is an independent strategy and delivery healthcare consultant who resides with his wife and family in Charlotte, NC.  With nearly three decades of healthcare process improvement and large-scale expense reduction experience at Premier, Inc., he helps healthcare leaders navigate pressing problems in areas such as supply chain management, general process improvement, and large-scale margin improvement.

When not partnering with healthcare organizations, Tim enjoys family time, art, music, and travel.