Three Reasons Why Healthcare Companies Are Draining Cash!

Written By: Rob Heminger, President, rheminger@spendmend.com

In today’s complex business landscape, large organizations suffer costly operational lapses and significant financial leakage on a daily basis. The matter is particularly challenging in the healthcare industry and persists because hospitals and health systems face three major factors which create a challenging environment for healthcare professionals.

Our experience at SpendMend has revealed the impact of these three factors are particularly pronounced throughout the P2P cycle where a host of professionals throughout the finance, procurement, sourcing, and supply chain departments are under constant strain.

The three major factors and some of their sub-elements are listed below:

  1. Change:  Hospitals and Healthcare Systems face constant change regarding staff, management, software systems and even all the way down to which locations are in or out of their network in a given year.  It’s never-ending. Common changes include:
    • Hospital Mergers & Acquisitions
    • Upgrading /Changing ERP Systems, EHR’s
    • Restructuring Departments
    • Changing GPO Providers
    • Vendor Mergers
  2. Complexity: Departments tend to function independently and must navigate through a host of competing global rules and local exceptions including:
    • Silo Approach
    • Complex Partners (GPO’s & Vendors)
    • Complex, Non-Integrated Systems
    • Healthcare Regulation
  3. Compliance: In addition to a host of complex and high-stress job tasks, healthcare associates are expected to comply with internal controls and external regulations such as:
    • Return Module Utilization
    • Multiple Approval Points
    • Data Entry Procedures
    • Purchase Order Utilization

When we inspect these three factors and their prevalence in the healthcare industry, in particular, we see quickly that professionals throughout all corners of the P2P cycle are being forced to manage through constantly changing complex environments in an unending pursuit to remain compliant with controls and regulations. As a result, healthcare organizations lose millions of dollars annually due to factors well beyond their control.

Organizations hoping to get a handle on their operational lapses and financial leakage need to consider a three-pronged mindset to ensure that they are addressing each of these issues and creating resolutions to shore up risk and loss.

Have you stopped to think about your own environment and considered the impact of these factors on you company’s productivity?  At minimum you should be opening up water cooler conversations with your co-workers to get their perspectives on the level to which change, complexity, and the pursuit of compliance is impacting your organization.

Any company looking to further diagnose their environment we encourage you to tap into the SpendMend network. We would be happy to put you in touch with our community of clients, partners, and consultants who have deep experience in assessing healthcare environments and helping companies to determine where they may be suffering from common and not-so-common problems.

Why Finance Departments in the Healthcare Space Need to Start Talking About the “Dark Data” in Their Cost Cycle

By: Dan Geelhoed, CEO, dgeelhoed@spendmend.com

Before we can have this conversation, we first need to outline what we mean by “Dark Data.” In the simplest terms, “Dark Data” can be defined as the information embedded in the cost cycle that is not easily visible, sometimes not accessible, and rarely timely.

The main causes for this lack of visibility are that this critical cost cycle data is being kept in disparate systems; there is a lack of integration between systems; there is limited reporting across systems; there is significant delay between transactions and information; and there is overwhelming complexity in the healthcare industry overall.  The list goes on and on – we are just scratching the surface as to why this is such a persistent problem.

Over time, much of the system data, which you may assume you have access to, will severely decay and, in many cases, it will become nearly impossible to get to.  This lack of quality and visibility is extremely costly.

Let’s inspect the impact that dark data has had on just one industry – Recovery Auditing.  For years, a traditional recovery audit would return an average of between $400K-900K per every $1B in annual spend.  These estimates are observable through countless samples of traditional audit results.  By contrast, a deeper end-to-end review of light and dark cost cycle data can deliver up to $4M per every $1B in annual spend.  These are quantified results from dozens of huge hospital systems over the past several years. Just think about the impact of these dollars to a hospital’s bottom line.

Getting to the “Dark Data” is difficult, but consider how much of a demonstrable impact it has in this one example.  In the example above, we are talking about the difference of $900K in value versus $4M in value. (per $1B in annual spend) This is of massive and material importance.

Despite the steep benefit to reviewing “Dark Data,” few firms and companies can source the elusive datasets and the massive available value frequently goes undiscovered and unrealized.  That said, a change will soon be coming to the marketplace as anecdotal evidence of the value becomes available and as financial executives are becoming more knowledgeable and more curious about the impact of better data on their operations.

In a recent poll by Health Care Financial News to uncover the top priorities of CFO’s throughout the healthcare space it was revealed that over half of CFO’s and Executives acknowledge that their organizations “lack access to clean, consistent, and trusted data.”  In addition, 90 percent of CFO’s think their hospitals “should be doing more to leverage Financial and operational data to inform strategic decisions.”

The point I would like to leave people with is that the pursuit of uncovering or exposing the “Dark Data” within the cost cycle is a more complete approach to providing visibility to the full berth of financial leakage throughout the cost cycle.  An inspection of “Dark Data” requires a paradigm shift where financial professionals are looking to the review the data that they do not have access to, rather than the records that they are accustomed to reviewing.  In one sense this requires a leap of faith that this “Dark Data” is source-able and when finally sourced will unlock massive savings and efficiency potential.

For any questions about how “Dark Data” may be causing financial leakage in your healthcare organization please click here

Stop Leakage and Multiply Savings With Actionable Insights From Your Enterprise Spending

By: Michael Koory, Regional VP of Sales – Mid America

All health systems have developed and implemented internal controls designed to protect against losing money in the Procure-to-Pay Process. These include departmental controls, system controls, and process controls.

Despite all of your investment and energy toward loss prevention and controls, Financial Leakage still occurs.  Because of these leaks, hospitals spend a great deal of time, money, and effort detecting and recovering these leaks. The entire recovery audit industry was created to be the chief detective and find lost dollars.

Financial Leakage is revenue lost inside enterprise Procure-to-Pay automation, internal handoffs, keypunch errors, multiple entity spending, missed discounts, payment terms, lost opportunities, and staff reductions.

The full impact of Financial Leakage is frequently missed and out of view.  Rarely is the full spectrum viewed across your health system, due to different departments using different aspects of your system controls. Usually AP cannot access the Purchasing information or the Returns module. This is where gaps can occur because of a lack of visibility where traditional approaches don’t work as well.

The problem with this purely detective and control approach is the lost visibility into root cause analysis and the understanding of the systemic issues causing the leaks.  The reality is most businesses do not have a timely, accurate, and holistic view into their enterprise spend data and preventative measures. This void causes the enterprise to engage in a “whack-a-mole” approach to finding the leaks and yet never solving them.

Our horizontal view across your spending ecosystem will reap significant cost recovery as well as contract compliance, benchmarking, and spend optimization opportunities.

Once organizations can see the full picture of their Procure-to-Pay system, the outlier issues become visible for action to be taken. A clear view provides insight and understanding while the hidden seam breaks and leaks are identified and can be sealed. The visibility of the whole is a force multiplier. A typical cost recovery firm will find savings missed and outside of your system because recovery by itself is no longer enough. Only an in-depth continuous analysis will reveal your internal operations and the visibility to the whole issue.

 

Keep an eye out in two weeks when we discuss where recovery meets visibility.

The Top 5 Causes of Dark Data

By: Michael Koory, Regional VP of Sales – Mid America

We introduced the concept and defined dark data as: Information embedded in the cost cycle is not readily visible, sometimes not accessible, and rarely timely. To refresh on the dark data concept, please visit the landing page

You also now know that Dark Data in your system hinders your ability to find and fix the control gaps causing financial leakage. You cannot fix, what you cannot see, and Dark Data obscures your vision.

Let’s shed a little light on the reasons why Dark Data exists by discussing the Top 5 Places Dark Data exists within your system.

1.    The integrity of Tools – In a recent study by Kaufman Hall 70 percent of finance executives in a recent survey reported that they don’t have the proper tools in place to effectively reduce costs in their health system.

2.    Disparate Systems and Process – The process of purchasing goods and services can be centralized or span across your network. How many steps are in your process? How many different software systems or methods are involved? The handoffs between departments and the lack of an enterprise-wide view are where control gaps exist, and they are not visible.

3.    Lack of Integration – A common enterprise-wide software system that did everything has been a desire of many hospital executives ever since the first EHR and ERP systems were developed. However, necessary integration is still a challenge for even the most integrated of health systems. There are just too many people involved in the process. The lack of integration means you cannot see the full impact of the process. It says limited visibility and limited ability to make changes or corrections.

4.    The integrity of Data – An additional insight from recent articles is the belief held by 56% of healthcare executives, that they don’t believe their data is accurate. This lack of useful information pulled from data hides control gaps and makes it difficult to make changes or improvements.

5.    Limited Reporting – Departmental differences between personnel and systems causes holes in the process. There is no easy way to know if the different methods are causing issues or losses. You probably must run multiple departmental reports and then manually merge the data to gain just a limited view. A lack of visibility allows Dark Data to hide the problems.

The cure for Dark Data is Visibility. A clear view of your enterprise spending coupled with a system to identify outliers gives you control. With visibility and power, you can make changes that close the control gaps and improve your financial fitness.

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What Scares You About An Audit?

It’s the time of the year when being scared is encouraged. Everywhere you look spiders, skeletons, and monsters are lurking… even in your finances, pharmacy, and OR. There is no reason to be part of the 51%* of surveyed healthcare executives who view a recovery audit as daunting and/or scary. The Financial Leakage monster that roams in your finances can be tamed.

The biggest concerns we hear when deciding whether or not to begin a recovery audit process, are that the process is time-consuming and they wonder if it will be valuable. A recovery project can check all these boxes if it is a full-service company matching your needs.

Overwhelmingly we hear that departments are being downsized due to budget cuts, more tasks are placed on small teams, and most people spend two hours a day on tasks outside their daily tasks*. The last thing anyone wants to do is add another task to their pile of things to do. A full-service recovery audit should not take much time.

 

  • There should be an initial setup that takes 1-2 hours
  • A download from the ERP system
  • 15-30 minutes status updates every other week
  • A final presentation of about an hour.
  • The total time commitment is less time than you spend during one week on outside tasks.
  • What do I get out of this project? No matter which portion of a recovery project you choose- whether traditional, sales and use tax, pharmacy, medical device warranty, or any other aspect the project must show you a concrete value. The value you should be receiving is visibility into your system, control gaps and areas of Financial Leakage should be pointed out, and you should learn where you are succeeding. Let’s use the example of returns to discuss the benefit of a recovery project. First, you should have the ability to see your project in real-time through a portal. Throughout the experience, a manager should meet with your team and tell you they are noticing that they are finding a higher than the normal amount found in refunds.You change the refund module and now you are saving money and getting closer to reaching your Corporate Saving Goal.

    You can then check on your returns by using a model that runs closer to the current date, so you never fall into the Financial Leakage Monster’s clutches again.

    You immediately see value in the portal, you can see control gaps and fix them, so you don’t lose any more money receiving financial value.

    If you choose to begin a recovery project don’t be scared or intimidated, do your homework and find the company that best fits your needs. Search for a company that can provide you with options to work from past to current and then continues to stay current. Find someone that has a portal for your team to have access to your project whenever your team has a moment to look at it. The final thing you should look for is a company that provides full visibility into your whole health system as well as analytics for you to take a deep dive into with your team. The check at the end of a recovery project is always nice to have, but making sure your system is efficiently operating is the real value.

     

    *all statistics come from a 2018 SpendMend Survey

 

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