“Internal Audit” can better support a hospital’s financial stability during the COVID-19 pandemic.

SpendMend Team

Written By: Dan Geelhoed

The Ongoing Cost of COVID-19

The COVID-19 pandemic has driven revenues down for nearly every industry especially the healthcare industry.  In particular, the widespread decision of practically all U.S. hospitals this past spring to suspend elective surgeries and services proved to be extremely costly.

According to data gathered by the Crowe Revenue Cycle Analytics (Crowe RCA) with very few outliers, “health systems across the United States experienced an average decline in patient volume of 56%… this equates to an estimated national decline of $1.44 billion in net revenue per day for hospitals with more than 100 beds.”

 

The Role of Internal Audit

Prior to the COVID-19 outbreak, hospitals routinely suffered operational lapses and financial leakage as a typical cost of doing business.  To counter these gaps, many healthcare systems depend on their Internal Audit department to better understand the cause of errors and put measures in place to stop them. No matter how meticulous these departments have become, they alone cannot cover the full scope of the problem and are forced to make priority decisions about which process gaps to address.
With few exceptions, Internal Audit teams chose to prioritize processes related to the hospital’s core charter: delivering patient care.  For the sake of limited time and resources, auditors are often forced to leave some cost-cycle and financial leakage issues unattended or un-resolved.

 

The Current Environment

At present, amid a global pandemic, Internal Audit groups remain more focused than ever on supporting policies and procedures that are directly related to caring for patients.  Sadly, a staggering volume of revenue loss continues to go unchecked as staff sizes have been reduced, operations have suffered, fraud has increased, and compliance has lapsed.  Although many hospitals have resumed elective services throughout July and into August – enough time has already passed to cause severe revenue shortfalls.

 

Recovery Audit: Why is it Important?

Recovery Audit can serve as a vital part of an Internal Audit by discovering and returning hard dollars to the hospital’s bottom line.  At the same time, a Recovery Audit is also an effective tool to uncover compliance issues, control gaps and operational concerns in the financial department, the procure-to-pay process and the cost cycle.

In our 27 years of experience, SpendMend has observed that Internal Audit groups gain a dramatic increase in visibility when leveraging a Recovery Audit. At a time when the system has been strained and resources are particularly scarce, the additional funds and insights delivered by a Recovery Audit can potentially be the difference between a hospital’s ability to deliver crucial patient care… or not.

By championing a Recovery Audit project, the Internal Audit department is easing the burden on their own department, mitigating the impact of financial loss, helping to reinstate best practices, and most importantly doing their utmost to support patient care.

Webinar Recap: 5 Hidden Ways That COVID-19 is Impacting Your Business

SpendMend Team

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

Yesterday I hosted a webinar entitled, “The five hidden reasons why COVID-19 is hurting your Procure-to-Pay (P2P) process.”

I used the presentation to reveal several hidden areas throughout the P2P cycle where U.S. hospitals are losing significant hard and soft dollars. I was motivated to deliver this webinar because of the unique visibility I gain through the work that I do on a daily basis.

The SpendMend team oversees many cost cycle recovery initiatives at nearly 100 top U.S. health systems.  We manage and review hundreds of billions of dollars in hospital spend.  By leveraging our in-depth data and analysis, we uncovered and outlined several trouble spots that seem to be hiding in plain sight.  Our goal was (and is) to create as much visibility as possible and to help P2P professionals throughout the healthcare industry to take notice of and to address these issues.

Specifically, for this webinar, I compared and contrasted trends I was seeing in client data that I had received in the last few weeks versus what I had noticed in the data from January of this year.  Basically, I just looked at data from right now versus from the period right before the COVID-19 pandemic took over our economy – and the difference was night and day. 

From the vendor data, I noticed that suppliers were being onboarded at an alarming pace.  The incidence of duplicate or related vendors being set up in the hospital system’s shot up 86% over the typical baseline. These suppliers records are 2.9 times more likely to include invalid or missing tax identification numbers.  As the “rush” to service COVID-19 related demands became a priority, vendor due-diligence and compliance decreased starkly.  And all this is occurring at a time when the strained commercial conditions of the market are giving rise to higher likelihood of fraud.  In fact, Google reported last month a spike of over 24M daily spam messages related to the novel coronavirus.

Related to the behavior of vendors, I saw (in our client data) a drop from 28% down to 13% in response to a basic “request for data.”  Which begs the question… “Why are so many vendors ignoring common data requests?”  I also recognized where the percentage of zero-balance statements submitted from vendors had increased 44% over the typical baseline numbers that we are accustomed to seeing.  This is a clear indication that vendors are either withholding information or they’re reconciling their accounts without the hospital’s input.  I also saw an unprecedented increase in messages from vendors that outright stated they would be applying open credits and cleaning up their accounts.

The strange vendor activity described in the above paragraph is supported in a U.S. Chamber of Commerce report from June 3, 2020 which asserted that 20% of companies had already gone out of business; 57% were worried they would have to go out of business and 44% of companies were feeling uncomfortable about their cash flow position.  So, it’s not a surprise that vendors are suppressing credit information or reconciling their accounts on their own. (Please note, you can reverse this trend and SpendMend has several strategies to help you recapture those otherwise lost credits).

From the transactional data, I noticed some even more alarming statistics that spoke directly to an increase in payment errors and a decrease in internal processing compliance.  Specifically, I saw where – in only three months – there was a 28% increase in the incidence of duplicate payments and a 29% increase in the volume of off contract spend.  Just consider how drastic those volumes are and this is just the beginning…  Conservatively, these numbers already translate into million-dollar losses at most U.S. hospitals.  As these numbers spike, internal investigation and resolution is on a downward trend.

Truly, the examples listed above are only a sample of the content we shared in the webinar – which was only a small portion of what we’re seeing in the clients’ data.  And as shocking as a lot of those trends may seem, I have to admit that I am not entirely surprised.  I’ve understood for a while that the P2P cycle in a large healthcare network is often disjointed and as a result very elusive dark datasets can emerge in the many gaps that widen between departments and locations.

I’ve also come to learn that presence of dark data is even more pronounced in the healthcare industry because of a series of pressure points that I refer to as the “Three C’s.”  Change, Complexity and Compliance.  You can learn more about that concept here: https://www.linkedin.com/feed/update/urn:li:activity:6625783662342479872

All is not lost, however.  With the realization that these hidden reasons exist, we can continue to inspect the trends and analysis and begin to formulate strategies to reverse the trends and put U.S. hospitals back on a path of cost-savings and profit recovery.

Borrowing heavily from my discussions with key clients – I ended the presentation with a couple of tested ideas and projects that hospitals are using to improve their situation and to greatly reduce the loss of hard dollars.

For more information on this topic and for tips on how to address the hidden issues that are hurting P2P cycles in healthcare – view a free download of our webinar here: https://register.gotowebinar.com/recording/3138529960732615938

When The Hospitals Started Asking Me For Help… We’re Stronger Together.

SpendMend Team

Written By: David Hewitt, RVP of Sales – East, dhewitt@spendmend.com

I’ve served healthcare networks and hospitals for nearly a decade and if you would have asked me in January… I would have told you that I had seen it all.

But I hadn’t…none of us had.

The last few months have been one new experience after another and I’ve observed firsthand, how strong we are, and more than that – how strong we are together.

I’m fortunate, I’ve worked with many of the top hospitals across the country, and from those engagements I was able to meet some of the most influential leaders at world-class facilities.

If I’m being honest, conversations with these individuals have sometimes been a little one-sided – in terms of deference.  It’s true, my clients appreciate what I do, but I know I’m viewed as a supplier only, and by definition that makes me an outsider.

But things were a little different last week.  I was meeting with the CFO of a top U.S. hospital who I have met on a couple other occasions and he is always professional and cordial, but it’s always clear that I’m a contractor.  Although my work is openly and highly appreciated – the boundaries are still there.

During the conversation last week, my client took on a different demeanor – he was more candid and more vulnerable.  Clearly, the past few months have had a major impact on him.  His first words were, “David, I need you guys right now.  I need you to watch our back.”

You see, a couple months ago his whole healthcare network (like every other network in the country) shut down their elective procedures.  As a result, they bled cash.  And now, his group is planning to turn procedures back on to drive cash flow back to his bottom line.

The hospital is down in terms of staff, supplies and morale (if we’re being honest) and they are now expected to ramp up to pre-pandemic levels of output and efficiency.  Come on, man…

“We haven’t been focusing on our top or bottom line in the last few months and we know we’ve been taken advantage of by a few of our suppliers, and we know we’ve lost millions,” he admitted starkly. “You have to look into this for us.”

He asked me to double down on our audit scope and to investigate his AP transactions and his vendor relationships in detail.  He said he knew they had been moving too fast and too clumsily for the last several months in their attempts to keep up with the surge of COVID-19 patients.

As a result of his focus being pulled away from day-to-day operations, he was certain they had not been able to maintain compliance with their internal controls across their Procure-to-Pay cycle and he was grim about the losses he was suffering as a result.  He suspected they had been making purchases off-contract; onboarding duplicate and fraudulent suppliers; falling prey to price gouging; missing discounts and rebates; issuing duplicate and over-payments; and much more.  He actually said “… and that’s probably just the tip of the iceberg.”

Clearly the topic was very raw for him.  Hospitals like his have been reporting losses in the hundreds of millions of dollars due to COVID-19.

I felt bad for him.  I did.  But I felt excited too, because I realized how much we could help.  And he knew it too.  He said, “David, of all my partners you guys are the only one that can make this kind of impact this quickly.  I need you to backfill.”  I don’t know if I am doing the story justice, but in that moment everything changed.  He was pulling me in as part of his team.  I was more than a supplier.

I want to be clear about something, I know this is a self-serving story, but it’s a true story.

I’m not sharing this to advertise my company or to exploit the hardships of the market.  Quite the contrary.  I’m writing this because my firm wants to help.  We consider ourselves part of the healthcare industry.  The core of our mission statement is “to help hospitals better fund patient care.”  We take this very seriously.

We have an ideal solution to help hospitals restore cash flow right now – in a time when they really need it – and we want to use our solution to help recover funds and drive dollars back to hospitals.  Period.

If you work in finance at a hospital and you have any questions about what tools or strategies you should be using to drive hard dollars back to your bottom line, please reach out.  As I mentioned in the intro, I have been in this industry for nearly 20 years and if SpendMend is not a fit for you then I am sure I can connect you with another provider or consultant that can help you.

Please don’t hesitate to be vulnerable and reach out.  We truly are stronger together.

The More Things Change, The More Things Stay The Same

SpendMend Team

Written By: Nicole Thompson, Director of Business Development, nthompson@spendmend.com

When I started in the recovery audit industry as an intern at an industry leader, I was shuttling disks and drives to the data processor’s office and picking up bankers boxes of printed client reports. Pulling invoices meant rolled up sleeves and long lists of invoices, a few days at Iron Mountain and hours on end at the copy machine. As I began calling vendors to follow up on questions about statements, I had to look up contact information on a CD-Rom or call 411. Duplicates were the result of faxed invoices, returns, etc.  After interning I was hired on as an Account Executive. My next role challenged me to build a business development team. From there, I built yet another team and led the implementation of not one, but two CRMs. Now, I’m privileged to be working with simply the best team in the Healthcare Recovery Audit Industry.

CHANGE

Companies were changing. They were moving from legacy homegrown systems and paper invoices to first generation ERP systems like JDEdwards and imaging systems that promised freedom from file cabinets.

Organizations with people entering invoices at locations across the nation and around the world created regional or global AP shared service centers, gravitating toward the goals of cost savings, best practices and oversight.

There goes the recovery audit industry. Not so fast.

Inaccurate information on any of the many touch points of the procure-to-pay cycle, typos, returns, credits not forwarded to AP, new staff training and turnover were just some of the causes of overpayments found by post-payment auditors.

COMPLEXITY

As organizations became more complex, so did ERP systems and their resulting implementations. A once simple 6 month implementation was now a 5-year global rollout with all other projects on hold. With all hands on deck, day-to-day tasks like researching invoices that didn’t match the PO often didn’t get staffs’ full time and attention. Returns? Fugaddaboudit.

Offshoring and outsourcing were the buzzwords of the time, again, keeping everyone busy with change management, training, and conversion. These shared services centers promised to audit their own work.

What could possibly go wrong?

These system changes meant invoices paid in multiple systems, new and inexperienced staff, inadequate training and controls meant the promise of 100% accuracy went out the window.

COMPLIANCE

SOX, data privacy and an ever-growing list of government regulations meant even more issues managing and complying with multiple reporting and governance requirements, all while maintaining or even reducing headcount.

Digital information coming into and leaving organizations reduced paper and manual processes, but “information at your fingertips” was falling far short of the promises made when data in distinct systems had no way of talking to each other. Creating order out of chaos became a pipe dream.

20+ years later, a few (ahem) gray hairs, teams built and countless clients later (no correlation), procure-to-pay, supply chain, sourcing – we all look very different on the outside – but on the inside, change, complexity and compliance are the only constants. Supply chain, purchasing and accounts payable professionals manage all of this with ease. It’s their normal.

As Mary Poppins said so well, more than 99% of what they do is “practically perfect in every way.” But when you’re dealing with millions and billions in spend, that small percentage of errors can really add up. For public companies, those dollars can go back to the bottom line. For privately held organizations, you can reinvest into growth. For healthcare organizations, that means funding even better patient care.

Am I glad the days of pulling invoices at Iron Mountain are over? YES!

But the days of helping companies recover overpayments continue. As long as change, complexity and compliance are part of business, recovery auditing will be as well.

ILLUMINATION

So where do I see recovery auditing progressing?  The devil is in the details, and you have to dig into the details to find the real root cause of every single overpayment.

What happened? Why? How do you fix it?

Only by shining a light on your dark data can you achieve true visibility and uncover the answers to these questions.  And only by implementing the recommendations offered by the experts performing your audit, can you optimize your processes, controls and ultimately your department. You’ll be able to actually prevent those errors from happening in the future.

Change, complexity and compliance ensure that this illumination loop is infinite. We’ll be learning and growing and improving together for years to come.

The Fear That May Be Holding Some AP Professionals Back

SpendMend Team

Written By: Jill Ulliman, System Director, Accounts Payable at OhioHealth Corporation

I recently shared a story with a long-time colleague from the Recovery Audit firm, SpendMend, about a session I attended this past year at the annual IOFM conference.  After recounting the story for my friend, he asked me if I would be willing to write a guest blog for their website.  He is in sales and he insisted that my story hit directly on the single biggest obstacle he faces when working with prospects and potential clients.

Here’s what happened…  The Procure-to-Pay session was covering Post-Payment Audit and in an effort to engage a room of about 50 AP professionals, the speaker asked us to raise our hands if we were using a Recovery Audit firm or had experience with post-payment audits.  To my surprise only about 10 hands went up.  The speaker was a little surprised by this too; she quickly followed up with a couple of informal questions trying to understand why the vast majority of the room was avoiding a Recovery Audit.

After a few minutes of lively conversation, an AP manager boldly stated what was on their mind:

“I’m concerned my CFO would think I’m not doing my job if there happens to be a high volume of findings.”

As the others nodded in agreement, it was obvious that the AP professionals in the room had a fear that they might be exposed by the findings of a Recovery Audit, and they worried it could reflect poorly on their team’s quality of work.

My first thought was “WOW!” as I considered all of that lost revenue for their organizations.  I then thought ignoring the issues that could cause overpayments doesn’t make them go away and it certainly doesn’t put preventive measures in place to stop the bleeding.

I’ve engaged various firms in post-payment recovery audits over the years. I admit my ego may have been a bit bruised when I saw the executive summary after that first audit and how easily some of the overpayments seemed to occur.  I wanted to think my department’s processes were bulletproof.  Well guess what? All AP departments are vulnerable (typical recovery audits can yield 1.5% of spend in potential recoveries) and many things are outside our immediate control.  However, based on what we discovered, many things are within our control.   It was my call-to-action to close some process gaps in our operations.

I also have a tendency to be slightly (ok, maybe considerably) competitive.  So I shared the results with my team and put many of the recommendations into place.  I then challenged the team to help ensure that overall recovery findings would be less than the previous year.  Year over year audit findings declined until our organization was less than half in percentage of recoveries based on spend from the 1.5% industry average.

That’s the story our financial leaders want to hear!

I know that the need for post-payment audit recovery can create a certain perception from associates not as familiar with the process and why it is necessary.  I wanted to help dispel some of those beliefs by presenting our experience to our organization’s finance team (about 300 associates) at a recent retreat.

This is how I led into the presentation:

Post-payment audit ensures that terms and conditions of all purchases negotiated with suppliers are captured appropriately. The review provides an independent third-party evaluation of our procurement cycle, validates departmental controls and recaptures lost revenue.

If we do not review supplier payments on a regular basis, we are at risk of not recovering funds owed back to us as well as not having good data to hold suppliers accountable for contract compliance.

Many of those seasoned finance professionals were surprised to learn that ‘payment errors’ represented only 0.022% of our audit sample and the majority of claims were from pricing, rebates, and RTV credits.  Imagine if those claims were never recovered!  We just don’t have direct visibility into those transactions from the AP standpoint.

We have gotten so much value from recovery audits, both financially and operationally, that we decided to step up the timing.  In the past we would engage in audits every 2 to 3 years but the drawback was that we were always working with latent findings and credits that were from previous budget periods.  A solution was presented that performs continuous monitoring of more current activity (beyond 90 days versus 2-3 years) that helps us uncover erroneous payments and unidentified credits in the current budget period.  It also provides the visibility into process issues or supplier behavior that we can react to more timely for prevention.

While I don’t endorse any firm in particular, (much like this blog) I have a high regard for the practice itself.  I make sure I leverage the data from the executive summaries as well as ask the audit firm for industry benchmarking so that we continue our march toward best in class. (Did I mention I’m a tad bit competitive?)

I know many of you feel my pain when I lament that accounts payable tends to get a rap for being the ‘spenders’ and the transactions fall on the spectrum of being non-value add.  Imagine informing your CFO that you can happily bring lost revenue back into the financial statements.  Trust me, he/she won’t think you aren’t doing your job well; instead you may make an impression for identifying opportunities to control expense and leveraging additional process improvements.

Take my advice, get over your fear, and reap the benefits of a Recovery Audit.  You’ll quickly realize you had nothing to fear in the first place and can leverage audit findings to bring value back to your organization.

 

About the Author

In 33 years at OhioHealth, I have grown with the organization as an agent of change.  During my tenure, I’ve held various Finance positions that led to my current role as accounts payable director.  I have a passion for operational strategy, and I have led my team through Lean transformation with dramatic results.  I strongly believe in developing and empowering my associates so they can be experts at problem-solving and efficiency