The Positive Influence of Supply Chain into the Recovery Audit Process

SpendMend Team

Written By: Nash Shook, nshook@spendmend.com

Tucked away in woodsy, western North Carolina, I grew up in a progressive but small-town healthcare household.  My mother was a CRNA in our local hospital. My dad was the Supply Chain Director at the hospital in the next town over. I spent the summer of my Freshman year in high school working as a clerk for my Dad shuttling supplies and putting away inventory. Little did I know then that I would stay the course and pursue a career through various supply chain leadership roles.

When I was in college, to pass time while doing laundry, my roommate, Greg and I took up juggling tennis balls against a black painted wall in the basement of our dorm. Looking back, juggling is considered a perquisite skill I have always tethered to supply chain leaders. There are too many important duties to balance, each requiring intermittent attention to advance the progress and yet, always needing some level of management involvement.

The supply chain leaders I interact with represent the most strategic clients to our firm and come from large health systems. Central to their success is their ability to balance the day to day challenges as well as giving vision to how they lead areas of logistics, procurement, finance, operations, patient care and other support departments.  here are large annual saving targets, attending to critical product shortages, creating sourcing and delivery efficiencies in high-cost, high demand departments, developing staff for growth and staying ahead of expansion needs.  But what is their influence and interest in the exhaust of a recovery audit?

Recovery audits are normally directed toward and lead by the Accounts Payable leadership, and rightfully so due to the extensive review of systems internal and external around the P2P process. For supply chain leaders, recovery audits are not in their top 10 lists, but their involvement has demonstrated they can have a positive impact to their organization.

There are tremendous downstream efficiencies for supply chain, especially since supply chain provides coordination of the P2P across all departments. In most every engagement, we find that compliance (really, a lack thereof) to utilizing the return to vendor module will generate at least a third of the recoveries we find. Many times, that compliance is harder to correct without supply chain’s involvement. Recovery audits for accounts payable as you can imagine has a different exhaust. Why is that different?

I believe it’s twofold. The audit firm’s deliverable has historically been more geared to address AP-oriented issues: preventing duplicate payments, efficiencies around invoice processing, gaps in processes and aligning systems so records are reconciled properly.  There’s so much AP-speak going on, the insights that are of value to supply chain get lost in translation.

It’s also because Supply Chain needs are around building progressive value around cost reduction and process efficiencies, so their focus can be at times more to the business imperatives of the health system: keeping up with growth demands, pursuing large savings goals, developing a clinical value analysis approach to product management, etc.

For supply chain, recovery audits dig deep within products returned and whether or not the credit is properly documented. As mentioned earlier, returns not deducted is one of the top three findings within recovery audits, many times the highest.

Several supply chain executives have indicated to me that product returns are policy driven regardless of which department is issuing the return, so no sole department bears oversight.  However, supply chain leaders want to ensure they support and encourage ways to increase adoption and compliance to the process.

Recovery audits provide a layer or root cause to highlights this lack of adoption:

  • Which hospitals in your system are not utilizing the ERP to chart returns?
  • What departments have the lowest level of compliance?
  • Are vendors being asked to manage returns?
  • What does non-compliance to system-based returns costs the health system?

There’s another diamond in the rough benefit I’ve not mentioned and that’s the contribution that recovery audits provide in operational improvements.

It was referenced earlier that much attention is given to the recovery dollars captured and returned. It is a critical reason behind conducting an audit but unto itself, it’s a starting and stopping point. It’s finite, it stands alone and is merely transactional.

Shouldn’t the real value to the health system be understanding the drivers behind the financial leakage to begin with?

We say all the time that every health system has leakage, but to what degree and to what benefit is having a financial operating system if regular maintenance isn’t performed and if diagnostic measures that detect problems aren’t corrected? Recovery audits that provide detailed root cause analysis can enable leaders across the financial and supply chain areas to know what needs to be done to prevent costly process gaps from growing beyond acceptable levels.

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.

Where Visibility Meets Actual Recovery

SpendMend Team

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

In the last post ( Read it Here) I discussed the importance of being able to see your entire hospital as one whole entity. As discussed, a typical traditional 3 years back cost recovery firm will find savings missed inside and outside of your system. Recovery by itself is not enough, nor is it good enough for the changing healthcare environment. Only an in-depth continuous audit with deep dynamic analytics will reveal every issue or confirm your processes’ work.

 

Deep analytics give rise to the following types of questions:

1.    Why did we have $2M in duplicates caught last month?

2.    What is the full value of our unprocessed returns?

3.    How are many duplicates payments made?

4.    Where does our return process break down?

 

The force multiplier is root cause analysis and mending.  The ability to ask why is this happening?  Where does our system come unstitched?  How do we mend this?

Recently, a hospital was able to recover a $1,000,000 duplicate payment that had evaded their internal controls.  In fact, during the process, it was revealed that the internal system had gaps in their measures.  The deep analytics and horizontal view across their enterprise discovered the issues and pointed the internal team toward the corrective measures. This is where recovery and visibility meet to deliver recovery and resolute savings.