The sun is setting on paper-based payments in healthcare, prompting many healthcare organizations to digitize their business-to-business payment functions.
This was the theme discussed during an executive roundtable held during Becker's Hospital Review's 7th Annual Meeting in Chicago and sponsored by American Express. Perspectives shared in the discussion have been summarized below.
As government and commercial payers reduce reimbursement levels, many hospitals are seeing their margins shrink. Hospitals and health systems must find new ways to streamline operations to remain financially viable. While accounts payable departments may not be the sexiest place to focus cost-cutting efforts, reducing waste and improving workflow in this area can have a profound impact on hospital spend.
Most hospital accounts payable departments currently use paper-based processes, which can be costly, tedious and ineffective, Stephen Anderson, Manager of Business Development for Healthcare and Education Payment Solutions with American Express. Cutting and mailing checks to service parties and suppliers carries significant material costs, including paper, printing and postage expenses. The more vendors a hospital contracts with, the more cumbersome and costly their payment process.
Additionally, sending business checks through the mail makes checks vulnerable to loss or theft, and there is a fee associated with reissuing payment or responding to instances of fraud, Mr. Anderson added. This labor- and time-intensive payment process can harm the hospital's relationship with its supplier, which wants payment as quickly and efficiently as possible.
Fortunately, moving paper-based processes onto electronic platforms is low-hanging fruit for hospitals eyeing cost-cutting opportunities.
How automating processes can help
Buyer initiated payment(BIP) programs help relieve the administrative burdens associated with account payables by automating manual processes through an electronic platform. These automated payment solutions can work in place of or alongside a hospital's preferred banking partner to make account transfers seamless, efficient and on-schedule. A BIP program enables hospitals and health systems to better manage and understand their spend behaviors, said Bryan Olson, Manager of Business Development for Healthcare and Education Payment Solutions with American Express.
American Express' BIP program is uniquely positioned to help hospitals manage their cash-flow. Accounts payable staff can direct American Express to make payments to vendors as the hospital receives invoices. Unlike paying by check, however, the hospital is not out any cash because American Express fronts the appropriate check amounts, incumbent upon the hospital footing the total spend once a month. This arrangement enables the hospital to be more flexible with its cash flow and extend or withdraw capital as needed.
In addition to operational advantages, BIP can improve hospital relationships with business partners by offering more favorable payment terms with improved speed and efficiency.
The CFO of a nonprofit, two-hospital system in the Midwest said his organization currently uses an e-commerce solution. An e-commerce program has many of the same benefits in principle as a BIP — it can facilitate electronic payments automatically, reduce administrative burdens and material spend and improve spend management. For this system, the program has dramatically revolutionized how the system does business by eliminating the need for staff to personally monitor each electronic transaction. "Talk about a culture shift, our e-commerce program moved the needle dramatically in terms of our speed-to-pay," said the CFO.
Unlike American Express' BIP solution, e-commerce programs typically require the hospital open a credit card in order to facilitate transactions. This can be a hassle for hospitals that are satisfied with their current banking relationships. American Express' BIP solution works in concert with hospitals' existing relationships with banks, thereby eliminating the need to open a new account. Unlike BIP, e-commerce solutions also don't offer the benefit of giving clients greater flexibility with their spend, like American Express does by fronting hospital expenses.
Baking it into your contract
An important element of adopting a BIP program is planning for strategic supplier contracting after an e-commerce or BIP solution is implemented. Both the hospital and supplier must have an agreement with the e-commerce or BIP facilitator to use the respective platform. This means payment methodology must be part of the contracting discussion.
The CFO of the Midwest system said his organization has had some success in negotiating a payment method during contract discussions with its suppliers. "We have found [payment methodology] really is part of vendors' contracting schemes" in addition to payment terms, he said. Unfortunately, this can make or break potential or existing service agreement contracts.
E-commerce and BIP facilitators contract with a broad network of suppliers, vendors and banks. These companies can be a valuable partner to hospitals and health systems by steering organizations into new vendor relationships with reduced service rates. This can aid hospitals as they pursue greater operational efficiency and reduce spending, which are essential strategic priorities for all hospitals as they navigate the shift to value-based payment models.
The content in this published material is provided for general informational purposes only and does not constitute investment, financial, tax, legal or other professional advice on any subject matter. Please contact your investment, financial, tax, legal or other professional advisor regarding your specific needs and situation. American Express Travel Related Services Company, Inc. and its subsidiaries and affiliates (“American Express”) do not accept any responsibility for any loss which may arise from reliance on information contained in these materials.
The statements and opinions by participants are those of the participants and not those of American Express. References to third-party companies, products, or services that may appear do not constitute endorsements by American Express of such companies, products, or services.