Supply Chain Transformation (P2P from A to Z) Healthcare Looks to Other Industries for Best Practices
There are at least 100 different objectives that healthcare executives could be working on to address the challenges of healthcare reform, and 99 of them do not count. The one that all objectives roll up to is improving the financial performance of the organization. Should executives turn their backs on quality, physician integration, disease prevention, electronic health record and all the other hot topics of the day? Of course not, because doing the right thing in all of these key areas leads to enhanced financial performance. Keeping priorities in line and objectives alive relates back to that one key objective, financial performance. It is also clear that not all best practices reside in healthcare. ATM cards have been available for 30 years and have accommodated banking transactions all over the world but the healthcare electronic record is still a work in progress.
Supply chain is the largest expense category in healthcare organizations when the labor associated with managing this process is allocated along with the procurement costs of goods, and services and the logistical expenses of distribution. Rather than developing individual programs to address specific elements of the supply chain using traditional healthcare approaches, the most effective executives are creating integrated solutions using best practice from a variety of industries.
Components of an Integrated Solution
A memorable catch phrase for an integrated supply chain solution is P2P (Procurement to Payment) from A to Z. The following are the key components of an integrated best practice solution that lowers cost, improves operational efficiency and enhances the satisfaction level of the users.
Spend Management (e-Procurement)
This one stop shop for requisitioners to access all contracted items, services and suppliers provides an easy to use “Amazon.com type” experience. This solution should include supply chain data management services such as data cleansing, vendor master file cleanup, spend analytics, contract management and web based tools to blend contract data and cleansed item master data into a single, user friendly tool.
Electronic Data Interchange (EDI)
To emulate best practice in other industries, healthcare organizations should implement EDI with 100 percent of their vendors. This should be accomplished using available systems, which require no new software purchases or installation. Top systems include data validation, electronic trading network and web-based EDI that supports vendors that are currently not capable of receiving and sending electronic trade documents. Vendor costs for participation should be based on actual costs of providing the transaction as opposed to arbitrary cost structures such as a percentage of the total invoice.
Automates the accounts payable process from payment to reconciliation by enabling organizations to pay expenses with a virtual credit card and create cash rebates. Best practice programs use a single-use transaction process with unique numbers that mirror a check number, are automated directly into the financial system of the organization, promotes a process of high volume vendor participation and pays non-tiered cash rebate percentages of 1.5 percent or more. Opportunities exist in general accounts payables with vendors who already accept a credit card as well as Fleet Cards or Procurement Cards.
Supply Chain Risk Management
The integrated supply chain solution described above should be wrapped in the safety of a risk management program. Industry statistics reveal that approximately 1.6 percent of all vendors that are being paid by healthcare organizations should not be paid for one reason or another. In some cases, it is errors of omission such as a contract expired but the payments to the vendor continued. In other cases, it may be errors of duplication where an invoice was paid twice. In addition, others it might be pure fraud and abuse such as an individual establishing a bogus Limited Liability Company (LLC) and directing payments to that LLC with no associated services. Best practice programs offer vendor authentication of existing vendors as well as stringent on boarding of new vendors. Appropriate use of Fleet Cards and Purchasing Cards can be monitored allowing for maximum use of these programs while driving risk to zero. Because this is an ongoing, proactive process, best practice programs obviate the need for expensive accounts payables audits designed to correct problems once they happen rather than prevent them.
Other Considerations for Large Organizations
For single organizations that have the critical mass or an aggregation of regional facilities, there are distinct operational and cost advantages of developing a Dedicated Integrated Service Center (DISC). Rather than engaging a traditional distributor to manage the logistics of supply chain distribution for an organization, larger facilities are choosing to develop and operate those services themselves. Front-end acquisition costs as well as logistics costs and back end distribution costs can all be reduced resulting in significant costs savings and greater independence in the marketplace. Engaging an industry recognized logistics expert to assist with the development of this process is crucial. Utilizing an expert with knowledge of best practice outside of healthcare will result in a more efficient, cost effective process than using only internal personnel with healthcare specific experience.
Best Practice Procurement to Payment Outcomes
Regardless of the individual companies, industry experts or solutions employed, a best practice integrated solution should deliver the following outcomes.
- Reduced off contract spend of 30-50%
- Reduced data transmission related costs of 40%
- Reduced procure to pay costs of 25%
- Reduced time to receive goods by 30%
- Reduced time spent on purchasing/auditing of 20%
- Cash rebates on credit card purchases of 1.5% or more
- Create a 10:1 Return on Investment (ROI) in the first 12 months
Improving the financial performance of healthcare organizations is the number one goal of executives as they meet the challenges of healthcare reform. In order to maximize results, there are distinct advantages to looking outside of healthcare for best practice, engaging an industry leader to manage the project and implementing an integrated solution that addresses the entire continuum of procurement to payment wrapped in a secure blanket of risk management.
About the Author
Kevin Shrake is a trusted advisor and solves business problems in healthcare using best practice resources. Mr. Shrake is a Fellow in the American College of Healthcare Executives and serves as Executive Vice President/COO of MDR™ (www.mdresources.net) based in Fresno, California. Mr. Shrake may be contacted at: firstname.lastname@example.org