How Automating Invoice Processing can be a Shot in the Arm for Hospital Finance Teams

There are more than 5,500 registered hospitals in the U.S., comprising about 900,000 beds in total. With running costs estimated at about $2,200 per day, the average hospital, with just over 160 beds, can expect to see running costs of about $130 million per year. Of course, this is just a very crude estimate, and the largest hospitals serving major metro areas can have operating expenses well over a billion dollars. For large hospital systems, running costs can easily run into several billion dollars.

A large number of hospitals’ purchases are made through purchase orders, and major suppliers – such as drug companies, medical equipment providers and medical supplies providers, will typically submit invoices through the hospitals’ own EDI systems. However, even if 75 percent of a hospital’s invoices are received and processed through its EDI, this could still lead to several thousand invoices each month being manually processed, often from smaller, local vendors who don’t have the ability to submit invoices through the EDI. These could range from security personnel providers to bakeries, delivery services to office supply purchases. 

At an average cost of more than $16 to manually process these invoices, a mid-size hospital could easily see annual invoice management and payment costs of $250,000 or more. In addition to these hard costs associated with the AP team’s time spent manually inputting, securing approvals, and processing for payment, there are many soft costs that can be incurred, such as check processing. In addition, manual processing introduces a wide variety of risks: paper invoices being mislaid, duplicate payments, the potential for late payment penalties or missing out on early payment discounts, and incorrectly allocated or non-compliant invoice payments. This challenged is exacerbated in systems with several hospitals or health centers, as invoices are often sent to the delivery location, not the central finance team – increasing the potential for them to get lost in the system

Related: Why the Manual Invoice Processing Model Is Broken (And How to Fix It)

Migrating all of these smaller vendors over to EDI invoice processing isn’t realistic. However, that doesn’t mean that AP teams should need to continue processing these many thousands of invoices manually – spending countless hours entering data into GL systems, chasing internal approvers for sign-off, and finally submitting the invoices for payment. Migrating these processes to an automated invoice processing solution enables hospital financial and AP teams to vastly decrease the number of steps needed to move invoices through the system, thereby minimising processing time, reducing labor and other associated costs, and eliminating many of the risks that the approval process can be fraught with.

At the front end, all invoices are routed to a central processing point, be they hard copies, faxes, PDFs or HTML emails. This immediately removes the possibility of invoices getting lost, or forgotten/ignored by those who receive them. These are then scanned or imported into the system, either with optical character recognition or data parsing, with all fields automatically mapped, to eliminate the potential for rekeying errors. Once the invoice image and data are imported into the system, it is then processed in its business rules engine, using the hospital’s existing criteria for invoice approval routing. This will ensure that the invoice complies with the hospital’s internal policies for routing each invoice by type/GL code, approval limits, or by study, fund or grant.  

Related: How Can Invoice Workflow Automation Work for Your Organization?

Invoices are then automatically routed in real time for approval, alerting approvers by email, from where they can easily approve in a single click, without even needing to log on to the system. After each person in the process has signed off the invoice, it is automatically routed to the next approver, until final approval is received. Integrating invoice approval with a payments processing system can further streamline the process, by creating automated card or ACH payments, eliminating the need to prepare and mail hard copy checks. A cloud-based solution provides even greater flexibility for multi-hospital networks, as users can log on from any location and immediately see the status of invoices in the approval queue.

Related: What Could Manual AP Processes Be Costing Your Organization?

On top of the obvious benefit of reducing costs (by an estimated 50 percent or more), what benefits can hospitals experience from automating their invoice processing?

• Faster approvals – automated approval solutions can cut the approval time by an estimated 80 percent, reducing the potential for late payment penalties and enabling hospitals to take advantage of early payment discounts.
• Greater visibility – using a cloud-based solution offers both ease of use and greater visibility. Finance teams can log onto the solution from any device, including mobile phones and tablets, to check on the status of an invoice.
• Eliminate mistakes – cutting out the requirement to manually enter invoices into the system removes the possibility of incorrect data – such as value, merchant and billing code – being erroneously keyed in.
• Reduce accidental and deliberate duplicate and overpayments – duplicate invoice tracking avoids the potential of invoices accidentally being paid twice, and automated enforcement of business rules prevents fraudulent invoices from being approved and paid.
• Ensure compliance – business rules based on department, GL code and approval amount threshold eliminate the possibility of invoices being approved out of policy or bypassing individuals whose approval is required, ensuring that invoice approvals comply with all corporate policies.

While moving non-EDI invoices to a cloud-based invoice automation solution can save your hospital tens or even hundreds of thousands of dollars in costs by eliminating countless hours of manual processing, it can also deliver major financial and operational benefits by improving invoice approval and payment processes. From reduced bank fees to fewer mistakes and 100 percent compliance with approval and payment policies, invoice automation can deliver major value to a hospital’s finance team. The means you can spend less money on administrative processes, and devote more resources to providing patient care.