Healthcare AP – The Last Frontier of Automation?

Hospitals, medical centers and nonprofit health providers always seem to be the last organizations to automate their back-office processes. This is ever more true in Accounts Payable. Managers want to go paperless in AP, but struggle to get the ball rolling. Do these concerns sound familiar?

• What solutions work well with our GL, Materials Management, Supply Chain Systems?
• How can I get project resources? How much does it cost? What is the ROI?
• What are the staffing implications? How do we manage PO match exceptions?
• How can I convince leadership this is strategic?

This article is written to assist Accounts Payable managers, Vice Presidents of Finance, Controllers and CFO’s to plan, budget and launch accounts payables automation initiatives.

Related: Register for our free webinar, AP Automation for Healthcare: A Financial Strategist’s Roadmap, where Henry Ijams will answer your healthcare specific questions on P2P improvement.

Is Purchase-to-Pay in Hospitals Different than Other Industries?

In the healthcare industry, everyday business processes operate much differently than in other organizations—in many cases, they involve more complexity and risk. Healthcare supply chain and finance professionals know that things can get very complicated in purchasing and payments especially as the type of purchases can range anywhere from carrots to catheters. Organizations in other industries will often never handle payment requests for things like physician payments, pharmaceutical direct pay, bill-only, construction in progress, or patient refunds. Invoices inside of healthcare organizations frequently must be routed through a diverse range of personnel for approval, including supply chain, pharmacy, receiving, dietary, facilities, and of course, patient care. Moreover, accounts payable in health institutions requires a great deal of precision in order to keep sensitive HIPAA compliance information secure, and costs down.

One of the most effective ways to manage healthcare AP safely and efficiently is through AP automation and invoice management software to manage invoice receipt, data capture and approval. Among the most prominent providers of GL and materials management solutions is McKesson Corporation. The company’s accounting Pathways Financial Management (PFM), and supply chain software is widely used and well known in the healthcare industry, as is their materials management and AP suite, the Pathways Materials Management (PMM), or Horizon Materials Management (HMM).

McKesson’s ERP offerings are advanced and reliable, and its’ AP products are known for being proficient in many areas of invoice and purchasing management, including item master management, purchase order management, EDI and invoice to PO matching. However, there are other areas of McKesson’s system in which organizations experience process and integration heartburn. These pain points prohibit many McKesson PMM clients from going truly paperless in their AP department.

McKesson’s Missing Links: Invoice Exception Routing Roadblocks

One of the most prominent weak spots in McKesson’s software can be found among their greatest strengths. McKesson’s PO and invoice approval workflow functionality is one of the best offerings on the market today for healthcare-specific operations. However, exception management in this product is non-existent, forcing AP and supply chain users to manage exceptions by report, without the ability to route and manage matching resolution between various stakeholders.

The variety of invoice types in healthcare AP means many departments have unusual invoice approval processes and requirements, making secure and efficient AP workflow especially important. These workflows entail complex staff approver hierarchies, dollar thresholds, and special commodity reviews. Based on these criteria, McKesson developed a very robust and multi-faceted tier system for their workflow functionality. McKesson PMM workflow is detailed and robust, and it offers its users a fine level of workflow configuration and invoice visibility. However, it is also cumbersome to configure and maintain, and when it comes to ad-hoc routing, exception processing, exception tracking and reporting, parallel approval, role based workflows, and out-of-office delegation, the system falls short.

McKesson’s workflow is generally hard coded by McKesson configuration experts. Lack of user-configured and specialized departmental workflow causes invoices to be dependent on their assigned approvers and coders. Inflexible workflow configuration can cause problems if an approver is out of the office, especially for example if an invoice is assigned to an approver that works with several different departments. If that approver is not receiving requests, their assigned invoices will sit static without the appropriate coding. Worse, there is no automated escalation or ability to push stale requests to the next approver. In addition, if other personnel are assigned delegation (e.g. for an out-of-office employee) all members of that approver group will receive notification emails and all may act simultaneously. PayStream has found that this hard-coded approval processing is a big weakness in today’s dynamic market, which requires flexibility to support the needs of diverse healthcare stakeholders.

In healthcare, where so much depends on speed and accuracy, these issues can cause invoice approval errors, and processing and payment delays. McKesson’s functionality to solve purchase-to-pay challenges is limited. PMM provides strong control over the invoice process for AP and Supply Chain, but the end result causes PMM to fall short in adding efficiency and flexibility to workflow routing, automated approval, and matching tolerances.

McKesson’s Missing Links: Non-PO Matching

Another, greater pain point with McKesson’s product is their inability to effectively manage non-PO invoices. The McKesson matching functionality for PO-based invoices is exemplary and advanced, but about half of hospitals’ purchases don’t have an extensive document trail or don’t fall in the typical realm of materials, supply chain, or procurement. Due to the diverse nature of healthcare purchases, including recurring invoices, utilities and services, many purchase requests don’t take the traditional form of POs, shipping notices, and invoices. Due to the inability for PMM to route non-PO invoices (without McKesson’s Horizon Enterprise Content Management product), important purchases are frequently missed or delayed. It is a common practice among McKesson users to fake POs simply to get Bill-Only and check requests out of the PMM system.

Check requests and check writing are also major points of security for hospitals, and a lot of compliance issues can arise in auditing if these processes are poorly managed. In order to prevent failed audits, healthcare AP specialists and managers seek to make invoice images and content readily visible during the approval and matching invoices. McKesson does offer transparent invoice functionality that allows users to scan invoice images and view them as they approve. Unfortunately, McKesson doesn’t offer a holistic or accessible view into all documents, and searching for archived invoice images is very difficult. With a system that already has trouble supporting non-PO invoices, this lack of visibility is a great burden on McKesson PMM users.

The Solution to Healthcare AP Pains

Despite these issues, McKesson is a tried and true ERP system for healthcare organizations, and most of their clients enjoy and find success in the majority of the PMM offerings. However, if an organization using McKesson wants to go fully secure and efficient in their AP department, what are their options?

First, a healthcare organization can turn to McKesson’s new product, the Horizon Enterprise Content Management (HECM) software. This is the 2nd generation of their content management suite, and it has currently only been installed in a handful of hospitals. Included in the HECM suite is McKesson’s Check Request module, built several years ago to fix the pains with the original PMM check request software. Unfortunately, in order to get the Check Request module, long-standing clients must upgrade their system at their own expense, and even then they are not clear of problems. The PMM’s limitations with invoice routing and non-PO matching are still prevalent, as well as other problems, such as recurring-invoice setup. McKesson’s Check Request module is simply not able to completely fill the gaps in a user’s system.

Healthcare solution strategists have several options. Organizations can purchase a 3rd party solution and integrate it with their McKesson product. Today, licensed and cloud-based technology providers are offering AP automation solutions that are flexible, affordable, and specifically designed to fix the problems that McKesson PMM applications can’t cover. Many of these providers are developing their products with healthcare institutions in mind, and these solutions are easy to implement and synchronize with existing legacy systems.

Many of PayStream Advisors’ healthcare clients use non-McKesson invoice management solutions, including AP automation from cloud-based solution providers. HECM does contain native OCR data capture functionality and does not easily integrate with 3rd party OCR and Data Capture solutions from providers such as Kofax, Lexmark and Hyland Software. In fact, because HECM is new and has only a handful of installations, non-McKesson AP solution providers are the dominant delivered AP solutions for most US hospitals today. Healthcare supply chain and finance departments can leverage solutions that offer invoice capture, approval workflow, automated PO and invoice matching, OCR data capture, and electronic invoicing via a portal or network solution. (A variety of providers that offer these solutions are profiled in PayStream’s Research Vault and Solution Directory.)

Purchase-to-Pay professionals in healthcare enjoy robust opportunities to automate invoice processing. Most organizations have selected non-McKesson invoice management solutions to enhance McKesson robust materials management product. AP and Supply Chain strategists can optimize areas like out-of-office approval routing, recurring invoice management, and most importantly, non-PO routing and exception approval. Bolt-on solutions provide the security and processing efficiency that are necessities for successful hospital financial and materials management, bringing full automation capabilities into healthcare Accounts Payables. We look forward to the day when McKesson’s Horizon Enterprise Content Management (HECM) is a fully developed solution capable of solving hospitals’ AP automation needs.

Interested in learning more? Register for our free webinar, AP Automation for Healthcare: A Financial Strategist’s Roadmap, where Henry Ijams will answer your healthcare specific questions on P2P improvement.