Why It’s Time For Healthcare to Cure Its Payment Woes

September 28, 2016 Brent Meyers

A decade or so ago, hospitals and healthcare organizations were early adopters of a new innovation in payments—accounts payable credit cards. The rebates associated with these cards made them a desirable way to pay most suppliers. A lot has changed since then in the healthcare industry and in the payments industry. It’s time for healthcare to revisit their payments programs with an eye toward using new technology to achieve greater efficiency in all areas of their payments programs.

In healthcare, the biggest changes have been the Affordable Care Act, and the huge wave of industry consolidation it sparked. These changes created new compliance and process challenges.

On the payments side, cloud technology and APIs have given rise to a new generation of non-bank financial technology (fintech) payment companies. Unencumbered by legacy technology, these companies are reinventing supplier ePayments and making them more efficient, transparent, and cost effective. These solutions could cut as much as 70 percent of the costs associated with making payments while simultaneously easing compliance burdens.

 

An opportunity to play their cards right

Even though P-cards and SUGAs (single use ghost accounts, sometimes called virtual cards) have been around for about 15 years, adoption is still much lower than it could or should be across most industries. When ePayments have not been optimized, organizations typically make about 10 percent of their payments by card. They can usually increase that to 20 to 25 percent with today’s strategic payment solutions

Paying by card is more common in healthcare. According to recent report by PayStream Advisors, 21 percent of healthcare organizations use cards for at least 20 percent of their payments. Four percent use them for more than 50 percent of payments. By making card payments part of a strategic payments program, it’s possible that healthcare firms could achieve unprecedented rates of card payment and rebates.

Why did healthcare take the lead in card payments? Hospitals and banks have a lot in common. They’re big companies, but they operate like local businesses. They’re very connected to their local communities and to each other. Hospitals are expensive to build and run, so they need to have close relationships with bankers. So when banks were introducing card products for accounts payable, hospitals were a natural customer because of those established relationships.

Once a few hospitals started using credit cards for accounts payable, they took off like wildfire across the industry because it turned out that healthcare suppliers are more willing than most to accept payment by credit card. Margins are high, and competition is such that many suppliers want to offer that as an option for buyers.

Healthcare became a very competitive market for card programs and banks became aggressive with rebates. The ability to earn generous rebates made bank cards even more attractive.

There were still a lot of inefficiencies. For example, many organizations pay with P-cards rather than SUGAs. P-cards aren’t really a secure, automated solution because someone has to pick up the phone and give the supplier a credit card number. And there was still a lot of paper. According to PayStream Advisors, 63 percent of organizations still use checks for more than half their payments. 

So even though progress was made, there was still more that could be done to automate and optimize payments. Then massive change hit healthcare and finishing payments automation got shifted to the back burner.

 

Getting distracted

While cloud and fintech solutions were gaining steam, healthcare was busy transitioning to electronic medical records, and getting ready for the ICD10 compliance deadline in October of 2015.

And, with the advent of high deductible hospital plans, the focus in accounting shifted to receivables. Patients have always been slow to pay their deductibles and co-pays. But where they once may have owed $500, now they owe $5,000.

Today, many healthcare organizations are what PayStream Advisors calls “movers.” They have some ePayment solutions in place and are not completely satisfied with them. They are aware of inefficiencies in their processes, but believe they have “pushed as far towards automation innovation as the constraints of time and compliance will allow.”

In other words, they think it will take a lot of time to implement a new solution. With all the mergers and acquisitions that have taken place, the back office has gotten more complicated. Organizations are dealing with multiple banking relationships, each with their own payments programs, so the payments process is becoming more splintered and convoluted. The prospect of tackling all of these issues seems like big change.

They’re also worried about compliance. They’re afraid to give up checks in some cases because there’s a lot of documentation that needs to go along with the check. There’s a belief that, “Hey, I’ve got to send not only a check but also these 10 pages of information. I’ll just stuff it in an envelope because nobody is able to handle sending that electronically.” Guess what? There are solutions that can do that now.

 

Time to stop the bleeding

Receivables and compliance will always be top concerns, but the situation has stabilized. Now it’s time to stop the bleeding in accounts payable. 

Today’s fintech solutions offer a single workflow for card, ACH, check and even cross-border payments. AP only has to send one payment file, and payment is automatically routed by the most advantageous method—card first, with ACH as a backstop to that, and check as the payment type of last resort.

Unlike bank solutions, which offer limited supplier enablement services, fintechs use cloud networks and humans to do continuous, proactive enablement with all suppliers to make sure everyone can be paid electronically. With these services, most companies can get down to just 10 to 15 percent check payments.

The real value is the cost savings from eliminating most of the checks and all the manual processes involved in getting them out the door. You can put any data you want in the payment file and it goes along with the payment and is stored in the cloud for seven years in a HIPAA compliant manner. There’s much greater transparency—all parties can see where the payment is throughout the process and that cuts down on time spent on payments follow up.

The cloud has dramatically changed how solutions are implemented. It’s much faster and easier—it’s not the huge undertaking it once was. Now that electronic medical records have been implemented, and receivables are under control, it’s time to reinvest in the payables side. Healthcare organizations could be making even more card payments, and fewer paper payments, saving themselves an immense amount of time and money. The time to create that new cost-efficient operating model is now, before the next wave of change, whatever it is, hits healthcare. 

 

About the Author

Brent Meyers

Brent is the National Sales Manager at Nvoicepay. He is a professional sales executive who has 10 years of experience in team selling, territory planning, new account development, and account management.

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