Healthcare Finance Trends for 2022: Accounts Payable Focus Report

This Focus Report offers a range of themes carrying particular importance for accounts payable (AP) operations selected from the Healthcare Finance Trends for 2022 eBook prepared by CommerceHealthcare^®. The three trends highlighted are related. AP faces a complex and challenging supply chain in the coming year. (Trend 1 below) An important strategy for coping with the disruption is to accelerate automation throughout the entire payables process both for cost reduction and strengthened supplier relations. (Trend 2) The strategy also entails offering the full panoply of rapidly growing digital payment options. (Trend 3)

For each trend, a few additional data points and considerations are provided for further illumination. Leaders are encouraged to read the complete Healthcare Finance Trends for 2022 eBook detailing 11 trends that carry significant implications for the economic and operational wellbeing of health systems, hospitals and practices.

Supply Chain Bottlenecks a Major Pressure Point

A factor impeding financial recovery from the pandemic is a global supply chain breakdown. Nearly all hospitals and health systems are experiencing supply chain problems with 80% enduring shortages and scrambling to find additional vendors.¹ The scope of affected products is broad:

• Drugs. Pharmacy inventories are low for a number of important medications, from cancer drugs to anesthetics to inhalers. Even outages of medication containers have been reported.
• Medical technology. Semiconductor chip shortages have created an “acute, industry-wide issue” for manufacturers of a host of devices including ventilators, glucose and other monitors, imaging machines, and many more.²
• Supplies. Availability of numerous high-volume items remains limited, and some providers have issued appeals for donated crutches and other medical supplies. COVID-19 case surges have also produced shortages of oxygen.

The ramifications are significant. Extended lead times for critical supplies can force delays in procedures. Costs are increasing as some goods become more expensive to procure or workarounds are pursued. Productivity also suffers as staff devote more time to overcoming supply chain challenges, including managing more suppliers. Patient care and safety can likewise be placed at risk.

Unfortunately, the forecasts are not positive. IHS Markit projects that global supply chain complications will persist throughout 2022 and even into 2023.³ Providers are taking several actions to ameliorate current pressures and strengthen the supply chain long-term:

• Drive greater efficiency. Finance and procurement need to be nimble, efficient and able to maintain close relationships with an expanding array of vendors. Removing paper-based processes and streamlining through automation supports all of these objectives.
• Rely on data analysis. In a highly constrained environment, providers must stay on top of their supply needs, usage and projections. Sharing data with suppliers can be very helpful.
• Refine budget and cash flow analysis. Higher cash levels are likely to be committed to inventory, and cost pressures mean that investment management of short-term funds will need to be optimized.
• Pursue additional best practices. Gartner recently evaluated health systems exhibiting supply chain management excellence and highlighted two approaches they take to manage the current difficult scenario. One is concentrating on “risk and resiliency” with some even naming resiliency leadership executives. Second, strong collaboration with vendors is maintained. This partnering “spans everything from placing an efficient order to visibility and transparency of where products are manufactured.”⁴ AP along with other components of RCM, must be prepared for such teamwork.

Additional Data and Takeaways

• There were 220 drugs affected by an ongoing national shortage as of Q3 2021.⁵ Substitutes are available for many, but this problem is long-standing and likely to increase.
• Vendors vary in their ability to manage through major disruptions. A global supplier survey found that 42% have not tested their pandemic plan in the past three years.⁶
• Other provider tactics being recommended:
  • Diversifying suppliers, including finding more domestic sources.
  • Rethinking group purchasing organization (GPO) arrangements, potentially moving to more direct contracting. GPOs are said to manage almost 60% of a hospital’s non-labor spending, and some have expressed disappointment with GPO performance during the pandemic.⁷
  • Substantial automation in AP will be mandatory to manage the supply chain productively and to foster the necessary supplier relationships.

Major Advancement Opportunity for RCM/Finance Automation

The pandemic’s workflow disruptions spotlighted the desirability of expanding automation of manual processes in the revenue cycle and financial departments. The potential is substantial. McKinsey recently took a fresh look at administrative spending and calculated a 2019 total of $950 billion.⁸ The sector breakdown is shown in Figure 1. The analysis attributes fully 21% of that total to the “financial transaction ecosystem,” providing a sizeable target to find savings.

View PDF of Figure 1 Chart^[PDF]

CAQH’s latest annual study asserts that the industry could save over $13 billion if it implemented full electronic transactions.⁹ As one example, $426 million yearly could be realized via electronic claims payments. According to 82% of finance executives, their organizations are implementing significant automation, but only 19% report positive results to date.¹⁰ Implementation snags are still prevalent and impede acceleration of automation efforts for many providers. Increasingly, a premium will be placed on selecting outside partners who can manage training and ongoing support effectively to reduce risk and produce speed-to-value.

Financial automation could have a banner year in 2022, driven by several forces:

• Lingering staffing issues. Automation adds significant RCM staff bandwidth, freeing them from rote work to concentrate on more complex situations.
• Inaction becoming more costly. CAQH and others affirm a widening cost gap between ever more efficient electronic transactions and manual/partially automated ones. For providers whose payment or invoice processes were not automated, average DSO jumped 17% (42 to 49 days) during the pandemic, according to one analysis.¹¹
• Need to feed growing analytics efforts. Electronic processes help ensure consistent, timely and accurate data flows that are the lifeblood of analytics.

Additional Data and Takeaways

• Detailed information from the CAQH study reveals considerable pockets of opportunity to expand RCM automation:
  • 26% of health plans have not implemented fully electronic payments.
  • 57% plan adoption of electronic remittance advices.
  • Only 22% of health plans receive attachments in a fully electronic manner.¹²
• 8% of hospitals and health systems have what they consider to be a fully optimized enterprise resource planning (ERP) system in place today.¹³
• Robotic Process Automation continues to grow in healthcare RCM and is increasingly coordinated with artificial intelligence, machine learning and business process management software as part of a powerful “intelligent automation” trend.
• Keeping the principal objectives of RCM automation in steady focus is vital: to produce standardized, exception-based processes (e.g., payables management) while enabling multichannel communications among all parties along the patient financial journey.

Drive for Convenience Fuels Digital Payments Adoption

A variety of digital payment modes are gaining wider B2B and B2C acceptance. Growth is being propelled by convenience, efficiencies, cash management and health safety, and is uniform across a range payment rails, including:

• Real time payments (RTP). This mode forms a $13.5 billion worldwide market, expanding at an annual clip of 33% through 2028.¹⁴ Real time healthcare bill payments and disbursements are projected to reach over 70 million in 2022.¹⁵
• Electronic Funds Transfers (EFT). Healthcare processed 108 million EFTs in the second quarter of 2021, up almost 36% from the same 2020 period.¹⁶
• Mobile wallets. This facilitator of RTP is likewise surging. New mobile wallet users are projected to come onstream at a rate of 6.5 million per year between 2021 and 2025, with average spending reaching $4,064 annually per user.¹⁷ Wallets are also becoming a force in all e-commerce as the forecast in Figure 2 displays.¹⁸

View PDF of Figure 2 Chart^[PDF]

Digital payments should expand in 2022 as part of e-commerce protocols necessary to support telehealth. COVID-19 concerns will provide further stimulus.

Related technologies to keep on the planning radar:

• Biometric authentication. Security is paramount in electronic payments, and research suggests that consumers prefer voice, fingerprint and other biometrics.
• Open banking APIs. These tools allow strong integration between bank and provider systems to provide patients a more seamless payment experience.
• Cryptocurrency. The future remains cloudy for this mode, but it is already being used for a number of consumer transactions.

It is important to note that effective payments innovation is about more than just processing digital payments. A “closed loop” system is needed that unites payments and data to permit complete reconciliation and tracking of fund flows.

Additional Data and Takeaways

• Cost control, convenience and continuing needs to support a remote workforce should drive momentum of digital B2B payment modes in healthcare.
• Dependencies to consider in promoting these forms of payment: the persistence of legacy systems and minimal system integration, both of which may hamper effective use.
• Regulatory compliance and security are paramount requirements in the digital realm — a reason banks have become preferred partners.
• A cross-industry study showed the dynamism of the payment space, with healthy majorities of companies offering more methods, boosted by consumer behavior changes from the pandemic.¹⁹ (Figure 3)

View PDF of Figure 3 Chart^[PDF]

• Use of cryptocurrencies for healthcare B2B payments is still in its infancy, but heightened attention and rapid technological development may hasten adoption by providers, payers and suppliers.

Conclusion

Balancing the patient payments priorities discussed in this Focus report will be crucial. Fuller context for these trends can be gleaned from the complete Healthcare Finance Trends for 2022 eBook, provided by Commerce Bank.

Disclosures:

1. D. Thompson, “Supply Chain Issues Bring Shortages of Drugs, Devices to U.S. Hospitals,” HealthDay News, November 4, 2021.
2. B. Murray and S. Bradley, “The Semiconductor Chip Shortage Hits MedTech: Strategies to Rebuild Resilient Supply Chains,” Advanced Medical Technology Association blog, September 23, 2021.
3. C. Bustos, “Supply Chain Delays Will Spread Well Into 2022 and Possibly 2023,” Yahoo Finance, September 2, 2021.
4. Gartner, Inc., “Gartner Announces Rankings of the Gartner Healthcare Supply Chain Top 25 for 2021,” press release, November 10, 2021.
5. American Society of Hospital Pharmacists, Drug Shortages Statistics, December 2021.
6. Healthcare Purchasing News, “Supply Chains and Their Pandemic Readiness Plan,” blog post, April 22, 2020.
7. FTI Consulting, Rethinking Healthcare Expense Management Post-COVID, January 2021.
8. McKinsey & Company, Administrative Simplification: How to Save a Quarter-Trillion Dollars in US Healthcare, October 2021.
9. CAQH, 2020 CAQH Index, 2021.
10. Healthcare Financial Management Association, “Survey: Hospitals And Health Systems Prioritize Automation,” August 2021.
11. PYMNTS.com, B2B Payments Innovation Readiness Playbook, February 2021.
12. CAQH. 2020 CAQH Index, 2021.
13. Healthcare Financial Management Association. “Survey: Hospitals And Health Systems Prioritize Automation,” August 2021.
14. Grandview Research, Real-Time Payments Market Size, Share & Trends Analysis Report, January 2021.
15. PYMNTS.com, “Deep Dive: Giving Healthcare Payments a Real-Time Upgrade,” blog post, November 20, 2019.
16. Nacha, 2Q 2021 ACH Network Volume Totals Infographic, 2021.
17. eMarketer Insider Intelligence, “U.S. Payment Users Will Surpass 100 Million This Year,” blog post, March 30, 2021.
18. J.P. Morgan, 2020 E-commerce Payments Trends Report: U.S., 2020.
19. Paysafe Insights, “How COVID-19 has Reshaped the SMB Checkout: Online,” blog post, October 21, 2020.