How AP Automation Can Help Fortify Healthcare Finance During a Recession

The healthcare industry has faced unsurmountable challenges since 2019. In the wake of a potential recession, healthcare finance leaders must adapt to overcome these problems while searching for new ways to succeed during economic uncertainty.

Many health systems are struggling with growing costs and decreasing revenue. A 2022 December Fitch Ratings Report found that nearly 75% of a provider’s expenses remain under intense pressure, with the ongoing labor shortage being the most significant contributor to operational losses1. One example includes Allegheny Health Network, based in Pittsburgh, Pennsylvania, which reported a second straight loss for nine months ending in September2. The overall loss of $198.2 million, compared with a loss of $13.7 million for the same period last year, was driven by staffing shortages and higher wage rates resulting from the usage of agency staffing, needs-based bonuses and overtime. The Fitch Report added that labor shortages and costs will remain a ‘formidable challenge’ well into 2023, regardless of inflation.

Increased expenses like those above have also significantly impacted profit margins. From November 2021 to October 2022, hospital margins dipped from 4.3% to -0.5%3. These levels indicate that margins remain depressed to pre-pandemic levels, down 37%4. Critically thin profit margins and revenue losses totaling billions have forced hospitals to make difficult decisions on closing. Closures are detrimental to communities and patients needing access to affordable healthcare. Combined with staffing shortages, closures lead to overwhelmed hospitals, like in Massachusetts, where Harrington Hospital announced that it could be overwhelmed following the closure of nearby Family Health of Worcester5.

Now yet another threat is on the horizon: a possible recession. While the U.S. has not officially entered a recession, major economic data hints that one is likely. According to the Bureau of Economic Analysis (BEA), the U.S. GDP fell in the first and second quarters of 2022, which has historically been seen as a strong indicator of a recession. When reviewing data from the 2008 financial crisis, many would argue that the healthcare industry is “recession-proof,” but the data is mixed. The 2008 recession reduced the shortage of healthcare workers while healthcare spending decreased6. But it’s hard to predict what the outcome of staffing shortages will improve because of the fallout from the pandemic.

Relying on manual, paper-based accounting processes can be detrimental to businesses trying to weather seasons of economic downturn. Based on the current financial landscape, industry leaders must find ways to cut costs and monitor cash flow. Currently, reliance on manual, paper-based processing is eating up possible revenue and making it impossible to improve margins. Manual processing in the healthcare industry causes significant financial losses resulting in $22 billion in unnecessary expenses7. Adding to that, errors resulting from manual processing cost the industry between $4 million and $6 billion annually.

Automating Accounts Payable for Economic Resilience:

To achieve economic resiliency in tough times, hospitals must automate AP. Digital invoice-to-pay processes deliver the efficiency, control, and adaptability hospitals need during times of downturn. Here’s how:

Shorter Procure-to-Pay (P2P) Cycle:

Manual processing is costly and drastically slows down the invoice-to-pay cycle. On average, it takes 10 days to manually process one invoice8 with an estimated price tag of $12.909. Cloud-based AP Automation solutions make it easy for hospitals of any size to go digital and achieve increased efficiency and profitability. Best-in-class finance automation software saves 80% of the time on invoice and payment processing while lowering invoice costs by 60% to 70% and payment processing costs by 80% to 90%.

Early Payment Discounts:

It’s nearly impossible to take advantage of perks like early payment discounts if you’re already struggling to get invoices approved and processed on time, thanks to manual workflows. When Using AP Automation, you can take advantage of incentives like this and save money, growing your organization’s bottom line.

Increased Compliance

Audit season is stressful, but leading Payment Automation solutions securely manage costly and time-consuming audit processes.

  • ACH Rules Compliance Audit
    • This audit, required by the Nacha Operating Rules, states that all participating depository financial institutions, Third-Party Service Providers, and Third-Party Senders conduct a risk based ACH Rules Compliance Audit each year.
  • SOC 2
    • Developed by the Association of International Certified Professional Accountants (AICPA), this audit is specifically designed for service providers storing customer data in the cloud.
  • The Payment Card Industry Data Security Standard (PCI DSS)
    • Launched in 2006, this a set of requirements intended to ensure that all companies that process, store, or transmit credit card information maintain a secure environment.
  • OFAC:

Additionally, Invoice Automation solutions help with audits by providing your finance team with a fail-safe electronic paper trail. Once implemented, all invoices have a track of approvals, changes, and additional notes so auditors can easily view the process from start to finish.

Enhanced Visibility into Cash Flow:

Often, manual processes result in a need for more visibility into cash flow, which is critical during a recession. Real-time visibility into cash flow and corporate spending enables businesses to understand their short-term and long-term working capital needs, identify potential gaps and adjust as needed.

Better Supplier Relationships:

Delayed payments cause strained relationships with vendors while also causing businesses to lose out on perks10. For example, 59% of suppliers that had been paid late reduced or halted discounts, and 62% withheld goods or services that were ordered until invoices were paid. Faster invoice processing means you can pay vendors quicker in the way they prefer to be paid, remaining in good standing.

Improved Quality of Care for Patients:

Premier Invoice and Payment Automation technology is HIPAA-compliant and has features in place to secure and protect patient information. With greater efficiency and enhanced security, health systems have more time to provide exceptional care for their communities’ patients.

The healthcare industry is a critical part of the US economy, representing 19.7% of the Gross Domestic Product (GDP) as of 202211. Considering this impact, industry finance leaders must make changes and brace for an economic downturn with AP Automation. Automating invoice processing and payments ensures payments are free of errors and paid on time, enabling organizations to focus more on the revenue cycle.

To learn more about how Paymerang’s best-in-class Invoice and Payment Automations can recession-proof your finance department, click here to schedule a demo.


Sources:

1Fitch Ratings: Labor Pains to Intensify for U.S. NFP Hospitals in 2023

2Becker Hospital Review: Allegheny Health reports 2nd straight loss as staffing costs soar

3Becker Hospital Review: Highs of 4.3% to lows of -3.5%: How hospital margins dipped over 12 months

4 Kaufman Hall National Hospital Flash Report: November 2022

5Becker Hospital Review: Massachusetts hospital overwhelmed due to regional closures

6Illinois American Nurses Association

7Remitra

8Ardent Partners

9IOFM: The True Costs of Paper-Based Invoice Processing and Disbursements

10PYMNTS

11Centers for Medicare & Medicaid Services

Eric Waldenmaier

Eric Waldenmaier

As Vice President at Paymerang, Eric maintains partnerships with various state and national associations to reach healthcare audiences through webinars, conferences and referrals. Since 2013, he has helped clients streamline vendor disbursements, eliminate fraud and earn millions of dollars through their AP departments.