Digital Payments Are Matter of Life or Death for Healthcare Providers

Automation, healthcare payments, medical supplies

PYMNTS recently caught up with two of the players in the healthcare sector.

On the buy side, Huntington Health, which is affiliated with the Cedars-Sinai Health System in California, shared how faster, more efficient procurement of lifesaving medical supplies is happening despite tight supplies and other recently exposed systemic weaknesses.

From the financial perspective, American Express shared its perspective on the history, status quo and future of payments digitization and automation in the healthcare sector, which accounts for nearly 20% of gross domestic product (GDP).

Read more: B2B Payments in Healthcare Tracker®

The Buy Side

Like many other health systems, Huntington Health is facing payment challenges when procuring medical supplies, looking instead for faster, more efficient payment processes. Technology adoption and trusted financial partnerships can alleviate frictions.

Huntington buys about $100 million of supplies and equipment annually — everything down to the Band-Aids. The pandemic stress tested procurement with a mad rush for types of specialized equipment, such as N95 masks and ventilators, which are not normally stocked in bulk or available in large quantities from trusted medical supply vendors or even government stockpiles.

The pandemic presented a unique day-to-day scenario in which the hospital had to be ready to write a check or to quickly wire money outside of its normal purchasing systems, resulting in the need for manual invoicing, shipping and accounts payable (AP).

Slowly, that is changing as hospitals begin to see the benefits of using enterprise resource planning (ERP) solutions to streamline different processes and work to achieve overall organizational efficiency. Still, it takes time to implement new technologies in large healthcare organizations, and Huntington is about three years away from full adoption.

The use of electronic payments is also picking up. The number of healthcare ACH payments in the second quarter of 2022 was 113.7 million, which was a 5.3% increase compared to the 108 million healthcare ACH payments in the second quarter 2021, according to Nacha.

Still, while suppliers prefer ACH and direct deposit payments, their customers make up to 85% of their payments by check or other paper-based methods, as reported in the “B2B Payments in Healthcare Tracker,” a PYMNTS and American Express collaboration.

The healthcare industry is also dealing with staff shortages across many different disciplines. Huntington is working on adopting artificial intelligence and robotics technology that can help reduce the need for human effort.

The Financial Industry Perspective

American Express is confident that automation can improve healthcare supply procurement and supplier relationships. The shape of things to come involves a future in which automation will continue as procurement ensures supply chain effectiveness.

Healthcare is particularly sensitive to pandemic concerns, and many back-office staffers are still inclined to work from home. Digital access to physical assets, such as ledgers, invoices and checks, widely adopted during lockdowns, continues to enable that trend, which helps address labor shortages while also reducing headcount by maximizing efficiency and effectiveness.

Remote back-office work also frees up facility space for clinical and wellness revenue generating uses.

See also: Healthcare Represents 20% of GDP That Desperately Needs Payments Efficiency

Invoicing with automation creates a support pillar for procurement to deliver on-time, critical medical supplies. Fully automated AP and accounts receivable (AR) processes with eInvoicing can remove friction by troubleshooting discrepancies.

Hospitals adopted AP automation solutions, which conversely have suppliers seeking AR solutions and payments portals to maximize receivable take rates and cash applications while utilizing supply chain financing solutions.

Challenges on the Journey

The journey to the promised land of necessity requires a trek through the wilderness. Procurement is challenged by myriad factors, especially when there is poor visibility into hospital inventories.

Internally, data management can be hard when working across decentralized, legacy systems. Teams who may still be taking very manual steps to place orders will prompt delivery delays, and this further blurs visibility into inventory levels, ordering and delivery timetables.

Externally, ongoing regulatory requirement changes impact which on-demand medical supplies need to be stocked. Further strain occurs when demand peaks, bidding processes lack transparency and supply chain sourcing logistics become halted.

Focus remains an issue. While nothing focuses the mind so marvelously as the prospect of a pandemic, hospitals and healthcare systems are ever-focused on other priorities, including clinical, compliance, revenue cycle management and consolidation post M&A. 

A Common Goal

Huntington looks forward to a time when direct payments to suppliers overseas can be made by machines that can instantly account for supply chain delays. By using preauthorized payment methods such as virtual cards, machines can ensure a steady stream of supplies and pay for them in the local currency.

Meanwhile, American Express envisions the convergence of buyers and suppliers under the automation umbrella. FinTechs and financial institutions will be instrumental in bringing the healthcare industry the payments digitization and automation solutions it needs to succeed in this matter of life and death.

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