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Managing Returned Goods in Healthcare Systems
An ineffective or incomplete returned goods process can cost a large hospital or healthcare system hundreds of thousands of dollars just over a couple of years.
In TAG Discovery Reviews with healthcare clients, returned goods credits typically compose the largest or second-largest category of fund recoveries.
In one major metropolitan healthcare system, recoveries from returned goods were 36% of the total from the recovery audit. In another, they were 40% of the total recovered. In a third example, recoveries were 52% of all collected funds. These audits results were not unusual: They covered two-year periods with recoveries ranging from $420,000 to almost $1 million.
Five Steps to a Manage Returned Goods
- Require all returned products to go through the Shipping/Receiving department. Proper documentation of returned items provides audit trails. Allowing vendor reps, for example, to remove returns product without going through Shipping/Receiving eliminates a record for the return that prevents follow-up to ensure credit is received. For an effective returned goods process, be sure you have thorough documentation.
- Educate all personnel who touch returned goods in the proper returns process. A returned goods process is incomplete unless everyone involved in returning product to suppliers correctly follows returns procedures.
- Create visibility for the return status and anticipated credit. A hospital logged an equipment trade-in allowance for $25,000 but never returned the equipment. During a recovery audit TAG’s auditor discovered the equipment was still at the hospital and facilitated the return. The auditor discovered other recalled equipment for the same vendor and also facilitated that return for an additional $11,000 credit. The incomplete returns process was demonstrated by the lack of follow-up practices to ensure returns credits were collected, and by the organization not knowing a return was never made.
- Develop a tracking mechanism. Received credits should be logged and applied to the organization’s account; uncollected credits should get a follow-up with vendors. Sometimes, vendors apply credits to accounts without notifying clients. It’s good practice to regularly review vendor account statements for credits.
- Determine who follows-up with vendors for credits. Accounts Payable or Purchasing are often the responsible departments for following up with suppliers on due credits. Establish a policy of who follows up with vendors and when.
If your healthcare organization could use a refresh of your returned goods process, contact us to learn more about the money we can recover during a Discovery Review.