There are many moving parts within a large healthcare system. When departments aren’t communicating, costly problems often arise. A common issue we see among healthcare systems is allowing payments to continue after agreements have been canceled.

Payment Process Breakdowns

Let’s say a healthcare system has a multi-year maintenance agreement with a large medical supplier. After two years, the health system cancels the agreement, but the AP department is not notified. Later, the AP department receives a check request for a payment on the contract. No purchase order was used for the agreement. Without a PO to reference or notification of the agreement cancellation, the payment is processed, costing the system over $32,000.

The vendor applies a credit to the health system’s account for the overpayment, but they do not send a credit memo. Because the healthcare system did not review their vendor statements– or the credit was overlooked because it was never posted to the system’s accounts– the credit remains unused on the account for more than a year.

TAG’s Tips for Managing Cancelled Agreements

To avoid common miscommunication issues like payments on cancelled agreements, TAG recommends taking the following steps:

1. Communicate across all departments

• Ensure departmental personnel monitoring vendor agreements know AP should be informed when agreements are modified or terminated.

2. Use purchase orders for agreements as well as item purchasing

• Purchase orders can provide an audit trail and help prevent unnecessary payments.

3. Regularly review vendor statements

• Develop a process for AP staff to request and review vendor statements for open credits on a regular basis.

4. Do not let credits go unused

• Use credits as soon as possible to reduce the risk of credit holds.

If your health system runs into miscommunication issues that lead to payments on cancelled agreements, it may be time to look into your organization’s cash & cost management. Our experienced team of healthcare auditors can sit down with your organization to improve inter-department efficiencies. Contact The Audit Group today to learn more.