Purchase Orders are widely used by hospitals and health systems. To follow best practices, Accounts Payable departments should always use POs to prevent duplicate payments, ensure correct pricing on invoices, and, in turn, save your organization money. When purchase orders are not used correctly, it can cost you.

Purchase Order Malpractice: Changing POs to Match Invoices

We recently worked with a health system that was in need of a process improvement when it came to purchase orders. They did not have a system in place for Accounts Payable to consistently use POs.

As a result, during our Discovery Review, we found that the healthcare system paid more than it should have for items, as they were changing POs to match invoices, even when the invoices outlined higher pricing.

This practice undermined contract negotiations that achieved favorable pricing in the first place, and it removed the usefulness of purchase orders as a preventative measure against payment errors.

With this health system, we found:

• Pricing overcharges made up more than 15% of all funds recovered for this major, urban healthcare system.
• The health system paid the overcharges due to one error—when vendor invoices arrived with higher pricing than on purchase orders, POs were changed to match invoice prices so the invoices could be quickly approved and paid.
• Original PO prices were usually correct.
• In one example, a vendor charged $1,195 per item on implant materials that were correctly ordered. That price was 45% more than the health system’s contracted price.

TAG Tips for Correctly Using POs

If the scenario above sounds like your Accounts Payable department, it’s never too soon to implement some best practices and process improvements. Follow our tips below:

• Match invoices to POs, not POs to invoices.
• Resolve invoice and PO discrepancies before paying invoices to prevent perpetuating payment errors.
• Correct the root causes of discrepancy errors—which could result from contract expiration, data entry error, or vendor errors—to prevent them from continuing to create payment issues.

Once you’ve taken care of the basics, give the experts at The Audit Group a call. We’ve help hundreds of hospitals and health systems nationwide improve their bottom line, not only by recovering lost funds, but also by analyzing the root cause of issues with vendors and Accounts Payable teams to limit future overcharges. Give us a call to learn more.