Medical equipment for hospitals and healthcare systems can range from a small needle to an enormous MRI machine. Shipping such heavy equipment incurs large freight costs for hospitals.

Without foresight or proper monitoring, excessive freight costs can be mistakenly approved for payment. For example, during a recent Discovery Review, we identified that a health system paid $28,000 for freight on operating room equipment when the actual freight charge was $11,000.

Causes for Incorrect Freight Charges

In the case of the health system that we worked with recently, it all came down to the payment policy. This health system allowed freight charges for capital equipment to be added to invoices, with no limit to the shipping costs that could be added.

When the OR equipment invoice arrived at the health system, it matched the purchase order, and, according to their policy, a $28,000 shipping charge was added. The invoice was approved and paid by the health system, even though the actual freight charge should have been $11,000. This resulted in a $17,000 overpayment by the health system.

TAG Tips for Avoiding Excessive Freight Costs

To ensure that your organization does not lose funds to excessive freight charges, implement these practices:

• Manage capital equipment freight costs by negotiating the freight, handling, and installation expenses when discussing the purchase contract.
• Include an estimated freight cost in the contract and require the vendor to provide documentation when the actual charge exceeds the estimate.
• Periodically review freight costs to ensure vendors who are obligated to pay freight aren’t adding the charges to invoices.

Here at TAG, we help hospitals and complex health systems nationwide identify financial waste in their Accounts Payable and Supply Chain operations. Our approach analyzes error root causes and recommends corrective actions to prevent future losses. Get in touch to learn how a Discovery Review can help your organization recover freight charges and more.