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Health systems face a constant challenge: ensuring efficient and cost-effective operations while maintaining the highest quality of care for patients. At the heart of this challenge lies the procure-to-pay (P2P) process, a critical component of supply chain management and cash flow.
Procure-to-pay adapted post-pandemic, driven by technology and the growing complexity of the healthcare supply chain in recent years. As we move into 2024, several key trends shape the P2P landscape for hospitals and health systems. Read on to learn more.
Impacts on Procure-to-Pay in 2024
Despite a promising outlook for P2P in healthcare, acknowledging ongoing challenges empowers leaders to prepare and adjust in real time. Supply chain disruptions, slim or negative operating margins, and the need for skilled personnel are among the hurdles that healthcare organizations must navigate. However, these challenges also present opportunities for innovation and improvement.
Staffing challenges have lingered since the pandemic, making it tough to find skilled labor roles while retaining current staff. These challenges hiked staffing costs, complicating managing increased wages, especially for contract nurses.
However, many health system leaders have gotten creative and have expanded their benefits for leverage to recruit staff and retain employees. Enhanced benefits enable health systems to capitalize on full-time employment advantages, reducing reliance on costlier contract labor and recruitment expenses.
Improvements in staffing shortages ease the pressure on procure-to-pay teams, including Accounts Payable (AP) and Supply Chain. The rise in contract labor over the pandemic increased stress on vendor management and invoicing loads per employee. Reducing the number of invoices reduces the P2P workload, effectively reducing errors of hastened work.
Expected Increased Revenue for Hospitals
Moody’s outlook on revenue for not-for-profit hospitals has increased for the positive. Moody expects median operating cash flow to grow by 10% to 20% in 2024. While revenue is expected to increase, it is not expected to exceed significantly expenses, leaving operating margins slim and cost-cutting strategies crucial.
P2P processes lend themselves to cost savings. By tightening processes to reduce errors, utilizing procurement strategies around product and vendor consolidation, and bringing in companies to uncover leaked cash through a recovery audit, AP and Supply Chain can work together to minimize costs.
Lack of Cash on Hand
Leaders cutting staff spending allowing revenue to grow while inflation concerns stifle cash on hand, exacerbating financial challenges. According to a recent American Hospital Association and Syntellis report, the median health system’s cash on hand fell from 173 days to 124 days from January 2022 to June 2023. The report accounted for the fall due to inconsistent reimbursement practices and delays.
P2P teams are crucial in managing cash on hand and vendor relationships. Fewer days of cash on hand can lead to delayed payments and missed discounts, inherently impacting negotiating power.
Technological Advancements Driving Change
AI advancements have significantly changed the world in the past year, impacting various sectors and becoming a dominant force. Procure-to-pay leaders can expect more of the same in 2024 as new technology seeps into business processes.
AI and Machine Learning
While the P2P process is no stranger to AI, as OCR and imaging tools have been used for years, AI can help streamline processes even further. AI-powered tools can analyze vast datasets to identify patterns, predict demand, and optimize procurement strategies. For example, AI can analyze historical data and external factors to predict future demand for goods and services. This enables organizations to optimize inventory levels, negotiate better contracts, and make informed purchasing decisions.
Robotic process automation (RPA) is gaining traction by automating repetitive and rule-based tasks. In P2P, this includes tasks such as invoice processing, PO creation, and invoice validation.
Increased Data and Security Compliance
Health systems are no strangers to cyber attacks, with the average attack costing $10.93 million in 2023, according to a recent report by IBM. That cost is more than double that of all data breaches in 2023, attributed to the low investment in cybersecurity in healthcare. According to the report, health systems invest in security measures accounting for only 6-10% of their IT budget (compared to the average of 51% across all industries) to continue combatting these threats.
Procurement professionals combat cyber threats by monitoring vendors closely and avoiding phishing schemes, the leading cause of attacks in 2023. Along with halting patient care, cyber-attacks can pause P2P processes, causing missed discounts, late payments, delayed orders, and a backlog of invoices to be processed.
Cost Saving Initiatives
While revenue is expected to increase, profit margins will remain low, if not negative. Health system CFOs and Supply Chain leaders are responsible for discovering cost-saving opportunities. Supply chain and procurement leaders can save costs by consolidating vendors and items – especially across entities. Leaders can also partner with physicians to standardize p-cards to leverage volume discounts.
Supplier Sustainability and Diversity
While the post-pandemic world becomes more defined and the toll the pandemic took on the healthcare industry subsides, leaders are returning to their priorities before the pandemic hit, including a more sustainable and diverse supply chain. The drive to make healthcare operations more environmentally sustainable is becoming less of a differentiator and more of a principal strategy. Healthcare leaders increasingly see improved environmental practices as part of their mission to care for the health of their communities. The healthcare industry accounts for an estimated 8.5% of national greenhouse gas emissions, according to HFMA and federal data.
Historically, data has not been available to evaluate suppliers and manufacturers thoroughly on their environmental impact. However, the demand to hold suppliers accountable has led to more data visibility. Procurement can better control their sustainability efforts by selecting suppliers that disclose their environmental impact and initiatives.
As procurement monitors supplier sustainability, it actively supports the health system's diversity and inclusion efforts, enhancing overall supply chain resilience. Including sustainability and diversity in your supplier scorecard enables procurement to align suppliers with the organization's diversity policy.
To do this, health systems may create a staffing position in the organization dedicated to delivering sustainability and diversity goals. This position will create and monitor a novel approach to integrate goals into category strategies and daily activities.
Renewed Supplier Collaboration
As technology advances and removes some of the “human” elements of vendor management, it is more important than ever for health systems to prioritize and nurture vendor relationships. Strong relationships with suppliers strengthen negotiating power and help to hold them accountable. Frequent communication can reduce invoicing and contracting errors from the health system and suppliers.
Data Analytics and Reporting
Data analytics is crucial for health system leaders to gain insight into P2P spending patterns, identify areas for cost savings, and make informed procurement decisions. The biggest challenge for most health systems is the lack of a single source of truth (SSOT) of data throughout the procure-to-pay process, allowing for deeper insight. Often, there are disconnects between Finance and Supply Chain systems and gaps throughout the P2P process, causing data to be siloed and resulting in payment errors and missed credits.
An SSOT is difficult to achieve in complex health systems. The solution for this is often third parties that pull data from multiple systems to provide the insight leaders need to make more informed decisions around procurement.
How can Health Systems Leverage Procure-to-Pay in 2024?
To fully leverage the opportunities presented throughout the P2P landscape, hospitals and health systems should take a proactive approach:
- Assess the current P2P processes and identify areas for automation and digitization.
- Stay up to date on the latest security threats and prevention methods.
- Perform a discovery throughout the entire P2P process for cost-saving opportunities.
- Align procurement strategies with organizational goals in sustainability and diversity.
- Establish strong supplier relationships and collaborate on cost-saving initiatives.
- Utilize data analytics to gain insights into spending patterns and identify areas for improvement.
The procure-to-pay process in 2024 presents hospitals and health systems with new opportunities to improve efficiency, meet organizational initiatives, reduce costs, and enhance supplier relationships. By leveraging data analytics and fostering collaboration, healthcare organizations can position themselves to thrive in the evolving P2P landscape. Remember, a well-managed P2P process is a critical foundation for financial sustainability and operational excellence. To optimize P2P processes and operations, reach out now for a consultation with our P2P experts.