We explained contract overcharges and how they could cost your health system several thousand dollars in lost funds. Today, we’re talking about prevention and recovery. In order to prevent contract overcharges, it’s important to understand your system’s relationship with vendors and analyze your purchasing and payment data as often as possible. Let’s take a look.

What causes contract overcharges?

When a hospital contract is put in place, there should be a match between three areas: the contract, the GPO/Local Pricing platform and the health systems’ purchasing system. That way, items are priced at the guaranteed rate every time they’re ordered against a Purchase Order.

Unfortunately, this three-way match doesn’t always happen, and identifying where the breakdown occurs isn’t always easy. For example, a contract overcharge may occur when:

• Your AP system issues purchase orders at the incorrect price
• The vendor issues an invoice at the incorrect price
• The vendor doesn’t get the correct pricing from your GPO
• Your accounts payable team is not in sync with other teams

What do health systems traditionally do when they’re overcharged?

When a hospital is overcharged on an invoice, the invoice will go into discrepancy status. It won’t get paid until a staff member investigates the reason for the overcharge and resolves it with the vendor.

In our experience, however, purchasing and accounts payable departments are stretched too thin or too pressed for time to investigate each flagged invoice as thoroughly as they should. Instead, many will override the hold and send out the higher payment anyway. For one or two invoices, this may seem insignificant, but these higher costs add up over time.

What should health systems do when they’re overcharged?

Once your payment system identifies a contract overcharge, your next step should be conducting thorough data analysis. Contract overcharges often occur over a stretch of time, so pull your contract and payment data over the last few months. Look for any trends or try to pinpoint the first time you were overcharged. Cross-reference your findings with the agreed-upon contract price.

• If you were wrongly overcharged by the vendor, then reach out to the vendor about getting the amount credited to your account.
• If you sent out purchase orders at an incorrect price, you should correct the issue in your purchasing system and reach out to the vendor about potential credits.

Why should a health system seek outside help?

We’ve seen far too many health systems leave money on the table by continually overpaying on contracts. Although any system is capable of analyzing its data and pursuing those missing funds, most of them lack the time or staff needed to sift through six months to a year of purchasing data.

That’s why many health systems opt for a pricing review from a healthcare auditing firm. By trusting a third-party to comb through their data and recover lost funds, health systems are able to improve their cash flow and streamline their purchasing procedures without placing an increased burden on their in-house teams.

The Audit Group is here to help. Our pricing review covers benchmarking, contract analysis, price trend analysis and so much more as we determine opportunities large and small for your organization to save time and money. Give us a call to learn more.