A significant issue that intensifies these financial strains is the challenge of invoice exceptions. Discrepancies and errors on the accounts payable side—between hospitals and their vendors—often hinder processing and create substantial financial stress.
Many financial and supply chain leaders have accepted invoice exceptions as a cost of doing business. However, they’ve also come to terms with the fact that invoice exceptions pose a unique threat in healthcare.
Invoice Exceptions Are a Unique Threat in Healthcare
Invoice matching is essential to any accounts payable (AP) department. It involves aligning the details of new invoices with purchase orders (POs) and the master service agreements (MSAs) or statements of work (SOWs) that guide them. This process can be intricate and laborious, mainly when dealing with complex contracts and payment terms—the challenge multiplies when these details do not align, leading to invoice exceptions.
There are two primary types of invoice exceptions. The first occurs when invoice details do not match the originating PO, resulting in discrepancies in the final order or pricing. While resolving these issues takes time, organizations can usually reconcile the differences, obtain an amended document, and move forward.
The second type, known as contract deviations, is more complicated. These involve variations in pricing, delivery compliance, performance issues, or changes in payment terms. Often, these problems go unnoticed until AP staff finalize a transaction. For example, a hospital and its vendor may approve a repeating PO from a medical device supplier, only for the team lead to realize that the facility has reached a new volume tier, qualifying for lower per-unit pricing. Here, the PO was incorrectly approved and needs to be revised along with the invoice to ensure accurate records.
While knowing the broad types of invoice exceptions is essential, it's even more helpful to understand their likely core causes.
Here are the four most common:
- The PO and invoice simply don't match up. One or more details conflict, so your team can't pay the invoice without taking on liability.
- There was no PO. Without a document to match the invoice against, your invoicing team simply can't take the next step forward. The PO may have been improperly filed, lost in someone's inbox, or never existed in the first place.
- The contract needs to be included or clarified. If your team checks the invoice and the PO against the core documents, there is additional room for questions, discrepancies, and gaps. While an arduous undertaking, resolving these discrepancies can help streamline a broader range of tasks.
- Technology problems. Scanned POs and contracts may be grainy, or the digital files may be corrupted.
However, the problem isn't simply that you may be unable to pay invoices. It takes your team significant effort to confirm invoices, identify conflicts, and take steps to resolve those conflicts.
As a result, finance and supply chain leaders question whether these errors are worth addressing. After all, resolving contract deviations requires a massive administrative effort, which may strain the vendor relationship. On a micro-level, weighting the per-unit savings against a growing list of match exceptions leaves many financial leaders with a vast operational crisis.
How Invoice Exceptions Create an Operational Crisis in Healthcare
As a supply chain or procurement leader, you're likely familiar with the compounding problems that invoice exceptions cause. But before you can identify the scope of the problem for your organization, it's essential to investigate each issue in detail.
Here are some common problems that invoice exceptions cause:
Slower Processing
When tasks take longer, the administrative costs grow. You will need to increase the size of your AP team, pay for overtime, and revise your processes to ensure you can meet net 30 or 60 payment terms more consistently.
Credit holds
Depending on your organization's payment method, you may be subject to authorization or administrative credit holds. Continuously making late payments because invoice exceptions are too burdensome to resolve quickly will result in administrative holds that impair your organization's ability to make irregular or emergency purchases. These blocks can temporarily stop spending or narrow the funnel of your organization's spending.
Additional fees and costs
Invoice exceptions and a long follow-up process won't change your contracted payment terms. If you submit payment after the deadline, you may need to pay additional fees and penalties outlined in your vendor agreement. You might also have to pay extra fees for a rushed wire to meet critical deadlines, which can incur thousands of dollars in additional expenses if it's a frequent action.
Bad vendor relationships
Business relationships depend on the timely delivery of goods, services, and payments. Strong interpersonal relationships and a good history won’t last if your organization frequently pays invoices too late. Late payments frustrate your vendors, lead to non-renewal, or cause more expensive terms at the next renewal.
Staff burnout
Manual invoice verification is tedious work. Your billing specialists must search for documents, follow up with vendor representatives, and handle a growing thread of unstructured communications. The accumulation of stress, negative interactions, and looming deadlines, on top of standard work tasks, will lead to burnout. Not only does this lower morale, but it can also lead to costly turnover and loss of tribal knowledge in your accounting department.
Unique Challenges
These challenges ring true in any industry, but they’re often worse in hospitals already facing staffing shortages, outdated software systems, and sluggish supply chains, causing:
Low Margins
Hospitals typically operate at low margins; past years have been even more severe. Studies saw hospitals operating at -0.98% in 2022 and 1.3% in 2023 before finally rising to a slim 4.2% in the first half of 2024. These challenges will continue as the rise of goods and labor increases and as demand shifts to prioritize outpatient care.
Burdensome Procurement Processes for Technological Changes
Hospitals are often sprawling organizations. Individual facilities usually must get approval for new purchases and vendors from a centralized team. Approval chains can make it highly challenging to streamline processes, revamp workflows to improve invoice exception reconciliation or hire additional support.
Difficulty Getting Reimbursements From State and Federal Programs
A transparent—and timely—invoicing history is essential for requesting reimbursement from Medicaid and Medicare and other state and federal organizations or large insurance providers. Just like your team can't process invoices if you don't have transparent alignment across POs and invoices, those organizations can't approve reimbursement or payment without completing their own verifications.
Needs for Emergency Orders and Fulfillment
B2B customers, even hospitals, won't be able to get fast fulfillment and flexible ordering cycles if they have a history of late payments. Your vendor may be unwilling or unable to provide emergency supplies, especially if there's high seasonal demand, and they can instead sell to more reliable clients. As a result, you may have to pay more, reach out to less qualified vendors, or be unable to comply with stocking requirements.
Conclusion
Let's face it. Tackling invoice exceptions is a game-changer for efficient operations, especially in the healthcare sector where margins are razor-thin. By ramping up invoice processing, boosting tech infrastructure, and keeping vendor communication crystal clear, we can dodge the headache of payment delays. Focusing on resolving these hiccups means slashing admin costs, sidestepping unnecessary fees, and building stronger vendor bonds. Get this right, and you're not just easing staff burnout and smoothening procurement processes; you're also keeping healthcare facilities agile and well-stocked. This proactive stance is your ticket to keeping your hospital supply chain running smoothly in today's tough economic climate.