Why automate the implant case-to-cash process?

Because automation eliminates discrepancies and wasted time

By Denise Odenkirk

IDNs and manufacturers alike are losing significant money and time due to poor management of clinical, operational and financial processes surrounding implantable devices. According to the August 2011 PNC Healthcare/GHX quantitative research study, inefficient manual business processes and lost, wasted and expired products result in an estimated $5 billion in annual loss in this market segment.

Current processes for managing implants (e.g., hips, knees, cardiac stents) from the point of case scheduling to payment processing typically involves 15 manual, error-prone steps. As the demand for implantable devices increases – at an estimated 7 to 9 percent annually – so will costs associated with managing this complex, disjointed and wasteful process.

That’s the bad news.

The good news? Providers and manufacturers can achieve significant time and cost savings by applying best practices and processes. Together, they can build the right foundation for an automated implantable device supply chain (IDSC) by addressing three key areas:

  • Use reconciliation.
  • Invoice automation.
  • Data management.

The implant case-to-cash process today
When an implant case is performed and completed in the OR, the manufacturer’s sales representative and the provider facility’s circulating nurse separately and manually document the products used in the case.

On the provider side:

  • The circulating nurse captures products used in the procedure within
    the electronic health record (EHR)
    system (also known as EMR).
  • This product/usage information is provided to supply chain/materials management (typically in the form of a sticker sheet or PDF) for manual entry into the materials management information system.
  • Usage information is used to generate a purchase order to the manufacturer, which the provider typically sends via email or phone; and/or the manufacturer rep contacts the circulating nurse and asks for the PO number.
  • Upon receipt of the PO, the manufacturer uses the rep’s sales order to generate an invoice for the provider, which is manually delivered.

On the supplier/manufacturer side:

  • The implant manufacturer rep enters this information into a sales order within the manufacturer’s sales system. If the rep manages his/her inventory as trunk stock, the sales order is fed into the manufacturer’s enterprise resource planning (ERP)
    system, where it generates a trunk stock replenishment order, which is then sent to the rep.
  • For those manufacturers that require trays/kits to be returned to a replenishment location, an additional validation step helps ensure what was consumed in a tray/kit matches the sales order. This step must be taken before the replenishment is executed.

The price of inconsistencies
Over 50 percent of the time, the PO entered by the provider does not match the sales order in the manufacturer’s system, because neither party took the steps necessary to reconcile the information. Because the invoice is generated from the sales order, the PO and invoice fail to match up.

The inconsistencies between the PO and invoice may include:

  • Incorrect prices
  • Incorrect part numbers
  • Missing/excess part numbers
  • A mismatch between the order of line items on the PO and sales order.

As a result, both the provider’s and manufacturer’s accounts payable and accounts receivable departments must engage in a time-consuming, manually intensive reconciliation process to agree on which products were used in the case. This typically takes weeks or months after the case is completed. It is not uncommon for the implant caseto-cash process – from the time the case was performed to the time the provider pays the manufacturer – to be greater than 60 days.

A completely manual case-to-cash process requires 25 to 50 percent more labor for a manufacturer to complete compared with an automated and electronic process. Manufacturers that conduct this process manually have, on average, 30 percent higher days sales outstanding (DSOs) compared with those manufacturers leveraging automation.

The devil is in the details
Provider systems require a three-way match among the PO, receipt and invoice before a manufacturer payment can be generated. These documents must match down to line-level detail, including the order in which the product line items are listed on the PO. Any mismatch results in some level of manual reconciliation and ultimately, delayed payment.

Today there is wide variation in provider processes and capabilities. While some providers can easily track line level detail of all products used in a case, many others can only track header-level information and do not fully capture all parts and pieces consumed. Still others have not employed technology or processes that are optimized for this activity. They can only store usage data in manual forms filed in the OR, where the information is later keyed into a PO and receipt at the header level.

For those providers that currently do not provide line-level detail on a PO and receipt, the manual reconciliation process with the invoice is an uphill battle. On average, it takes a provider two weeks or more following an implant case to submit the PO to the manufacturer. Providers are then in the position of trying to determine which products were used in a case that occurred days or even weeks prior. This inefficient process significantly delays invoice payments. Today, implant manufacturers report days sales outstanding (DSO) over 45 days, with some waiting 60 to 80 days for payments, depending upon the product category

Denise Odenkirk is senior director, industry solutions, for GHX (www.ghx.com). Based in Louisville, Colo., GHX automates the healthcare supply chain, increasing visibility into information and providing business intelligence tools for providers and suppliers.