February 2009 - Feature Story

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February 2009

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Code red for ink

Electronic invoicing, payment remain the holy grail for EDI efficiency

by Rick Dana Barlow

Just how byteworthy are invoicing and payment? Fifteen years ago, electronic invoicing and payment represented a noteworthy, but lofty, goal for many hospitals starting to embrace open electronic data interchange (EDI) for such functions as automated purchasing and receiving.

In fact, mentioning the 832, 850, 855 and 856 EDI transaction codes or sets to healthcare supply chain managers likely would inspire recognition, if not actual experience with price/sales catalogs, purchase orders, PO acknowledgements and shipment notices/manifests, respectively.

A bit lower down the code category in the 810, 812, 820 and 828 range tended to be foreign territory. Not nearly as many recognized the invoice, credit/debit adjustment, payment order/remittance advice and debit authorization. Even fewer had any meaningful experience with them.

Today, very little has changed. Many providers continue to rely on paper invoices (some scan them in an additional labor step on the road to full automation) and issue checks rather than remit payment via electronic funds transfer services.

But the Strategic Marketplace Initiative has a team working to increase use of electronic invoicing with the over-arching, if not ambitious, goal of "810 by 2010."

So how far really have providers come and what will it take to get them where they need to be, in terms of fully utilizing EDI transactions for invoicing and payment?

Paying on autopilot

While progress toward adoption and implementation of electronic invoicing and payment may be crawling when compared to, say, Internet usage for the supply chain, industry observers and software companies alike remain optimistic. In fact, several forecast a more rapid uptick in adoption and implementation within the next five years, such that more than half of all hospitals will be electronically handling invoices and payments for at least some product areas.

Mike Merwarth

"As a hospital software company, MediClick’s job is to provide an accounts payable system that facilitates smooth 810 and 820 processing as part of the embedded EDI functionality of our supply chain and financials systems," said Mike Merwarth, president, MediClick, Raleigh, NC. "We’ve provided these particular EDI maps to stay ahead of the curve on electronic purchasing and payment trends, but the adoption of these capabilities has been tentative."

Despite some of the finger-pointing between providers and suppliers with regard to information technology delays, Merwarth saw blame as counter-productive.

"The provider community is by no means the only cause of this slow adoption rate," Merwarth noted. "Obviously, EDI is a ‘2-way street,’ and vendors must share the responsibility as well. A commitment by both parties to enable the dramatic efficiencies of electronic invoice matching and payment is needed.

"[Accounts payable] departments are highly process-oriented," he continued. "They also are often overworked and understaffed. Managers expend a lot of energy creating a fine-tuned workflow and they are understandably not eager to disrupt their routines unless there are compelling reasons. Electronic invoicing and payment made possible by the EDI 810 and 820 transactions are compelling reasons."

Michael Rudomin

Michael Rudomin, founder and principal, Michael Rudomin and Associates, Bolton, MA, concurred, based on what he sees with his clients – past and present.

"Suppliers are certainly ready, and already doing this with their more advanced customers," Rudomin said. "I think the hold up is often due to the fact that the AP department is outside of the supply chain department’s jurisdiction, and the AP folks are less interested in ‘automating and exporting’ part of their job functions. In addition, CFOs are usually very cautious about sending money to vendors and many don’t believe that the hospital’s supply chain operation – or their own – is sophisticated enough to manage this activity 100 percent effectively 100 percent of the time, guaranteed. [They say,] ‘I don’t like payments being on autopilot.’"

Dennis Orthman

But the comfort level with electronic transactions has grown over time, according to Dennis Orthman, project director, Strategic Marketplace Initiative (SMI), Scituate, MA. Orthman said he sees renewed attention to electronic invoicing and payment, largely due to "the quest for savings.

"But I think that perhaps the greatest influence is that most people now trust electronic transactions," he noted. "That trust started with things like ATMs and online checking in their daily personal lives, and has now transitioned to their professional lives. The increased trust has also helped drive out some of the mystery – you don’t need a Ph.D. to use electronic transactions. In addition, today implementation is easier with data exchange services, so learning curves are lower. As a result, the use of electronic payment transactions will move beyond just the top trading partners. And if the customers want it, be assured that the suppliers will help make it happen."

Rammi Gill

Global Healthcare Exchange (GHX), Louisville, CO, has recorded considerable growth in electronic invoice use by its hospital and supplier partners, according to Rammi Gill, general manager, GHX Financial Services. Based on GHX data, electronic invoice transactions almost tripled between 2005 and 2006 to nearly 6.1 million from more than 2.1 million and they more than doubled between 2006 and 2007 to more than 12.2 million from nearly 6.1 million.

Gill attributed the growth to hospital and supplier interest in and ability to send and receive electronic invoices. "Electronic invoicing is a natural extension of supply chain automation, especially as hospitals increase the number of trading partners and the percentage of purchasing handled electronically," he indicated.

"A recent survey of hospitals by PayStream Advisors found that a majority of hospitals still receive 75 percent of their invoices on paper," Gill continued, "but some GHX hospitals now receive more than half of their invoices electronically via the exchange. With the implementation in the second quarter of 2009 of a new service by GHX, OnDemand AP, hospitals will be able to receive 100 percent of their invoices electronically, even from suppliers who still submit invoices via fax or mail and including those not participating in the exchange."

Nam Vo

Nam Vo, vice president of global healthcare strategy, Lawson Software, St. Paul, MN, predicts a bright future for full EDI adoption, especially in a tight economy.

"I think that this is an area with a clear, meaningful return on investment for reducing costs and improving efficiency," Vo noted. "Hospitals are starting to get into EDI with purchase orders, but the invoice is often part of the EDI process to more effectively complete the purchase transaction from end-to-end.

"Suppliers will continue to look to EDI to reduce costs and drive efficiency," he continued. "Some suppliers are lagging behind, but for primary distributors, EDI is something that they have been doing for years. The big distributors demand EDI and will take EDI to pure EDI over the Internet. There are still some suppliers out there doing things manually, but the next logical step after implementing EDI is EDI and full e-commerce. Suppliers are going to demand it and push for it; they see the value and efficiency in it."

Shan Haq

But if the non-healthcare industry is any indication, healthcare will continue to struggle with EDI acceptability, particularly in the area of electronic invoicing, according to Shan Haq, vice president of marketing and product management, Transcepta LLC, Aliso Viejo, CA.

"Regardless of industry, the challenge with e-invoicing has always been encouraging suppliers to participate," Haq noted. "EDI, e-invoicing networks, and Web portal submission have always been rejected by a majority of suppliers. High-volume suppliers reject the portal and its required manual processes. Low-volume suppliers reject the integration and cost burdens associated with EDI and ‘EDI –like’ e-invoicing networks. Mid-volume suppliers reject all historical options leaving AP departments with unmet expectations."

However, Haq further noted that new technology is driving an electronic invoicing "renaissance" in industry.

Excuses, excuses

Justifications and rationalizations for delaying electronic invoicing and payment capabilities run the gamut.

Lawson highlighted three. "One of the common excuses we hear is that the system is full of poor data," Vo said. "EDI will fail if there’s bad data in the system, but I would argue that the data isn’t any more accurate with the current manual data entry into the invoicing and payment systems. And this bad data can be leading to pricing errors, invoice mismatches, late payments and other undesirable exceptions. By moving to EDI, it is possible to go through a structured and automated process to ensure providers and suppliers have the right product information in the system and make sure data is set up correctly ahead of time.

"Another common excuse we hear from providers is that EDI is just technically too difficult to do," Vo continued. "However, many of the vendors the providers work with already have EDI set up with the appropriate transactions mapped, making it easy for the providers to plug in with their current vendors. And many software providers, including Lawson, deliver the needed EDI capabilities and vendor set-ups as part of their software."

Finally, Vo added, the last common excuse is that the EDI learning curve is just too steep. But Vo referred to an "active community of healthcare providers who have experiences implementing and using EDI successfully who are willing to help those new to EDI effectively use their system," including SMI’s industry toolkits for 810 adoption.

Gill pinpointed two fundamental misconceptions. "Many providers mistakenly believe that there are not many suppliers that can support the use of electronic invoices," he said. As of December 2008, GHX works with 153 in this area.

"Many providers also believe that their MMIS or ERP systems cannot support electronic invoicing," Gill continued. "In reality, GHX has worked with providers that utilize most of the MMIS and ERP systems in healthcare today to make it possible for their systems to receive electronic invoices. Today, almost all of the major ERP systems can support electronic invoicing." In fact, GHX reported 3,552 hospitals were receiving electronic invoicing as of December 2008. In that month alone, the number of transacted electronic invoices surpassed 960,000, a 28 percent increase from the same period a year earlier, according to the company.

Rudomin attributed the electronic drag to a perceived loss of control and simple interfacing. He said that some believe that automatic payments will "eliminate the ability to play the float or schedule vendor payments to our advantage." But that’s wrong. "You are only accomplishing the payment electronically," he noted. "You still have complete control over when to release the electronic transaction. In fact, since the transaction is immediate, you can schedule payments for the last minute and not be concerned over how long it takes to send a check through the mail." The resulting "well-managed operation doesn’t lose control, [but] just becomes more efficient," he added.

Typically, the AP department doesn’t use the same system as materials management so interfacing is problematic, according to Rudomin. The logical and simple solution is to get IT involved in the process, he said.

Orthman noted that the team that worked on SMI’s 810 initiative found a lack of business priority as the major roadblock. "It is not unusual to hear the frequent industry response to the topic of electronic invoicing [as] ‘We do that already,’" he said. "But many quick checks under the hood reveal that electronic invoice and payment processes are generally limited to a few high-volume suppliers. Other mid-volume and lower-volume suppliers have been left out. Once priority is given to electronic invoicing and payment programs – based on the benefits – then two trading partners can collaboratively use the SMI 810 Transaction tools.

Standard bearers

Sources are mixed on whether adopting and implementing data standards will make a difference in electronic invoicing and payment practices. Much depends on whether standards refer to data themselves or transaction formats, where specific standards already exist.

"One of the factors that has limited adoption of electronic invoicing and payment solutions has been variability, or lack of standardization, in how organizations implement electronic invoicing," Gill said. "Over the last few years, there has been greater standardization in the electronic transaction format, which in turn is driving greater utilization."

But Orthman, Vo and Haq contended that data standards can help.

"The current lack of data standards perpetuates the pricing and unit inaccuracies in transactions," Orthman noted. "These inaccuracies then lead to invoice inaccuracies. The implementation of data standards will ultimately improve invoice accuracies, helping to remove another barrier."

Vo concurred. "Data standards will address that there are too many exceptions due to poor data. Standardizing information and data synchronization for products and organizations will help improve quality of data in provider systems and manufacturing systems as well. Orders will be more accurate as data is more accurate – this gets organizations closer to the idea of a perfect order. Standards will help eliminate bad data entry as everyone will be sharing and using the same set of data and information."

Concluded Haq: "Standards can be helpful in making communication easier. However, like we’ve seen in EDI, standards typically do not result in utopia – as in one EDI invoice is not like the other."