VALUE. DELIVERED.
The price is wrong: The cost of a discrepant order
by Karen Conway, Vice President, Healthcare Value, GHX I
n 1992, Harvard Business Review published an article entitled: “Staple Yourself to an Order.” It spoke to the
importance, as well as the complexity, of the order management process, and particularly the negative consequences for both buyer and seller when things go wrong. Over the past 30 years, a lot of progress has been made toward automat- ing the procure-to-pay process, especially from purchase order to invoice. With greater synchronization of data between buyers and sellers, there has been an increase in the percentage of orders that can be processed in a touchless manner. When there are discrepancies that require manual intervention, the culprit is most often around price. That costs everyone both time and money, according to Terry Skinner, Regional Director, Supply Chain Customer Solutions for Johnson & Johnson MedTech. That’s particularly important for hospitals facing critical staffi ng short- ages and fi nancial constraints in the wake of the pandemic. It all starts when the invoice does not
match the purchase order. Orders can fail if the part number, order quantity, or units of measure do not match, but based on data from the GHX exchange, pricing errors are 3 to 10 times more common and can take much longer to resolve than other discrepancies. When a price discrepancy does occur, the hospital Accounts Pay- able department typically notifi es procurement, which initiated the purchase order. If the buyer in procurement stands by the price, he or she will contact the manufacturer, which initiates inquiries within its contracts and dispute manage- ment teams. If, after checking the contract terms, the manufacturer determines that it still stands by the price on the invoice, Accounts Receivable will issue a denial letter to the hospital. Even if the hospital’s price turns out to be correct, the discrep- ancy has already added rework and delays for both parties. Conservatively, Skinner says he can identify at least eight different individuals on the provider and supplier side that touch a price discrepant order. Assuming a fully loaded salary of $50/
hour and each person spending just 15 minutes working the issue, that would equate to $100 per discrepant order just in labor costs. And that’s not taking into account the fi nancial impacts of an increase in Days Sales Outstanding (DSOs) for suppliers and the downside implications of late payments for hospitals, including potential credit holds. Based on earlier research conducted by GHX, fewer invoice exceptions and use of electronic invoices can reduce the time it takes to pay sup- pliers from an average of 15 to 60 days to just 2 to 5 days. At a recent Health Industry Distributors Association (HIDA) meeting, Skinner pre- sented how Johnson & Johnson MedTech is working with provider customers to reduce the incidence of price discrepancies and the challenges they create for both par- ties. The key, he says, is keeping a price discrepancy from happening in the fi rst place. Ideally, providers and suppliers have adopted strategies and tools to help ensure ongoing contract price synchroni- zation. But the reality is, today’s contracts have become highly complex, and the pandemic has only made it more challeng- ing. As a result, despite the most valiant of efforts, there will still be mismatches. As Skinner pointed out, if providers and suppliers can work proactively together, they can still make necessary adjustments before the matching process begins. Johnson & Johnson MedTech is proac- tively addressing discrepancies in real time when it receives an order from a provider via EDI. If the price on the purchase order does not align with the price held in the contracting system, Johnson & Johnson edech fl ags it on the transac- tion (the purchase order acknowledge- ment, which notifi es the provider to make the change on its end. That way, when the invoice is issued, the price will align to that on the purchase order. Skinner says this process has been successfully deployed in the retail industry for years. For example, Skinner took a similar approach when he was on the consumer side of J&J’s business, resulting in some of the lowest DSOs in the industry. The GHX study referenced
40 May 2022 • HEALTHCARE PURCHASING NEWS •
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above also found that hospitals that correct purchase order discrepancies (of any kind) in real time can reduce invoice exceptions by to percent, signifi cantly reducing the labor associated costs required to pro- cess. Validating contract pricing during the purchasing process has also yielded savings of 1 to 3 percent of the amount a hospital spends on contracted items. Beyond real time exception manage-
ment, Johnson & Johnson MedTech has also begun offering providers with the option of receiving an price catalog fi le to further reduce price discrepancies. Deployed successfully in other industries, an provides both prices and prod- uct information in an electronic format, including: • Terms of sale information, including discounts available
tem identifi cation and description • Item physical details, including type of packaging
• Item pricing information, including quantity and unit of measure Depending on a customers’ techno- logical capabilities, Johnson & Johnson edech can send the via or as a .csv fi le that can be incorporated into a spreadsheet. Customers that have started accepting the say they can update pric- ing in real time. According to Dawn Wat- kins, director of Strategic Sourcing from UF Health Shands: “Now more than ever, we need to harness all available resources and automation opportunities. J&J’s focus on advancing these efforts, such as the , provides much needed bandwidth to our team, which in turn, allows us to better serve our customers and ultimately our patients’ needs.”
The original “Staple Yourself to an Order” articles speak to how poor order management leads to lost sales, wasted labor and an unsatisfactory customer experience, adding that most companies at the time simply added bodies to handle the extra work. In today’s environment, with staff shortages and a need to minimize administrative costs in healthcare, a more collaborative approach is a better option for all involved. HPN
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