Leveraging Intelligent Automation in Healthcare Supply Chain

Match exceptions continue to be a growing source of pain for most hospital supply chain teams and their vendor partners alike. Increasing purchasing volumes, coupled with a rise in the complexity of purchasing and invoicing software, have contributed to an environment where it is difficult to keep up with and effectively manage match exceptions. All too often, this leads to unpleasant situations, such as credit holds, that can jeopardize the quality of patient care.

What is the scope of this problem?

McKinsey has estimated an opportunity of $385 billion in annual savings from healthcare supply chain improvements. Supply chain expenses have jumped 16% between 2019 and 2021, increasing at a higher rate than labor or total expenses.

Where do match exceptions fit in?

A recent analysis found that an average of 10% of a health system’s spend/purchase order lines end up on the exception report. Once a voucher hits the match exception report, it invariably requires a human to look at it and investigate the root cause. On the provider side, this consumes upwards of 50% of the purchasing team’s bandwidth at a leading health system, and requires similar effort from Accounts Payable and Receiving, and even involvement from clinical teams. On the vendor side, it is estimated that a single exception takes an average of 40 minutes to investigate and bring to resolution. This, combined with increasing purchasing volumes, makes this a ballooning high-value problem

What is the current state?

Most ERP systems have their own system of creating and resolving match exceptions. Oracle’s Peoplesoft (the second leading ERP at US hospitals, after Infor) has an exception report used by the purchasing team and a Matching Workbench that is utilized by the Accounts Payable group. When an invoice is entered into PeopleSoft, the system checks a list of (matching) conditions that the invoice (or voucher in PeopleSoft terminology) needs to fulfill before it can be matched and paid, establishing a three-way match between the invoice, purchase order and receipt if applicable. Each of these conditions is related to a match rule.

While the match rules that need to be met depend on a few purchase order characteristics, if even one of the required rules is not fulfilled, the system creates a match exception, which stops the invoice from being paid.

To maintain visibility of these exceptions, the purchasing team runs a recurring match exception report. This report provides a list of vouchers/invoices that failed to match and the rules they violate. Here is a sample of what that report looks like:

An average of 3,000 voucher lines translates to the report having well over 10,000 rows, making it a substantial undertaking for individual buyers to effectively manage and resolve.

Initial Solutions?

During my time at a leading health system, I worked with the various groups within the supply chain to understand what each of them needed to resolve match exceptions. I designed an Excel-based report that took the stock report generated by PeopleSoft ERP and rolled it up to the PO line level, making it more digestible by the team.

This turned the 14,000+ row stock report into a 1,200-row report — with one row per purchase order line. The tool would also assign these rows to different teams based on the match rules broken. This further reduced the number of exceptions the purchasing team had to manage and thereby increased their level of efficiency. We implemented additional enhancements to create a separate view for the contracting team, which rolled exceptions up to the item level and displayed the appropriate contract information. This allowed the contracting team to fix contract-related price exceptions at the item level by fostering more efficient communication with vendors to resolve instances where prices were not honored with respect to the negotiated contracts.

This tool continues to be used by the team today, two years after it was launched. Total match exceptions dropped 20% ($2.4 million based on the hospital’s annual spend) in the 6 months following its launch, which is a considerable decrease given the increasing rate at which exceptions continue to flow in. Receiving, accounts payable, and contracting teams expressed support, given that they only get assigned issues that they own, and are provided all the information they need to resolve them.

While this report represents a big step forward from the stock report, it still has drawbacks associated with being an Excel-based report. Since the report runs daily and a new file is generated every time, the team loses access to any notes they may have made to a previous file and need to maintain those locally. Any communication about an exception needs to occur via email or offline, and it is hard to collaborate with other team members when each person has their own copy/version of the report.

What can we do better?

Enter Exception Monitor: an integrated web application that serves as a workflow tool for healthcare supply chain teams to manage exceptions. It receives exceptions from the source ERP and maps it to other useful data such as item contracts, item master price, and price history, giving the team all the information they need to resolve an exception. They can make comments, assign exceptions to others, and track an exception from end to end.

While we are still enhancing the feature set based on user feedback, here are the highlights:

Analytics:

• Leaders can view statistics like the trend of exceptions created and resolved over a period of time, broken down by their teams, vendors, and root causes among other filters. This will allow them to define and track their key performance indicators (KPIs) and spot and address outlier issues before they snowball.
• Team members can view summary statistics related to their own exception queues and keep track of their progress, and work with their leaders to define shared goals and their corresponding metrics

Intelligent Four-Way Matching:

• Our intelligent algorithms identify the most appropriate contract for each given purchase order line item, in addition to the traditional three-way matching of the invoice to the purchase order and receipt. Team members can use this information to readily root-cause the exception and quickly proceed to resolution.

Prioritization

• Leaders can define exception prioritization rules, by assigning weights (importance) to characteristics such as due dates, payment terms, and statistics like the percentage of total spend on exception by vendor. An advanced model would use this to rank individual exceptions in their respective queues.

Auto-Assignment & Collaboration:

• An advanced model would categorize and assign individual exceptions to the appropriate team/team members using exception characteristics, historical data, and user feedback. The model would suggest actions-to-resolution
• Individual team members would see all the information they need to resolve an exception on one screen, along with suggested actions. They can collaborate with other teams (and their members) with ease using comments. The tool notifies team members when someone re-assigns an exception to them, or tags (@mentions) them in a comment.

The goal of this product is to enable the supply chain team to resolve exceptions in the most efficient way possible, by minimizing the time they would spend performing non-value-add activities such as looking through their locally stored notes, copy-pasting exception information into emails, or searching for item contract information in multiple contract databases.

We want to create a seamless experience for the team, wherein they log in, know exactly what they need to do based on the priorities, and have all the information at their disposal to swiftly work toward resolution and track progress along the way. This translates to direct labor savings through increasing workforce efficiency, capital gains through prioritizing payment discounts, and reduced supply impact by minimizing and swiftly resolving credit hold situations. It is also a scalable, robust, and flexible long-term solution that increases supply-chain resilience.

Key Learnings and Way Forward?

Match exceptions are the symptom of a bigger problem. While Exception Monitor helps increase the outflow of exceptions (so we can live to fight another day), health systems need to also reduce the inflow. But what is the root cause of these exceptions that are flooding our purchasing teams?

• Item Master Data Integrity: Given the significant percentage of spend associated with our item master items, maintaining our item master data integrity is paramount to reducing the inflow of exceptions. We need to ensure our item master stays up to date with our contract prices and their effective dates. This is especially challenging with the multitude of price sources, ranging from Group Purchasing Organization (GPO) contracts, regional tiers and contracts, local agreements, and so on.
• Contract Price Management: We have multiple sources of contract pricing and multiple places where our pricing lives; our item master, vendor catalogs, and vendor-managed ‘punchout’ sites. Making sure each of these is up to date with our latest contract price is an increasingly complex challenge.
• Vendor Contract Exceptions: We have seen lags in price effective dates between provider and vendor systems contributing to exceptions in that intersectional period. This is the time between when you activate a contract with your GPO, and load that pricing in your ERP, and when the vendor loads that contract pricing to your account in their system. If any items on that contract are ordered in the interim, the POs will reflect the correct contract price while the vendor’s invoices will not. And while they will eventually honor the contract price, this will require manual intervention which is less than ideal.
• Systemic Limitations: A single healthcare system has purchasing relationships with hundreds of vendors. They each have their own purchasing and invoicing systems, with their own customizations and policies. These systems communicate with each other using paper (print), fax, and more recently email and EDI (Electronic Data Interchange). The individual limitations of the source system, combined with the limitations of the dispatch method used lead to a multitude of issues such as misapplied lines, invoicing before or without shipping, inability to process quotes, comments, change-orders, refunds, credits, or other non-standard fields, or incorrectly processing them, and the list goes on.

Each of these areas is ripe for innovation and requires partnership across the provider-supplier spectrum to effectively resolve. We look forward to collaborating with leaders on both ends of this spectrum to build modern, robust, and resilient solutions to these problems.

Join us and learn more at clariumhealth.com.

About the author:

Reuben Mathew Philip is a software engineer with a stellar record of automating and optimizing processes in the healthcare, automotive, and retail e-commerce sectors. He is passionate about leveraging computer science and big data to help hospitals dramatically reduce cost, waste, and inefficiency. At Clarium, Reuben is building intelligent automation tools that enable supply chain teams to increase productivity, lower cost, and ultimately, improve the quality of patient care. When he’s not working on modernizing the healthcare supply chain, you’ll find him running along the Charles River in Boston and singing karaoke with friends.