Over the past decade, technology proliferation in the healthcare industry has resulted in disparate systems and data. As a result, finance and accounting work is often performed in spreadsheets, which creates additional challenges including standardization, visibility, risks, and errors. And because F&A is typically seen as a back-office function, it’s not been a high priority for digitization and automation.
More recently, COVID-19 has increased the pressure on healthcare industry CFOs to support the business with more real-time partnership and insights while delivering more timely and accurate financials. Along with the pandemic, health-related organizations like healthcare providers, payers, life sciences companies, and medical device makers must also contend with:
Ever-changing regulatory requirements
The impact of emerging value-based care on financials
Frequent M&A activity and strong industry growth
With all of these challenges, outdated accounting processes are not sustainable as the healthcare industry continues its ongoing evolution to become more efficient, transparent, patient-centric, and value-based. What can healthcare CFOs do?
3 Areas to Focus On to Automate Accounting in Healthcare
Forward-looking healthcare F&A organizations are looking to automation to improve the speed, precision, controls, and visibility across controllership. If this sounds like something you’d like to do at your organization, you’re likely wondering where to begin?
Identifying the processes most ripe for automation can be a challenge, however, here are three key focus areas that are commonly in need of transformation:
Revenue cycle management
High-volume transaction reconciliation
Manual journal entries
Let’s break down the challenges and automation opportunities in each of these three areas.
Healthcare Revenue Cycle Management
From the moment a patient checks in to a hospital to the time when payment is made for goods and services rendered, a large volume of transactional detail is captured—often across disparate systems. Electronic medical records (EMR) applications address portions of the revenue process, but when accounting needs to validate and reconcile transactions to the general ledger, manual effort is prevalent and slows down the process.
That manual effort takes the form of reactive, detective accounting that drains resources and hurts morale across the accounting and finance team. Handling exceptions is often slow and cumbersome, while staffers have little to no time for higher-level analysis, real-time insights, and business partnering.
Delays in preparing and transmitting invoices can further complicate a manual order-to-cash cycle. And because the volume of incoming payments is so large, payments are frequently recorded in a suspense account until they can be reclassified appropriately.
Diminished collectability and inefficiencies in settling payments can drive up days sales outstanding (DSO), slow vital cash flow, and result in write-offs, all of which adversely impact the overall financial health of the institution.
These pain points have only been magnified during the disruptions of the pandemic and spotlight the urgency of automating what have traditionally been manual revenue management processes.
High-Volume Transaction Reconciliation
Unlike other industries that can commonly apply a single payment to one or more invoices, numerous payments are often required to cover a single invoice in healthcare.
Healthcare accounting teams often spend a disproportionate amount of manual effort to reconcile AR payments and AP transactions. In many cases, these are not simple one-to-one matches. They involve multiple parties and data sources, such as ERP, EMR, credit card, and bank transaction systems. And unlike other accounting activities, which are performed at month-end, there are bigger implications if transactions are not matched and validated on a timely basis. Slow and error-prone processes can impact a healthcare provider’s revenue, working capital, and cash flow.
Finance automation equips healthcare to address weaknesses that can include:
Aging suspense account balances that increase write-off risk
Difficulty analyzing aging reports due to a lack of timely, unified data
Erratic and ineffective collections processes
Lengthy and complex accrual processes
Limited communication between departments
Difficulty accessing line-item detail and supporting documentation
Manual Journal Entries
Journal entries are another opportunity to leverage automation. Journal entries are often prepared and posted manually via accounting system text fields and/or in spreadsheets with limited built-in controls.
This results in increased levels of resource effort, corporate risks, and extensive audit challenges. When healthcare organizations perform hundreds or thousands of manual JEs, the risk and effort levels increase significantly, leaving less time to perform higher-value activities.
Healthcare accounting teams record recurring and non-recurring entries to ensure compliance with GAAP, IFRS, and other regulations. Journal entries are a necessary part of an organization’s financial processes—but they shouldn’t consume inordinate time and resources.
Using an automated journal entry process, an organization can:
Centralize and retain the required levels of documentation
Standardize processes across the organization
Automate manual work
Shorten close timelines
Reduce the risk of errors and control deficiencies
Streamline audit processes and avoid unanticipated fees
Modern Accounting in Healthcare
Leading healthcare organizations begin their modern accounting journey by identifying key pain points and bottlenecks and addressing those first for quick wins. By adopting leading practices and a continuous improvement approach, organizations build on their success by automating additional accounting processes, achieving measurable outcomes, and enhancing accounting’s value to the organization.
Organizations can see results like:
50% fewer hours spent on reconciliations
36% decrease in manual journal entries
400 hours of reduced audit time
A Cure for Healthcare's Accounting & Finance Pains
The continued success of healthcare organizations depends on engaged, effective accounting and finance teams that can partner with the business to meet overall objectives for improved patient outcomes. This can be achieved by continuously improving and leveraging automation technology and by helping the organization navigate through various changes and disruptions.
Leading healthcare CFOs and other finance leaders are now taking steps to modernize accounting—transforming it from traditional back-office record-keeping to a more proactive and strategic role. Done right, modern and continuous accounting liberates overworked finance teams to be more productive in closing the books and delivering the financial transparency that healthcare needs today and into the future.