COVID-19’s Impact on Health System Liquidity
Author: Matthew Meyer, Vice President, Healthcare Banking
Before the pandemic began, many healthcare providers were already operating on thin margins, with enough cash and patient receivables to cover only three to four months of operations, according to PwC’s Health Research Institute.
Once COVID-19 hit, health systems were under additional strain. On top of treating a surge in ill patients suffering from the coronavirus, hospitals had to cancel non-essential procedures and ramp-up purchases of personal protective equipment (PPE), which has become increasingly expensive. According to a report published by the Society for Healthcare Organization Procurement Professionals, the cost of PPE supplies has gone up more than 1,000 percent in some instances.
In addition to these challenges, some health system employees, like supply chain, accounts payable (AP) and finance teams, were moved to remote working environments, which can make daily operational tasks, like processing purchase orders and making payments, more difficult. For many hospitals, the AP team is generally needed onsite to issue checks. The paper and manual processing doesn’t end there, according to a survey by PayStream Advisors, healthcare organizations receive nearly three-quarters of their invoices on paper or via email and rely heavily on manual invoice processes to ultimately issue payments.
Supply chain and AP teams have also faced issues with new suppliers entering the marketplace as the demand for PPE increased. With many health systems operating on lean inventory levels, they were forced to expand their supply chains and purchase equipment from new vendors. Unfortunately, finding suppliers that have the much needed PPE is only half the battle. Starting a new relationship with a vendor often requires down payments or upfront payments in full since no transaction history exists— negatively impacting the health system’s liquidity.
Finding Solutions to Liquidity & AP Process Challenges
While these challenges may strain liquidity and human resources, there are solutions available to assist health systems in maximizing working capital and automating payment processes.
- Utilize AP Automation Technology – AP automation makes it easy for providers to make payments remotely with minimal intervention. For example, FNBO’s First Payment Exchange solution allows for a single AP file to be uploaded to a digital platform and remit electronic payments in the most efficient manner. This means paying suppliers that accept card payments with commercial credit cards and paying via ACH to other suppliers.
Automated payments also provide access to new revenue streams. By making faster payments, providers can take advantage of early pay discounts. Additionally, some AP automation providers offer rebates on card and ACH payments by negotiating pricing with healthcare suppliers. AP automation systems can also electronically reconcile payments to ensure providers aren’t overpaying.
- Leverage Pre-Established Supplier Networks – First Payment Exchange can provide access to an established supplier network that makes it easier to ensure consistent supply ordering processes and mitigate issues associated with onboarding and transacting with new suppliers.
- Take Advantage of Revolving Credit Facilities – Payment solutions, such as First Payment Exchange, couple non-card payments with a revolving credit facility, which allows for the same type of cash float providers benefit from with credit card payments, easing liquidity strains. This allows suppliers to be paid within the negotiated terms but gives the provider an extended period of time before having to part with the cash.
At a time when margins are tight and teams are remote, improving efficiency by streamlining the AP process can positively impact providers and their teams. This reduction in manual work allows staff to focus on more valuable tasks, like pricing negotiation, enabling different payment types or contract analysis.
To learn about FNBO’s healthcare AP automation product, First Payment Exchange, contact our healthcare banking team.
FNBO offers a full suite of revenue cycle solutions that allow our customers to focus their time and resources on what matters most – providing the best possible healthcare services throughout our communities. We offer financing for working capital, new construction, renovations, equipment acquisitions and patient financing.
About the Author
Matt joined FNBO in 2013. In his role as Vice President of Healthcare Banking, he partners with clients on lending, payables and patient financing solutions. Matt finds great satisfaction in helping healthcare providers ensure the sustainability of their organizations for generations to come.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.