Why the Traditional Way of Managing Vendors Won’t Work in a Post-COVID World

by | Jun 17, 2021

The post-pandemic reality for hospitals is one that is likely to be difficult. Rebuilding exhausted revenue streams and strengthening paper-thin margins will take months, if not years, especially for hospitals already struggling before the pandemic. Outsourcers will play an essential role in this recovery, but the way hospitals manage those vendor relationships will need to change.

Pre-pandemic Vendor Management

Many hospitals have long-standing relationships with their vendors, some lasting for decades. However, research shows that the majority of hospitals aren’t sure if they’re getting a positive return on those relationships. The problem is a lack of transparency that exists throughout the entire revenue cycle. Admittedly, today’s revenue cycle is more complex than ever. However, that doesn’t excuse a vendor from accountability. Revenue cycle technology is widely available and highly effective in streamlining processes and providing data analytics. Without technology, hospitals have to blindly trust their vendors’ own performance reports. Not surprisingly, those reports nearly always favor the vendor.

Relationships like these may have been okay in the past, but with the new challenges of a post-COVID world, hospitals simply cannot afford to maintain the status quo. Those that do severely jeopardize their long-term financial viability. For example, more than 14 million workers and their dependents lost employer-sponsored health insurance during the pandemic, and more than 20 million carry past-due medical debt.1,2 In other words, self-pay collections are likely to get substantially more difficult. Considering 36.1% of accounts aged 31-60 days that are placed with a vendor are never worked, it is easy to see the potential nightmare that lies ahead for hospitals that stick with pre-pandemic vendor management processes.

A New Approach

More forward-looking hospitals and health systems see the pandemic as a crossroads of a sort or a line in the sand that indicates there’s no going back. That means finally doing away with manual processes, paper-based workflows, and preventable revenue loss for themselves and their vendors. Making this happen will require more than a verbal agreement between key stakeholders; it’s going to take real change and close collaboration between the hospital and the vendor.

A great place to start is by establishing an enterprise-wide vendor management office (VMO) through which all vendors are measured and managed according to the same standards. Regular audits of all accounts should be used to proactively identify and address non-compliance and ensure optimal vendor performance. Revenue cycle technology should be used to streamline processes such as patient access, claims submissions, and denials management—all of which help improve reconciliation and facilitate faster, more accurate reimbursement.

Vendors also need to be held accountable for the patient financial experience. A hospital’s reputation is on the line every time a collection vendor engages with the patient. Aggressive call reps and threatening letters rarely result in full payment. Even worse, these tactics can cause patients to put off needed care, which can lead to poorer outcomes, increased costs, and subpar patient satisfaction ratings.

Holding all vendors to the same standards in regard to the patient experience requires a unified effort that is difficult, if not impossible, to achieve when hospitals rely on the vendors to report their own performance. Vendors should be required to provide patients with tools that remove barriers and make it easier to pay for the care they need. The proof should come in the form of increased collections, reduced days in AR, and fewer bad debt write-offs.

More than $7 billion in patient responsibility goes uncollected each year, representing up to 10% of a hospital’s revenue—revenue they can’t afford to lose, especially now.3

Success Story

Southeast Health is a not-for-profit community hospital serving more than 600,000 people in 22 counties in Southeast Missouri and Southern Illinois. The hospital is part of a health system with an extensive care network that includes 50 care locations. As the largest provider for community healthcare in the region, Southeast Health leveraged several community-based collections vendors, including early out self-pay, bad debt, and A/R follow-up, to achieve their revenue cycle goals. The hospital’s director of revenue believed they were not achieving maximum return on those partnerships, especially with early out self-pay outsourcers. An initial audit conducted by Healthfuse revealed that the director’s suspicions were correct; the hospital’s self-pay outsourcers were only working 40% of their assigned inventory. The audit also found numerous patient accounts that never made it to the vendor, invoicing errors, and a lack of accountability controls.

Southeast Health engaged Healthfuse to build and operate its Revenue Cycle Vendor Management Office (VMO), leveraging technology, advisory support, and industry domain to drive optimal bottom-line results. 

  • $2.3M – recurring P&L opportunity
  • $7.2M – three-year impact 
  • $5.6M – collections improvements
  • $90.5K – invoice recoveries
  • $225K – contract savings

“The 18-month relationship with Healthfuse is a true collaboration. Healthfuse genuinely cares about improving the performance of our vendors, and they do so with careful monitoring and hands-on assistance. Healthfuse manages every service line, and we’ve seen a marked improvement. I consider them trusted advisors with an in-depth knowledge of revenue cycle best practices and keen business acumen. I would recommend them to anyone looking to improve their net revenue and business performance.”

– Bonita M. Gregory, Director of Revenue Cycle, Southeast Health

A Path Forward

The journey to post-COVID recovery is hard to predict, although we know it’s not going to be easy. Fortunately, hospitals don’t have to go it alone. Revenue cycle vendors can help pave the way toward an even better “new normal.” Achieving this new normal requires a different approach to vendor management, one that leverages transparency, technology, and accountability. Partnering with Healthfuse to establish and manage a VMO gives hospitals the best opportunity to create a better, more financially viable future.

1 https://www.commonwealthfund.org/publications/issue-briefs/2020/oct/how-many-lost-jobs-employer-coverage-pandemic

2 https://www.nbcnews.com/politics/politics-news/medical-debt-engulfing-more-people-pandemic-takes-its-toll-n1265002

3 https://www.pymnts.com/healthcare/2019/hospital-payment-plans-medical-debt/

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