Working with healthcare facilities comes with unique challenges, particularly when it comes to collecting payments. The healthcare payer ecosystem—spanning private insurers, Medicare, Medicaid, and self-pay patients—often leads to delayed payments, leaving vendors struggling with cash flow.
Payment delays are common across the healthcare industry, with one recent study from JP Morgan Chase showing that 48% of healthcare suppliers experience overdue invoices of 60 days or more. These delays not only affect cash flow for the suppliers but also lead to higher operational costs and strained vendor-payer relationships.
While healthcare facilities face their own financial pressures, vendors can take control by improving their accounts receivable processes. This article dives into the reasons behind delayed payments, offers strategies to address these challenges conceptually, and examines how to refine existing systems to improve collections.
Why are Payments Delayed in Healthcare?
The healthcare industry presents unique hurdles for AR management, primarily due to the following factors:
- Reimbursement Dependencies: Healthcare facilities often rely on reimbursements from insurers or government programs before paying their vendors. According to the Healthcare Financial Management Association (HFMA), initial claim denials for commercial insurers exceed 3%, and over 30% of approved claims still take more than 90 days to process. These delays ripple downstream, impacting vendor payments.
- Prioritization of Payments: Facilities prioritize vendor payments based on urgency and persistence. In a recent survey by Atradius, 40% of companies in the U.S. healthcare sector reported that they receive payments late due to facilities managing cash flow by delaying non-essential vendor payments.
- Administrative Bottlenecks: Managing hundreds or thousands of invoices with varying payer structures creates delays. The Medical Group Management Association (MGMA) cites staffing shortages as a leading issue, with 69% of healthcare leaders struggling to manage administrative tasks, including AP.
- Budget Constraints: Rising operational costs across labor, supplies, and compliance are eating into healthcare facilities’ budgets. According to the American Hospital Association (AHA), total expenses increased by 17.5% between 2020 and 2022, constraining cash available for vendor payments.
Current Strategies to Address Payment Delays
Vendors commonly attempt to address payment delays through these methods:
- Manual Follow-Ups: Many AR teams dedicate staff to email or call accounts with overdue payments. While this can secure payments, it is resource-intensive. At an average hourly wage of $25, a dedicated personnel costs businesses over $1000 per week in labor alone. Furthermore, this approach can strain customer relationships due to inconsistent follow-up timing.
- Building Relationships with AP Departments: Vendors work to improve relationships with AP departments at healthcare facilities. This can result in priority treatment but often falls short due to systemic reimbursement delays outside the facility’s control.
- Offering Extended Payment Terms: Vendors sometimes align their payment terms with facilities’ reimbursement cycles. While this reduces friction, it also ties up working capital, leaving the vendor vulnerable to cash flow challenges.
While these strategies may work for smaller vendors or limited volumes, they are not scalable as receivable volumes increase.
Where Traditional Methods Break Down
Traditional AR strategies fail as businesses grow due to several key limitations:
- Lack of Prioritization: Without a data-driven system, AR teams waste time chasing accounts that are less critical or less likely to pay on time.
- Resource Costs: Manual follow-ups are expensive and inefficient. A 2022 study by Billentis estimated that businesses relying on manual AR processes spend 2.3 times more than those using technology.
- Inconsistent Outcomes: Dependence on individual effort creates variability, with success largely reliant on the persistence of AR staff.
How to Build a Scalable AR Process Without Automation
Before jumping to automation, businesses should first optimize their existing systems. Here’s how:
- Proactive Follow-Up Scheduling: Establish clear timelines for follow-ups based on invoice due dates, payer profiles, and historical payment behavior. For example, prioritize high-value invoices nearing 30 days overdue for immediate escalation.
- Leverage ERP Capabilities: Many ERPs, like Oracle NetSuite or SAP, offer basic automation features such as reminder emails for overdue accounts or dashboards that track invoice status. Use these tools to set up reminders and track payment trends more efficiently.
- Segment Payers for Focused Efforts: Group accounts into categories based on risk or payment history (e.g., “Always On Time,” “Frequently Delayed,” “At Risk”). High-risk accounts can then receive more personalized attention, while reliable payers are managed with lighter-touch processes.
- Integrate Documentation with Invoices: Healthcare facilities often require delivery confirmations or compliance certificates. Ensure invoices are accompanied by the necessary documentation to avoid disputes. Create a centralized repository for these materials to streamline responses to AP queries.
- Regularly Review AR Metrics: Use metrics like DSO, aging buckets, and accounts flagged as “at risk” to refine your processes. For example, facilities in the 60+ days overdue bucket might need earlier escalation.
Pros and Cons of This Optimized Process
Pros
- Improved Efficiency: Streamlining follow-ups and segmenting payers improves AR team productivity without requiring new investments.
- Lower Costs: Leveraging existing ERP functionality reduces the need for costly new tools.
- Better Relationships: Consistent communication builds trust with healthcare facilities, improving payer responsiveness.
Cons:
- Limited Scalability: As invoice volumes grow, managing segmentation and follow-ups manually becomes unsustainable.
- Time-Intensive: Setting up segmented workflows, standardizing documentation, and training staff takes significant time.
- Variable Outcomes: ERP tools often lack advanced features like predictive analytics, limiting their effectiveness for complex payer ecosystems.
When to Consider a Specialized AR Automation Software
There comes a point when manual or semi-automated AR processes simply can’t keep up with the complexities of the healthcare payer ecosystem. Specialized AR automation becomes essential in the following scenarios:
- Over 1,000 Invoices a Month: Handling such volume manually can overwhelm your team. According to the Institute of Finance & Management, 64% of AR teams lack the resources to keep up with growing invoice counts. Automation helps ensure every account gets timely follow-ups.
- DSO Above 60 Days: High days sales outstanding indicates cash flow delays. The Hackett Group reports top companies keep DSO between 30–40 days. Automation reduces delays by streamlining collections.
- Overdue Receivables Exceed 25%: If more than a quarter of your invoices are 90+ days overdue, it’s a red flag. Automated workflows can prioritize and follow up on these accounts to recover cash faster.
- High Write-Offs (Above 2%): Frequent write-offs show that at-risk accounts aren’t getting enough attention. Automation can identify these accounts early for timely intervention.
- Reconciliation Takes 5+ Days: Lengthy reconciliation slows operations. Research from APQC shows automation can cut reconciliation time by 80%, freeing up your team and reducing AR costs.
- Cash Flow Forecasts Are Inaccurate: If your forecast accuracy is below 85%, it’s likely due to poor visibility into outstanding receivables. Automation provides real-time insights to improve planning.
How Automation Complements an Optimized Process
For businesses managing hundreds of invoices monthly, automation becomes essential.
Platforms like Growfin offer end-to-end AR automation, providing:
- Predictive Insights: Identify high-risk payers early using AI-driven analytics, enabling preemptive action.
- Centralized Workflows: Consolidate AR processes across payers, facilities, and regions into a single platform.
- Automated Follow-Ups: Schedule consistent, data-driven follow-ups without manual intervention, saving time and improving outcomes.
Growfin helps healthcare vendors like Outcomes, ShiftMed and MedUS Health simplify AR with a centralized receivables platform that integrates deeply with the ERP. By streamlining follow-up strategy based on payment risk, documentation and dispute management, and automated reporting Growfin reduces manual effort, accelerates collections, and mitigates payer delays, boosting cash flow by 27% for clients navigating complex reimbursement ecosystems.
Conclusion
Payment delays in healthcare are challenging but solvable. By optimizing existing processes—leveraging ERP features, improving documentation workflows, and refining follow-up schedules—you can take significant steps toward improving collections. While these methods are effective for smaller volumes, businesses with higher AR volumes or complex payer ecosystems may need to adopt automation to stay competitive.
The key is to start with a strong conceptual process and scale it effectively. For businesses ready to take the next step, automation offers a way to reduce costs, improve cash flow, and simplify AR management.
Start transforming your collections strategy today to get ahead in the healthcare AR game.
