Electronic Fund Transfer Helps Secure Discounts, Rebates and Expense Reductions

Like all hospitals facing declining reimbursement, St. Luke’s University Health Network looks inward for opportunities to reduce expenses. Previously, we had only one method of payment — check. This put us at risk for lost checks or delayed delivery, in addition to costs incurred in postage, envelopes and check printing. Our ability to qualify for prompt pay discounts was out of reach in most cases. Once we implemented automated clearinghouse software (ACH) for electronic funds transfer, we were able to automate many of the manual tasks that limited our ability to qualify for the discounts.

Prompt Pay Discounts Contribute to Bottom Line

Currently, St. Luke’s has 16 entities, including six hospitals for which we process 7,000 ACH invoices annually. Since implementing our automated clearinghouse solution in early 2011, we’ve experienced significant cost savings, which has helped contribute to St. Luke’s bottom line. With our linen provider alone, we are generating $42K annually in rebates. We’ve successfully negotiated rebates with our food vendor to generate another $125K annually. The greatest opportunity was with our pharmaceutical vendor, generating $1.3M annually in prompt payment discounts.

Improved Efficiencies for Staff

Our automated process has reduced labor hours. Checks require sorting and mail preparation. Instead, the vendor is identified as an ACH vendor in the Vendor Master. Payment files are created, and a file is uploaded to our bank for processing. The Financial Management application generates an automated email notifying our vendors a payment has been processed. It attaches a remittance advice listing the invoice number, invoice date, purchase order number and payment amount.

The batch file eliminates the need for staff to generate individual emails to vendors. The remittance enables the vendor to confirm the payment and match the invoice to the payment. The ACH enables us to increase cash flow by paying invoices “just in time.” ACH also decreases our “escheat” files (property without an owner subject to state acquisition), since ACH payment receipt is guaranteed.

“Ghost” Card Helps Earn Additional Rebates

Many consumers own credit cards that enable them to earn rebates on purchases. St. Luke’s is employing the same strategy for our organization. Where vendors accept that type of payment, we pay with a “ghost” card – a card that doesn’t physically exist, but provides a credit number for making payments. The discounts received by using the card depend on the total of the item purchased. This provides additional opportunity to add revenue onto the discount received from the vendor. The average rebate is up to 1.5% on purchases under $7,000. In 2012, St. Luke’s earned $538,000 in credit card rebates.

Continued Preparations for a Digital Future

With the volume we handle now and expect in the future with greater access to care, it is a significant opportunity for us to reduce operating expenses while earning discounts and rebates to add to our bottom line. With the success we’ve experienced so far, we’re planning to expand our automated clearinghouse vendors from 100 to 1,800 of our vendors. Our goal is to have the majority of our vendors paid via ACH or credit card, eliminating as many checks as possible. We’re also planning further automation of our accounts payable processes to gain additional efficiencies and cost reductions.