Using Purchase Orders to Cut Wasteful Healthcare Spending

Healthcare spending in the United States is the stuff of legend—a massive expenditure that only grows bigger each and every year. According to the National Health Expenditure Accounts (NHEA), U.S. healthcare spending rose 4.3% in 2016 to $3.3 trillion or $10,348 per person. These figures represent a 17.9% share of Gross Domestic Product.^[1] While this money does go to securing some truly great healthcare, there is also much waste hidden in these annual numbers. A report by the National Academy of Medicine estimates that the nation’s healthcare system wastes $765 billion annually, with $210 billion spent on unnecessary or overpriced care.^[2] One way health system leaders can drive leaner operations and reduce wasteful spending is through the use of purchase orders (POs).

Purchase Order vs. Invoice vs. Receipt

A purchase order is not an invoice, in fact, it’s more like the reverse of an invoice. The customer issues the purchase order that itemizes what good/service is being purchased. The seller issues the invoice that details what was provided and the amount due. Finally, the seller issues a receipt upon receiving the payment. In an ideal setting, a three-way match of these items should occur with every purchase transaction.

Why Issue Purchase Orders?

It’s common for healthcare systems to forgo issuing purchase orders since hospitals deal with hundreds, if not thousands, of vendors. However, this is not a best practice. Processing a litany of invoices without first matching them with their corresponding PO can result in overpayments through incorrect charges or hidden fees.

Purchase Orders Provide Clarity

By issuing a PO, a hospital can clearly communicate what it is purchasing. POs represent a legal contract that can help to negate surprise price changes or issues that may occur down the line. PO numbers are used to keep track of incoming orders and invoices. POs also cut down on duplicate orders, reducing waste.

Purchase Orders Offer Great Insights

Routinely auditing or evaluating purchased services vendors is a best practice for healthcare systems looking to ensure they are spending money efficiently. By having purchase orders on hand, administrators and auditors can easily view how money is spent and leverage this insight to make more informed business decisions.

Purchase orders are a great tool for healthcare organizations looking to curtail wasteful spending. At Valify, we help healthcare organizations achieve greater savings on purchased services expenses. Our  best practice recommendations include always using purchase orders to provide further visibility into transactions and promote more efficient operations. Discover the many solutions we offer for every size healthcare organization.

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^[1]https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html

^[2]http://www.nationalacademies.org/hmd/Reports/2012/Best-Care-at-Lower-Cost-The-Path-to-Continuously-Learning-Health-Care-in-America.aspx