Molina Healthcare's new centralized procurement operation saves time, money

Accounts payable (AP) and the cloud may hold the secret to providing quality healthcare.

At least that's what Molina Healthcare--an organization that provides healthcare to financially vulnerable families and individuals covered by government programs--discovered when it created an in-house centralized procurement operation, a move that kept administrative costs down while it expanded staff and membership.

Rapid growth was the main reason the Long Beach, California-based organization, which offers health plans in nine states and has medical clinics in California, Florida, New Mexico, Virginia, Washington and Utah, decided to centralize the process, Bryce Berg, vice president of corporate administration (pictured right), told FierceHealthFinance in an exclusive interview.

When Berg came to Molina in 2010, the organization was experiencing dramatic growth. At the time, it had gone from 3,000 to 4,000 employees (it now has nearly 9,100 employees). Yet it was still having individual business units handle the company's contracting and procurement--the same processes and procedures it followed when it was a small and medium business.  

"When I arrived, I noticed that everything was being done in a manual way, but in ways that didn't scale. I had concerns with the amount of work we needed to get done and as the complexity of it increases, I could see it coming to a tragic end," he said.

With senior leadership support, Berg first introduced an enterprise resource planning system to the company for procurement. Although the system was appropriate for finances, it was complex and difficult for the average casual user. It took 12 clicks to accomplish the task and most people outside the department forgot everything they had learned in training within a few weeks, since they weren't spending time in the system all day.

That's when senior leaders allowed Berg to try something new, and he received approval to establish a centralized AP department, in addition to evaluating vendors to create a cloud-based procurement system. His goal: to simulate the Amazon experience and develop a process that required little training, one that was intuitive and easy to use. "We wanted to make it easier to use than not use. If it's hard to use it, people will go around it," he said.

The department requires that the system is used to process every invoice or check request, otherwise staff won't approve it for payment. The result is a fast and easy email-based requisition process. Executives can approve a requisition or invoice via their mobile devices when they are traveling and not in the office. Shortly after the organization implemented the system, Berg noticed the average requisition time went from seven to eight days, to below 48 hours.

"The cost savings are significant," he said. "When I first started, we were implementing 5,000 invoices a month. But with our growth, today we process 13,000 invoices a month. Based on the scale, it's two and a half times the work and would require a significant amount of overtime, especially at the end of the month, trying to process everything before month's end. That is large costs on scanning, printing out forms, rescanning and storage of all documents."

The new cloud-based technology cut out paper and scanning (the company removed 85 percent of the paper it used in its old AP process, saving more than 150,000 pieces of paper to date), and the need for data entry, while increasing the volume of invoices, according to Berg.

Instead of 11 clerks in 11 different locations obtaining signatures and processing forms, the centralized process allowed Berg to reassign those staff to other duties, more as investigators and more meaningful than data entry.  Because the system hyperlinks requisitions, orders, invoices and payments, it saves staff time when they research a problem.

"We've taken a clerical job and made it a higher quality job, an enriching job experience. Now they can investigate what goes wrong. A former AP clerk had a dead end job but now they can move on to other positions in the company," Berg said.

Before the organization implemented the cloud-based system, the information had to be entered four times into four different systems in order to process a purchase order. Now it is keyed in once. "The quality of the data is much higher because it's not keyed in multiple times. It's more efficient and the error rate is much lower," he said.

Although manual processes may make sense in smaller organizations, Berg says as hospitals and health systems grow there may come a time when they want an electronic solution. For Molina, the manual processes couldn't sustain a company that projects revenue of $12.5 billion in 2015.

"There is no silver bullet that is going to fit every situation," Berg said. "You have to look around at the problems you have and find a system that will match the problems you are trying to solve. You also have to look three to five years into the future to make sure you fit the need so you don't have to redo it two years from now."

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