Reducing Payment Fraud in Healthcare with AP Automation

Fraudulent activity in the healthcare sector presents far-reaching consequences, impacting more than just finances—it undermines trust, burdens resources, and ultimately affects the quality of patient care. With complex financial operations, vendor relationships, and high transaction volumes, the healthcare industry uniquely faces threats like vendor fraud and internal fraud. However, AP automation offers a robust line of defense, embedding compliance, security, and efficiency into accounts payable processes.

Below, we’ll explore how healthcare organizations can leverage AP automation and related best practices to mitigate fraud risks and protect their operational integrity.

What is Accounts Payable (AP) Fraud in Healthcare?

AP fraud in healthcare refers to the intentional manipulation of the AP process — such as creating fake vendors, submitting false invoices, or diverting payments — for personal or financial gain. It can be carried out by internal staff, vendors, or external actors and often targets gaps in invoice approval, vendor management, or payment controls.

In healthcare, fraud risks in accounts payable (AP) can have serious financial and regulatory consequences, and threats come from within as well as from the outside. Here are the most common types of fraud risks in the healthcare AP context:

Vendor Fraud

Vendor fraud occurs when external suppliers—or in some cases, colluding employees—manipulate payment systems for illicit gains. Examples include:

• Duplicate invoices: Submitting the same invoice multiple times in hopes of receiving extra payments.

  • Red Flag: Multiple invoices with slight variations in invoice number or line items.

  • Common in: Manual invoice processing environments without automated validation.

• Falsified Invoices or Services Not Rendered: Billing for services or supplies that were never delivered or used.

  • Red Flag: Invoices without matching POs or receiving records.

  • Common in: Specialty care practices and outsourced services (e.g. labs, transport).

• Fake vendors: Fraudsters create fictitious entities to submit invoices for services or goods never delivered.

  • Red Flag: Vendors with no physical address, tax ID, or history of legitimate activity.

  • Common in: Large hospital systems with decentralized vendor onboarding.

• Price inflation schemes: Colluding vendors and employees inflate prices or quantities for mutual benefit.

  • Red Flag: Invoices for similar services or goods with slightly changed numbers submitted at the beginning or end of periods.

  • Common in: Understaffed officers where invoice processing happens in spreadsheets or across multiple platforms..

Why it matters: Vendor fraud directly impacts operational resources, leading to delays in procuring critical medical supplies and medications. It can also draw funds away from patient care, staffing, and essential technological upgrades.

Internal Fraud

Internal fraud is perpetrated by employees abusing access to financial systems. Risks include:

• Ghost vendors: Employees create fake vendor profiles to route payments to their own accounts by making changes in vendor banking details.

  • Red Flag: Change requests via email without phone or identity verification.

  • Common in: AP departments lacking a formal vendor change control process.

• Unauthorized approvals: Employees approve unvetted payments or divert funds by bypassing proper workflows.

  • Red Flag: High volume of P-card purchases or out-of-policy spend.

  • Common in: Fast-moving departments like ER or urgent care procurement.

• Falsified Invoices or Services Not Rendered: Billing for services or supplies that were never delivered or used.

  • Red Flag: Invoices without matching POs or receiving records.

  • Common in: Specialty care practices and outsourced services (e.g. labs, transport).

Why it matters: Employees with insider knowledge of manual AP processes can exploit weak links, particularly in organizations still reliant on paper invoices or loosely monitored payment systems. These incidents jeopardize organizational credibility and stability.

How AP Automation Protects Against Healthcare Fraud 

In the intricate world of healthcare finance, protecting against fraud is paramount. AP automation doesn’t just streamline operations; it brings transparency and structure to workflows, significantly reducing fraud risks. Here’s an in-depth look at how AP automation protects organizations and enhances financial security: 

1. Vendor Validation 

Automated systems conduct thorough vendor verification during onboarding, reducing the risk of fraudulent entities infiltrating payment processes. A key feature of these is cross-referencing vendor information with official databases like SAM.gov (System for Award Management) and OFAC screening tools (Office of Foreign Assets Control) to ensure compliance and detect potential red flags. Systems also validating essential documents, such as W-9 forms for tax compliance and TIN (Taxpayer Identification Number) matching, to confirm the accuracy and legitimacy of vendor details and conduct ongoing vendor monitoring to track changes in legitimacy or detect suspicious behavior over time, preventing long-term exposure to fraudulent schemes. 

The result: Automated vendor validation prevents illegitimate entities from entering the system, ensuring payments are made only to verified, compliant vendors. 

2. Secure Payment Processing 

AP automation integrates robust, secure payment methods directly into workflows, offering powerful fraud protection. Virtual cards are single-use payment details for specific transactions minimize risks of tampering, theft, or unauthorized access. Automated Clearing House (ACH) transfers provide secure, traceable payment processes, avoiding vulnerabilities tied to paper checks or less secure options. These systems benefit from real-time payment monitoring which flag unusual activity, such as unexpected vendor changes, out-of-policy transactions, or irregular payment patterns, for immediate investigation. 

The result: These measures protect against unauthorized payments, streamline legitimate transactions, and enhance the overall security of payment processes. 

3. Segregation of Duties 

Fraud prevention hinges on ensuring no single individual controls an entire financial process. AP automation enforces this principle by separating key tasks, such as vendor approval, invoice processing, and payment execution, preventing any single person from manipulating financial workflows. Role-based permissions restrict access to sensitive functions and data based on job responsibilities, reducing opportunities for insider fraud. 

The result: By fostering accountability and reducing the potential for internal manipulation, AP automation creates a secure and transparent financial environment. 

4. Invoice and Purchase Order Matching 

Automated systems streamline invoice processing through 2-way or 3-way matching (invoice, purchase order, and goods receipt), ensuring discrepancies are quickly identified and resolved. These systems address issues such as duplicate invoices, preventing accidental overpayments, flagging unauthorized invoices that don’t correspond to approved purchase orders or services, and detecting attempts to bill for goods or services that were never delivered or justified. 

The result: This process guarantees payments are made only for verified goods or services, minimizing billing errors and significantly reducing the risk of fraud.

5. Real-time Reporting and Audit Trails 

AP automation tools offer robust reporting and audit-ready documentation in real-time to pinpoint high-risk vendor activities, such as unusual payment frequencies or sudden changes in payment behaviors. They also maintain a detailed audit trail of every approval, modification, and action within workflows, ensuring complete transparency and provide compliance-ready reports that meet industry standards and regulations like HIPAA or Medicare requirements, reducing regulatory complexities. 

The result: These capabilities simplify fraud investigations, ensure legal compliance, and establish accountability, making it easier to identify and address suspicious activities quickly and effectively.

6. Automated Anomaly Detection with AI 

Modern AP systems leverage AI and machine learning to analyze vast amounts of financial data, enabling the detection of subtle anomalies and unusual vendor payments, such as excessively high amounts or repetitive payments to the same entity; and preventing delayed patient care due to supply chain disruptions caused by fraudulent vendor activity. Another key feature is monitoring for out-of-policy transactions, like payments exceeding approved thresholds or involving unverified vendors and sending real-time alerts to administrators for immediate investigation, enabling swift responses to potential fraud. 

The result: Unlike manual oversight, AI excels at uncovering hidden or complex patterns of fraud, ensuring even the smallest irregularities are flagged and addressed promptly, enhancing security and control.

7. Staff Training and Awareness 

Even with cutting-edge technology, fraud prevention begins with a vigilant team. AP automation supports ongoing training efforts by equipping staff with the tools and knowledge to identify phishing attempts, fraud schemes, and social engineering attacks commonly targeting healthcare organizations. These systems also promote secure reporting channels, allowing employees to report suspicious activities anonymously and without fear of retaliation while cultivating a culture of accountability, encouraging proactive financial protection across the organization. 

The result: A well-trained team becomes an integral layer of defense, reducing the risks of both external and insider fraud through heightened awareness and vigilance.

8. Regular Audits and Payment Reviews 

Automation simplifies the auditing process, enabling organizations to conduct frequent reviews of payment data to identify red flags, including unusual payment trends, such as small but irregular payments made consistently to certain vendors. Invoice processing automation eases administrative burdens for stretched finance teams and reduces operational stress with streamlined, predictable workflows. AP automation systems allow them to focus on key activities instead of being on the lookout for vendors with recurring patterns of fraudulent behavior and workflow irregularities, catching overlooked issues in invoice or payment processes before they escalate. 

The result: Routine audits help maintain operational integrity, foster accountability, and ensure fraudulent activity is identified and addressed early.

When combined with industry best practices—segregation of duties, continual staff education, and ongoing audits—automation creates a robust system that keeps fraud at bay while driving efficiency.

A Comprehensive Approach to Fraud Prevention 

By integrating advanced technologies like virtual cards, AI, structured workflows, and automated anomaly detection with ongoing staff training and regular audits, AP automation solutions like Corpay provide a holistic solution to safeguard healthcare finances. These systems not only prevent fraud but also enhance compliance, streamline operations, and ensure financial transparency — key elements for the success of healthcare organizations in today’s fast-paced world.

Preventing payment fraud in healthcare institutions requires vigilance, proactive measures, and the right technology. AP automation serves as both a shield against fraud and a catalyst for efficiency, enabling organizations to focus on what truly matters—providing quality care.

Frequently Asked Questions about AP Fraud in Healthcare

Why is healthcare especially vulnerable to AP fraud?

Healthcare systems deal with high volumes of vendors, complex supply chains, and decentralized purchasing. In fast-paced environments like hospitals or clinics, controls can be bypassed for speed or convenience—creating opportunities for fraud.

Who commits AP fraud in healthcare systems, internal staff or outside vendors?

Both. Internal employees may manipulate approvals or create fictitious vendors, while external vendors might submit duplicate or inflated invoices. In some cases, fraud is a result of collusion between employees and vendors.

What are signs that AP fraud might be occurring?

Common red flags include:

• Frequent vendor bank account changes

• Duplicate or similar invoices

• Vendors with incomplete or suspicious profiles

• Payments just under approval thresholds 

• Unmatched invoices (no PO or receipt)