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Areas to Reduce Costs at Your Medical Practice

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With the ever-increasing changes in government and reimbursements, it’s surprising just how many physician practices haven’t invested the time to explore opportunities to decrease overhead and operating costs. There are two paths to increased net income at medical practices: higher revenue and lower expenses. Medical office expenses deserve more attention as potential sources of net income than they usually get, because operating expenses are substantial and the practice has more direct control over costs than revenue.

With reimbursement for professional services flat or declining, this means that physician incomes are below where they could be. Equally surprising is that cost management is easier than many physicians think and the results can be quite significant. Cost reduction opportunities fall into a few major categories and the approaches described below have been successful in practices of all sizes. This is the biggest cost and likely the biggest opportunity.

While each practice is different and staffing will vary by size and specialty, here are a few ideas that you may find to apply at your practice:

  • Unnecessary Staff Personnel that is NOT needed— Practice employees always recall the day when patients were lined up at the front desk or calls were on hold for long periods but is this a typical day or one time in the last six months? It is likely that this is a rare occasion, but your staff will want to ensure there are enough of them in case this scenario may play out again. How do you know how many staff you need? It’s important to know what each employee does, task by task, and then how long it takes for each. Since nobody works every minute of every hour it would behoove a physician’s practice to hire a part-time person to cover mornings because appointment calls are heavier before noon. If that half-time salary, as much as $15,000…..this could be added to physician paychecks.

The same approach holds true for billers. How many minutes does it take to post a charge, enter a payment, and file insurance? Figure the total minutes based on your practice volumes and use 80 percent as an effective level of staff utilization. This means about 45 minutes of every hour.
MDofficeManager could play a vital role in reducing overhead due to our outsourcing capabilities.

  • Wrong Kind of Staff — Do you employ an RN when an licensed practical nurse could adequately handle the responsibilities? If the clinical assistant simply escorts patients to and from the exam room and takes vital signs, maybe a Medical Assistant is the answer. MAs earn about half that of an RN.
  • Space — Typically medical office space demands premium rent yet many practices house staff there that could easily be moved to less costly surroundings. Billing, accounting, and transcription staff seldom need access to the physicians and could be grouped in a nearby office that is much less per square foot. That vacated space could be turned into exam rooms for a new associate or modified to accommodate an ancillary service that could generate revenue.
  • Supplies — What a practice purchases in the way of supplies is another opportunity to trim costs. Typically, medical supplies are purchased by a clinical assistant and the local sales rep for the medical supply vendor knows that maintaining a great relationship will ensure continued orders, regardless of cost. It’s recommended that medical supplies get bid out every two years. It is easy to download order histories and identify the highest cost items that make up 75 percent of total expenses. Give that list, less the prices of course, to another vendor and see what you find. Just knowing that this happens every few years will keep your low-cost supplier true to their word. The economics of medicine are changing and successful practices need to change as well.

Steps to lower medical office operating expenses:

Know current costs: An accurate picture of current costs requires a thoughtfully constructed chart of accounts that groups expenditures at a reasonable level of detail.  For instance, a single account labeled “Office Expenses” is not very useful.  The same is true of a large number of very detailed accounts, like “Paper Clips.” The items posted to a single account should be similar to one another in function, and each account should represent enough activity or dollar volume to be worth your attention. It should be noted that every activity be accurately and timely posted.  This task can be delegated, but someone must do it faithfully.

Identify an account to look into closely

Do not try to address everything at once.  Start with the account that meets both of the following criteria:

  1. You can change your sourcing of the product or service within three to six months.  (If you have three years to go on your office lease, your time is better spent looking at other items.)
  2. The account represents the biggest expenditure that meets the first criteria and you have not already looked into it.

Identify and analyze alternatives.

  • If possible, delegate this function because it involves research and leg work. Staff may be able to do it, or you may need to engage a surrogate, aka consultant. In the case of really big expenditures, there are companies that perform the function and are paid by the ultimately successful vendor. The best example of this situation is a tenant’s agent for leasing.

         Analyzing an alternative requires compiling:

  1. Costs — price, discounts and switching costs;
  2. Benefits — convenience, reliability, productivity gains, incentives, and other relationships.

For equipment purchases and leases, costs and benefits also include cost of capital, maintenance, expected functional life, residual value, and incentives.

Make a decision.

Once someone else has acquired and organized all of this information, the best decision should be apparent.  Be sure to retain the supporting documentation.  That makes it possible to compare expectations with subsequent reality, improving the quality of future analysis.  Including promises in any formal agreements also makes it possible to hold the vendor accountable.

Act.

Pull the trigger; make it happen. The practice will always be busy, and there will always be a very good reason to stick with the status quo until things slow down. If you decide to wait, all of the effort to find a better solution will have been wasted.

Other than insurance, some fruitful categories to look at include overtime, postage machines, payment discounts, transcription services, service contracts as opposed to ad hoc maintenance on equipment, record retention/destruction, and outsourcing.

For more quality and real insight into medical practice management performance, MDofficeManager give you access to leading-edge technology for medical billing, coding and transcription services.

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