Methods to Decrease Overhead for Your Practice
Originally published in The American Chiropractor. View the original article.
Private practices today face a seemingly impossible problem: Reimbursement is declining and overhead costs are rising, yet patients more than ever are demanding extra time and access to providers. We now need to see more patients in the same amount of time. How do we do this? By improving efficiency, increasing productivity, and decreasing overhead costs. We have found this can be done by decreasing overhead costs (which this article is about). The collections versus expenses aspect can be very difficult to manage. The patient volume is out there, but physicians still have the overhead and can see only so many patients in a day.
Many practices have trouble understanding and applying the important concept of “Practice Success.” The bottom line is: the net revenue is the most accurate measure of financial success.
Our research and experience tells us that a practice should be collecting approximately 60 percent of fees that are billed. However, depending on the different insurance companies and cash programs offered, it could be higher or lower than 60 percent.
In our experience with a Medical or Integrated Clinic, we have a 6 to 1 rule. Decreasing your overhead in a healthcare business can have a 6x benefit to your business. Here is how this rule works—for every $1 you save, you would need to bill out $6 in services revenue to get the $1 in profits. Once you bill for services and account for discounts associated with contractual discounts, overhead, bad collections, bad debt, and so on … your $6 of billed services will lead to $1 of profit. Therefore, every dollar you save immediately goes to the bottom line. If you can save $25,000 per year, it is equivalent to $150,000 of billed services. Hence, managing your overhead REALLY MATTERS!
Decrease overhead:
1. Innovation and Hidden Cost of Employer Turnover
Call a staff meeting and explain that you will reward employees who suggest money-saving ideas with a percentage of the savings. This encourages your employees to brainstorm, speak up, and contribute to the company. According to Dr. David Berg, President and Founder of Redirect Health, “Tapping into the current awareness of our country’s healthcare challenges, and really solving this for employees, can significantly take the bite out of a company’s turnover costs and give it huge hiring and retention advantages.”
2. Payment — Collect the patient’s portion of a bill upfront.
Practices that do this report up to a 7% immediate increase in collections. This can be done by training your staff how to ask for money, because this can be an uncomfortable situation for them. For example, instead of asking “Do you want to pay your copay today?”, say “Your copay is this amount. How would you like to pay it today? We take cash, check, or credit card.” Charmaine Knapp from OA Centers of America–West Palm Beach Florida said, “Team training and the process of benefit verification, including the discussion of patient responsibility before treatment began, increased collections by almost 15%. We also improved our non-collectible revenue and the speed of overall collections. It was simply a much better operating process.”
3. Staff — Most practices can find areas to cut excess spending and reduce costs.
Hint: The staff is the last place you want to look. Providing an exceptional patient experience is key, and you cannot do that if you are short-staffed. There is a time and place to reduce staff, but all other means should first be exhausted before resorting to this option. Don’t be afraid of paying someone 25–30% more if they can fulfill the roles of two jobs.
4. Supplies and Products — This is the best way to start reducing overhead immediately.
Ask the staff to develop a system for monitoring supplies and products. Who is responsible for ordering office and clinical supplies? Does the practice have three months or three days of supplies on hand? Does the practice track inventory, or does the medical supply company representative say that more things are needed and the practice just orders them? By making sure the practice is organized, it will ensure that it not only saves you money but also time and effort in the long run.Strength lies in numbers, practices should work together to increase their buying power, which leverage economies of scale for purchasing. In most cases there are already federally approved groups that are there for you to join.
Ordering medical and office supplies through group purchasing organizations (GPOs) are often substantially cheaper. “We use the RMG GPO to purchase HA products for the knee, Bracing, Stem Cells and it has saved us tens of thousands of dollars.” Janice Johnston MD — Arrowhead Health Centers.
The opportunity to save money on the operations side may help grow a bottom line without having to levy new fees on patients or giving up office services. A GPO uses the leverage of numbers to lower prices for members without having to give up on the quality of the product. Small practices usually have problems getting lower pricing without having to order a large quantity. A GPO resolves these types of procurement problems, ensuring the ability to have inventories at a lower cost on each order.
What is a group purchasing organization? A group purchasing organization (GPO) is an entity that helps healthcare providers reduce upkeep by aggregating purchasing volume and using that leverage to negotiate discounts with manufacturers, distributors, and other vendors. There are normally GPOs for every industry. Not all GPOs are free, but there are many out there that are. Most GPOs will also pay for themselves after the first order.
The most important quality of a practice is to stay profitable. It doesn’t matter if your practice delivers the very best care to your patients, if you are not profitable, you won’t be around long enough to deliver that excellent care. By carefully managing your overhead, your bottom line will greatly improve. Remember, you can’t grow and improve what you don’t measure.
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