Work smarter, not harder, to offset expenses

Practice Pointers. By Rita M. Schwager, amednews contributor. Dec. 16, 2002.

PRACTICE POINTERS

Answers to questions about the business side of your practice

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Question With anticipated cuts in Medicare reimbursements, rising liability and health care premiums, and increases in my practice overhead, I am beginning to get concerned. Between maintaining my home, school tuition for my children and a comfortable lifestyle, I don't save much beyond what is put into my company retirement plan. I have tried to keep my office expenses under control, so I don't believe I can cut my expenses significantly enough to counter the anticipated drop in revenue and rising insurance costs. How are other practices handling this situation?

Answer Whether you are in a high-income situation or make a modest living, most folks today are worried about these same issues. We are all concerned about our sluggish economy, losses on investments, and rising costs to run our homes and businesses.

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Now is the time to plan for changes you expect in Medicare reimbursements and in rising overhead. Part of your plan should be to "get back to the basics," while another part should be to "think out of the box."

On the "basics" side of the plan, you should always look to your revenue cycle. In your office, the revenue cycle starts with the appointment scheduling and ends with final collection of all money owed to you for the services rendered.

Between those two events are making sure the patient shows up for the appointment, making sure the patient/procedure is covered by insurance, collecting the co-pay, moving the patient in and out of the exam room, meeting with the patient and making a diagnosis, treating the patient, performing necessary lab tests, completing the encounter form correctly, following up with necessary referrals, scheduling patient follow-ups, billing for services, collecting from the insurance company and collecting from the patient. Inefficiencies in any of these steps are lost money.

Your goal should be to reduce inefficiencies so that you can actually see more patients every day, without extending your working hours. You want to work smarter, not harder. Involve your management team and your staff in this process.

A brainstorming session may provide ideas that you hadn't thought of on your own. For example, how could you increase your collection percentage by 5%? If your practice billings were $800,000, a 5% increase would add $40,000 to your practice revenues. What would it cost you to realize such an increase? Would you need additional training for your staff, or would you need to add a part-time person to do collections? Sometimes it costs money to make money.

Another example would be to look at postage costs for the billing department. How could you eliminate postage wasters? Does your billing department automatically send out all patient invoices or does someone screen them first? Are you billing for co-pays? Your goal should be to collect 100% of co-pays. If you don't, then it is probably costing you more to bill for the co-pay than the co-pay itself. The same philosophy should apply to patient deductibles and collection of any outstanding patient balance when the patient is in the office.

The largest expense for any practice is salary and benefits. Look closely at your staff makeup. Is every position in the office filled by the best possible person at the right salary for that position? Could you reduce your costs through better organization, better use of technology, better people or outsourcing some job responsibilities? Draw an organizational chart of where you would like to be and pull it out every time you have staff turnover. Your new hire should take you a step closer to your ideal staffing.

Do you automatically give a percentage increase at raise time to all your employees? Perhaps it is time to rethink that strategy. Use outside resources to determine what the market is paying for each of your staff positions. Use that information in determining the amount of raise. Save the largest raises for star performers.

If you have an underperformer, develop with your office manager a plan for performance improvement. Hold up any raises until a certain level of performance is achieved.

Substitute nonwage perks for your staff. Occasionally bring in lunch, have theme days, give away tickets to sporting events. These perks are appreciated and cost very little.

On the "thinking out of the box" side of the plan, be creative! Could you merge your practice or share space? There may be efficiencies to be gained by a reduction of staff size and sharing of resources.

For rising insurance costs, could you increase your health insurance deductible and add a medical flex plan to allow your employees to pay for the increase in out-of-pocket costs with pretax dollars? You or your office manager should be attending medical organization meetings to get the latest on what is being done in your community or state to address rising liability premiums. There are practices investigating self-insurance or the formation of insurance cooperatives to reduce liability premium costs.

Have you thought of bringing a complementary specialist into your practice or office building, such as an ob-gyn with a pediatrician? Or perhaps joining with another physician in your specialty, who has a subspecialty, which will produce higher reimbursements?

On the home front, now is the time to reduce debt and control expenses. You should start building a cash reserve. Set up a budget, based on actual monthly expenses and monthly income. Don't forget to plan for income taxes. By preparing a worksheet of actual expenses for six months to a year, you should be able to determine how you are spending your money. Then you can determine what can be scaled back or eliminated to allow for additional savings.

Get your family involved. Could your children work for you by cleaning your office or providing administrative tasks, particularly if they are in high school or college? If it makes sense for them to work for you, salary you pay them could be designated for specific expenses, such as school tuition, clothing or gas for use of the car. Your children should be in a lower tax bracket than you, so you are effectively shifting income that would have been paid to you to them, with income tax savings if they are at least 14 years old. Remember, the chores must be legitimate business chores, and the hourly rate you pay your children for their work must be comparable to what you would pay an outsider.

In summary, there are probably any number of changes you could make in your practice and in your personal life that would allow you to absorb any downturn in your personal income. If you don't feel comfortable in assessing your practice or your personal finances and budget, your financial adviser or health care consultant can assist you in developing a plan. They should be able to find savings that will more than offset the cost of their assistance.

Practice Pointers is provided by the St. Louis-based accounting and management consulting firm Stone Carlie & Co. LLC. The author and publisher are not rendering professional advice and assume no liability in connection with its use. Consult with professional advisers regarding your specific situation. Readers are invited to submit questions to the Business Editor (bob.cook@ama-assn.org).