As a consumer, you’ve no doubt taken steps to safeguard your savings since the economic slump began. Perhaps you put your family on a financial diet to offset the rising cost of gas and groceries, reallocated your investment portfolio to balance risk, or upped your emergency fund for a little extra cushion. If you haven’t made similar efforts to insulate your practice, however, you could be putting your livelihood on the line.
In the midst of a recession, managing your practice ever more effectively can help ensure that it remains viable and financially stable. While the market dips and peaks and loop-de-loops, you can keep your feet on solid ground by accepting the reality of the downturn and instituting smart belt-tightening measures and safeguards. Our experts tell you what to expect and how to make it through.
The business of medicine was once regarded as a bastion of stability, producing steady profits regardless of which way the economic winds blew. After all, people don’t stop getting sick when Wall Street takes a tumble. But market forces, including lower reimbursement rates and the rising cost of overhead, have changed the dynamics of healthcare, rendering the industry far more susceptible to economic swings.
“Historically, healthcare seemed recession proof, but if I’m out of work and I don’t have insurance, I’m going to think twice [before scheduling an appointment],” says Gary Isakov, a certified public accountant and partner with SS&G Financial Services in Cleveland, Ohio, who advises medical practices. “People are watching their medical expenses a lot more closely.”
Making matters worse, he notes, many employers are switching to high deductible insurance plans to lower their premiums as healthcare costs climb. Under such plans, employees are required to meet an annual out-of-pocket minimum (in some cases up to $5,000) before insurance kicks in. “While large insurance companies and Medicaid might not pay physicians as much as they’d like, they do pay quickly, usually within two or three weeks of filing a claim,” says Isakov. Physicians who are forced to collect patient deductibles, however, are having a harder time getting paid. “It’s even more difficult during an economic downturn because money is short so patients hold onto those bills longer,” says Isakov.
By far, the practices most affected by the bear market are those that focus on elective procedures, including plastic surgeons and dermatologists who provide cosmetic services. But the ripple effects are reaching all specialties to a lesser degree, including primary care, pediatrics, and gynecology. “Think about physicals and annual checkups, including mammograms,” says Isakov. “Everyone’s perception is that these are important, especially when you reach a certain age, but really it’s an elective procedure and people are clearly looking for ways to cut costs.”
Ultimately, achieving success in your medical practice, through good markets and bad, requires many of the same strategies you employ at home — a little flexibility, a lot of belt tightening, and some extra cash reserves. Here are tips for surviving the slump.
Lower your costs
The first step, of course, is to lower your costs. As a business owner, odds are you’ve already done the obvious — shopped for cheaper suppliers, renegotiated with your lab, utilized more midlevel providers, revised scheduling to boost patient volume, and delegated responsibilities to maximize productivity. But the market downturn may have opened new windows of cost-cutting opportunity, says Keith Borglum, a healthcare business consultant for Professional Management and Marketing in Santa Rosa, Calif. For instance, “If you’re in a medical office building where three or four other tenants have already moved out, you might be able to talk to the landlord about a reduced rent,” he says.
Smaller practices that lack purchasing power should also consider joining a buyer’s group to receive the bulk rate on pharmaceuticals, medical or surgical products and equipment, and other office supplies, says Isakov. Many trade associations offer such groups to members and there are group purchasing organizations you can join on your own, such as the nonprofit Physicians’ Alliance in Norcross, Ga. and HealthTrust Purchasing Group in Brentwood, Tenn. For its part, Physicians’ Alliance is free to join and the company claims it can save practices up to 65 percent off their supplies. “There is a fuel surcharge to everything you buy today, including paper and pens and all the normal supplies you need to run an office,” says Isakov. “Watching overhead has become a very important factor in being a successful medical practice.”
Larger practices, especially multispecialty groups, might also consider centralized purchasing. “Instead of each department just buying whatever they need whenever they need it, assign one person to look at your total inventory levels and authorize purchases only when needed,” says Isakov. “That saves many of our clients a lot of money. You often find that one person is ordering something the other department has an excess of.”
Overtime can also be a budget buster. If you ask your staff to put in extra hours once in awhile you’re probably fine, but if they’ve come to rely on that extra pay as part of their regular salary you’re doing something wrong — either your workload is sufficient to hire an extra worker (which is probably cheaper) or your employees are not managing their time effectively. “Medical practices should really never have to pay overtime to more than one person per day, but if you have a loyal staff what happens is that everyone will stay late,” says Borglum. “You need to make it clear that you only need one person to stay.” Remember, you’re paying time and a half for every hour an employee stays late. “A lot of employees like that overtime pay and want to stay late so they don’t care about being efficient — which is detrimental to the owner,” says Borglum.
Depending on your financial position, you may also need to reduce your employee benefits to get your expenses under control. “Physicians have historically been very generous when it comes to employee benefits but unfortunately, with things becoming tighter, you have to really look at how much your benefits cost,” says Isakov. While most of his clients continue to cover their employees’ healthcare costs at 100 percent, many are reducing their coverage for spouses and children on their plan to half or 60 percent. “Rising health insurance costs affect physicians as well, because they have their own staff,” notes Isakov.
One solution that helps take the sting out of lowering your benefits is to implement a cafeteria plan (section 125 of the U.S. tax code), which enables employees to pay unmet healthcare or childcare expenses using pretax dollars. An added bonus: Because the pretax benefits are not subject to FICA withholding, you will not have to match the Social Security and Medicare taxes on those dollars. You will also save on federal and state unemployment and worker’s compensation insurance.
Look onward and upward
Obviously, if your practice is strapped for cash or having a hard time making payroll, you’ll need to put the kibosh on future expenditures that are not mission critical. Delay planned remodels, computer replacements, new software purchases, and costly equipment upgrades — even new hires where necessary.
