From the moment Keith Solinsky joined Atlanta Orthopedics as administrator last year, it was clear the practice was hemorrhaging money. Health insurance premiums for its 30 employees were disproportionately high. Supply costs were stuck in the stratosphere. The problem was that no one had been questioning the status quo, Solinsky explains. For example, “no one had ever seen health insurance rates as high as this group was paying. They stayed with the same carriers for years and the companies just kept raising rates and raising rates. I was able to reduce their costs from $676 per employee to $420 — a $40,000 savings. I also shopped around their malpractice insurance and got that lowered by $40,000. From there I just threw everything else out to bid.”
That included janitorial services, medical and office supplies, and promotional and marketing materials, which Solinsky bundled into a single provider for a reduced bulk rate. His efforts paid off. Overall, Solinsky estimates he has saved the practice between $100,000 and $200,000 a year. “It’s really just a matter of looking at every piece of the practice and not being afraid to question every vendor,” he says.
Indeed, when it comes to managing costs at medical practices, it’s rarely a single line-item that throws the budget out of balance. More often, it’s a series of smaller, seemingly insignificant wastes and missed opportunities that contribute most to poor performance.
From inadequate coding to unnecessary referrals, such infractions are easy to overlook. But, for the most part, they’re also easy to fix. Here’s a look at some of the most common ways an otherwise functional office burns money.
Squeaky wheel
As Solinsky can attest, everything is negotiable. If you haven’t solicited new bids from your suppliers and insurance providers in the last year, you’re paying too much. “Get a new bid every year from your vendors and tell them that you’re trying to save money,” says Susan Childs, president of Evolution Healthcare Consulting in Raleigh, N.C. “If a competitor is going lower, ask if they can match it. Be a squeaky wheel.”
If you haven’t done so in the last year, start shopping around for lower health insurance premiums, bundled phone and Internet service, laundry and cleaning services — even bookkeeping and accounting costs. Indeed, this is where the lackluster economy can work to your advantage. “Some of your contracts are longer term and may be difficult to break, but it’s not unheard of to let your landlord know your lease is nearly up and you’re going to be looking,” says Cindy Dunn, a consultant for MGMA Healthcare Consulting Group. “Look at all your contracts to find out when they’re up for things like copiers, printers, and fax machines. Keep a spreadsheet and start talking to your network of peers to find out who they use and what they pay.”
Check, too, with your professional association or trade group to find out if there are any purchasing cooperatives available, which offer group discounts on office and medical supplies. The American Academy of Orthopaedic Surgeons, for example, offers its purchasing group free to members and estimates it can save most practices 15 percent or more.
Above all, Debbie Preite, office manager of Greenhouse Internists in Philadelphia, advises don’t be afraid to play hardball. “There’s a lot of competition out there now and you have to take advantage of it,” she says. “We won’t buy a flu vaccine until we shop around and get the best price. I’ll get one company to give me their price, then I call up their competitor and say, ‘I’m getting it for $12. What can you do for me?’ They’ll give it to me for $11 and then I call back the first company, which lowers their price to $10. You have to wheel and deal a little, but it works. And you only have to do it once. Once you’ve got that price it’s locked in.”
The same is true of your managed-care contracts. “If you haven’t negotiated in two years you’re losing money and they do not play catch-up,” says Childs, who worked with one practice that hadn’t looked at its contracts in nine years. “They won’t bring you to what you should be. They’ll give you a minimal increase based on your old rate. You have to stay on top of that.”
Likewise, don’t be afraid to dump an insurance company or IPA that underpays, says Keith Borglum, a healthcare business consultant for Professional Management and Marketing in Santa Rosa, Calif. That goes for companies with low reimbursement schedules and those that never seem to pay what they owe. “Most primary-care practices have overhead of at least 60 percent to 65 percent,” he says. “If you have an insurance plan that pays at less than that, you’re losing money on every patient you see from that plan. Plus, that patient prevents another patient with a better plan from being seen.” Most practice-management software these days can generate reports on average reimbursement per plan. “It’s under the ‘reports’ section that nobody ever looks at,” says Borglum. “You can also have your biller review your explanation of benefits. It’ll become clear immediately which plans pay the least.”
Focus on productivity
For many practices, the biggest sources of waste are simple inefficiencies. If you’re not maximizing the number of patients you’re seeing every day, for example, you’re giving yourself a pay cut, says Borglum. He estimates that for the average family practice, missing one fee-for-service visit per day amounts to roughly $15,000 in annual losses (assuming 210 days of patient visits at $72 a pop.)
His advice? Set productivity goals and get your staff on board. “If you’re looking for an extra visit per day, communicate that,” he says. “In the best practices, doctors meet with their receptionists, medical assistants, and billers once a week to talk about productivity and give them an opportunity to come up with their own ideas [to improve efficiency].” Any ideas the staff generates on their own will not only get better buy-in, but help motivate them to look for other ways to save.
Donna Weinstock, practice management consultant for Office Management Solution in Northbrook, Ill., notes bonus structures can help. “Employees don’t care enough because they don’t have an incentive to save the practice money, but if you put programs in place to encourage savings, it provides that motivation,” she says. Bonus systems come in all shapes and sizes. For example, you can give each staff member a flat dollar amount (from $10 to $50) for each day they increase revenue by a certain percentage. You can also reward staff for overhead cost reductions, or for squeezing in an extra patient per day. “Make it office-wide so everyone works together instead of giving individuals bonuses which makes it feel competitive,” says Weinstock.
Other ways to boost efficiency? Delegate all duties that do not require a physician’s license so the docs can focus on higher-reimbursement, more complex patient cases. Stop running up and down the hallway to fetch supplies or chase lab reports. That goes for everyone on staff, says Borglum. Don’t let nurse practitioners, who command a higher salary, tackle administrative tasks that lower-paid employees can handle. “Most solo and small-group practices don’t need licensed nurses, and if they have them, they under-use them,” he says.
Quit giving away business
According to Childs, many practices repeatedly miss out on income opportunities when they refer patients out for ancillary services such as pathology labs, ultrasounds, medical diagnostics, pharmaceuticals, and physical therapy. “If you’re referring something out all the time, stop to consider whether it’s something you can do in-house,” she says. “That’s income that you’re essentially losing.”
Indeed, new patient services can boost your bottom line significantly, partly because they allow physicians to charge both a professional fee for their expertise and a technical (or site) fee to compensate for overhead. How much? The Medical Group Management Association’s 2009 Cost Survey for Orthopedic Practices reveals orthopedic surgery groups’ realized net revenue (after operating costs) for physical therapy services of $96,420 per therapist. For MRI services, those groups realized $60,246 per physician, while diagnostic radiology brought in $42,791.
