Are You Burning Money? Know the Signs

February 1, 2010

Most practices waste scads of money - then wonder why they need a microscope to see their bottom line. To keep you on the right road, we’ve posted the signs to a more efficient and productive practice.


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.


Yet, for all their profit potential, ancillary services are no panacea. Practices considering new product lines should first conduct a feasibility study by tracking their referrals over the last 12 months to gauge potential demand, says MGMA consultant Nick Fabrizio. They should also consider the competition from local hospitals and outpatient centers, and contact their largest payers to find out how much they reimburse for in-house ancillaries - since some payers contract exclusively with national labs.

More tips

Here are other key strategies for boosting your efficiency and saving money:

Keep score. To rid your practice of waste, of course, you first must find out where you stand. Cost survey reports from the MGMA and the National Society of Certified Healthcare Business Consultants provide a benchmark for average overhead costs, charges, collections, relative value units, and staff compensation. “You can use these yardsticks to determine if you’re within range,” says Childs. “It may confirm that you’re doing beautifully, but you need to know either way.”

Avoid undercoding. Borglum estimates many practices lose $50,000 to $100,000 a year in “pure cash profit” because they undercode. In some cases, they’re even aware that they’re doing it. “Most doctors undercode for fear of being reprimanded by Medicare, even if they know they’re right,” he says. “They’re deathly afraid of being audited, and they don’t want the hassle of being denied and having to appeal.” All doctors should keep handy a cheat sheet of the most common codes, and take coding classes several times a year to stay current. “You can delegate some of it to your staff, but no one else really knows what went on in the exam room and that may make the difference between a 99213 and a 99214,” he says. If you feel your practice chronically undercodes, or inaccurately codes, which is just as costly, hire an independent consultant to conduct an analysis of your coding history. “You can also just swap with a colleague across the street and ask them to look at 10 of your codes and you look at 10 of theirs,” says Borglum.

Go easy on overtime. Overtime is another cardinal sin in medical practice management. Paying staff members 150 percent of their salary even a few times a week can amount to a major drag on your bottom line. If you find yourself repeatedly falling into the overtime trap, consider whether inefficiencies or inadequate staffing are to blame. Bear in mind, too, that the doctors in your practice may be contributing to overhead excess as well. “This happens when doctors don’t stay on schedule or fail to delegate tasks that cause them to get off schedule,” says Judy Capko, a healthcare consultant and author of “Secrets of the Best-Run Practices.” “This can result in a substantial increase in what is already the biggest expense on the income statement.” Track overtime closely, she advises, and evaluate the causes behind it so they can be remedied in short order. You might just find it’s cheaper to hire another part-time or full-time staff member, which has the added benefit of relieving your overworked team.

Consider outsourcing. Your practice administrator may spend untold hours helping your staff manage their 401(k) issues, insurance benefits, and payroll problems - complex topics in which they often have limited expertise. Consider outsourcing, which can save your practice big bucks even after the 2 percent to 3 percent administrative fee you’ll likely pay. “One practice I worked with saved $52,000 a year by outsourcing their employee benefits, and they were also able to deliver better benefits at a lower cost to their employees, including long-term disability insurance,” says Rosemarie Nelson, an MGMA consultant. “Very few administrators can be experts in finance, and HR, and clinical purchasing, and everything else. This creates an opportunity for your administrator to delve more deeply into things like billing relationships and new-patient products that can really deliver benefit back to your practice.” You can outsource your benefits piecemeal or in full. “It’s such a chore every year at open enrollment time to go out and shop these plans and put together a benefit plan which may or may not include eye care, or dental coverage, or prescriptions,” says Nelson. “All of that time spent researching plans is a wasted resource.” And worse, your administrator may dread the process so greatly that she’ll pay the higher annual rates just to avoid shopping for new coverage.

Collect those copays. You’re leaving cash on the table if you don’t collect copays before each patient visit. (Failing to do so is also a violation of your payer contracts.) Post a sign in your office to alert patients that all copays must be made before they will be seen and make sure your staff follows through. The minute patients walk out your door, that $20 copay becomes cost-prohibitive to recover - requiring more in resources (staff time and postage paid) to collect than it’s worth. In many cases, copays can be the difference between being profitable and non-profitable on a procedure.

Make use of your technology. Just because you invested six figures on high-tech upgrades doesn’t mean you’re efficient. It doesn’t even mean you’ve made an improvement. Without proper training and a commitment to implementation, you’re not only wasting the money you spent to purchase the product, but you’re denying your practice the opportunity to reap the rewards. “I equate this to going shopping at one of the big discount warehouse clubs and buying large, economy-size products because they’re such a bargain, and then having to throw away half the box because you can’t use it all,” says Nelson. “You pay more by using less.”

Staff training is critical if you are to get the most from your new EHR system, e-prescribing software, or practice management product. “I work with one primary-care group that can’t keep up with their referrals so they end up hiring a temporary person, which gets them caught up for awhile, but then they fall behind again,” says Nelson. “It’s because their staff person spends all day on the phone trying to get authorizations. When I told them they could do this all online they said they like to talk with a live person, but they usually end up leaving messages anyway.”

It’s the same with lab results, Nelson adds. “Almost every imaging group in the country has their reports available online because it’s fast and efficient, but we don’t train our nurses how to get them, so everything takes two to four minutes longer.” If it’s something your nurses are doing 10 times a day, that’s 40 minutes they could save by doing it all online, which would make them available to support the providers and see another patient.

Become a landlord. If you’ve got available space, or even an empty room, you might also consider taking on tenants to help defray overhead costs. At Atlanta Orthopedic, Solinsky says his practice subleases space to a chiropractor and a podiatrist who work part-time, they not only share their space, but his staff. “We have an extra room where we keep a chiropractic table when he’s here, which is a source of income for the practice,” says Solinsky, noting they also sublease space at their newest building to a rheumatology group that operates independently with their own staff. “We sometimes refer our arthritic patients to them,” says Solinsky, noting such subleases must be done at fair market value to avoid running afoul of Medicare and Stark laws.

In a rising cost environment marked by declining reimbursement, physicians can no longer afford to tolerate waste. By scouring your practice for opportunities to drive revenue and reduce expenses, your practice will be far better positioned to weather the economic downturn and whatever else regulators and third-party payers throw your way. “Look for everything and don’t be afraid to ever put anything out for bid,” says Solinsky. “It takes a little time, but in this economy every dime is worth a dollar.”

*Editor’s Note: Part of this article was originally published in Physicians Practice in September 2009.

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for 12 years. Her work has appeared on CNNMoney.com, Bankrate.com, and Healthy Family magazine. She can be reached via physicianspractice@cmpmedica.com.

This article originally appeared in the February 2010 issue of Physicians Practice.