Look for Every Crumb

When declining reimbursements seem out of control, many physicians focus on the more manageable side of the business equation: costs. And rightly so. But you need to keep a close, wise eye on costs rather than just cutting willy-nilly. Here are some steps to consider:

• Calculate the actual cost of seeing a patient. Knowing these basic costs is key to ensuring the success of any business. Your goals are to determine which patient type earns you a profit, to pinpoint money-leaking problem areas, and to track the impact of any changes you make. For your starting calculation, delineate a certain time period, such as all of 2006:

     Total costs ÷ number of total patients seen within that period

If you have a more sophisticated system, then break down this result into cost subcategories, such as new patients, established patients, inpatients, diagnostic procedures, and so forth.

• Analyze your staffing costs. In most practices, the highest cost is personnel. Despite this, most run a pretty lean operation. You probably can't cut staff very much (or perhaps at all) without hurting your own productivity. But you can control payroll costs by offering long-term employee benefits instead of large salary increases -- extra vacation perhaps, or a weekend getaway. Something of that nature can reward employees with less impact on the bottom line than a raise.

• Examine your work flow to spot ways to increase your existing staff productivity and reduce profit-eroders, such as excessive overtime or unnecessary hiring. Maximizing efficiency on a four-person staff is analogous to adding another full-time staff person.

Take a hint from experts such as W. Edwards Deming, a mid-20th century productivity consultant known best for his contributions to manufacturing methods in Japan. Deming found that fully 25 percent of any one individual's work is in fact rework; that is, redoing what could have been done right the first time or performing redundant or unnecessary work. Look for opportunities to shave rework. For example, run a report on claims denial reasons. How many claims could have been done right the first time, meaning 100 percent correct demographics, insurance information, and coding, had just a little more care been taken, forgoing the need for follow-up?

• Track your inventory. Much of your supply-related expenses are fixed, as they are dependent on the size of your patient base. Still, there are ways to keep from burning through your inventory like a California wildfire:

• Shop around. Don't buy from the first vendor you come across. Don't search excessively for the best deal on a small overall expense item, though. Target the big ones first.

• Buy in bulk through a group purchasing organization. But be wise about this too. Don't send someone to Sam's Club to save $5 on paper towels if it means $25 in lost production time.

• Negotiate better rates on fixed expenses. Nondiscriminatory costs include rent, telephone, and malpractice premiums, among others. But that doesn't mean you can't haggle your way to a better deal. When it comes time to re-sign the lease, ask about prepaying, say, three months rent, at a discounted rate, or perhaps suggest signing a longer-term agreement in exchange for a reduced rent. Is it necessary to do the yellow page advertising or to do as much as you do? Do the doctors at your practice attend risk-management training programs that can save you up to 10 percent on malpractice premiums?

Study your monthly financials, compare them to your budget, address the most expensive areas first, and then measure your success month-to-month and year-to-year.

Owen Dahl, FACHE, CHBC, is a nationally recognized medical practice management consultant with over 24 years of experience in consulting for and managing medical practices, and he is the author of Think Business! Medical Practice Quality, Efficiency, Profits. He can be reached at odahl@houston.rr.com or 281 367 3364.