Saving Spree

September 1, 2003

Great ideas for cutting costs

These are not easy days for cardiologists and cardiac surgeons. Because so many of their patients are on Medicare, the government's draconian reimbursement cuts in recent years have hit the heart specialties particularly hard.

But one cardiology group, applying inventive cost-cutting techniques available to any practice, uncovered more than $600,000 dollars in unnecessary spending in just a few weeks. Cardiovascular Associates of Birmingham, Ala., where practice CEO Bill Cockrell watches every penny, launched a cost-cutting project this year in the wake of the latest round of Medicare cuts and while anticipating yet another. The project was ambitious, innovative, and effective -- but not for the weak-kneed.

"We've gone after some sacred cows," Cockrell acknowledges.
Which is not to say that any of the practice's 220 employees were laid off, or that benefits were cut. Or that Cockrell demanded any of the 30 physicians give up the tools they need to do their jobs, or even their favorite pen. He didn't do any of those things. He didn't have to.

With the consent and participation of physician leaders, and with staff fully informed, the practice embarked on what can only be described as a search-and-destroy mission for waste and overspending. Dividing themselves into five teams -- each charged with a distinct area of practice operations and each led by a physician -- the group's leaders scrutinized virtually every nickel that went out the door.

"The groups were made up of physicians and managers," explains Cockrell. "And their job was to go out and find areas of inefficiency, things that we weren't doing as well as we could. And those committees were given a lot of power to go after things. We knew we needed the physicians' cooperation, and we wanted to include employees. All employees were made aware of what we were doing, and their input was invited. We explained what we were looking at and what we weren't. We explained that we weren't looking to cut staffing or salaries; we were just looking for ways to be more efficient."

Going into the project, Cockrell figured there were bound to be plenty of savings opportunities, given the size and age of the practice, which was founded in 1946. But like a homeowner cleaning out the attic after 50 years, even he was surprised by what he and his fellow inspectors turned up.

"The goal of this whole thing was to reduce unnecessary and ineffective expenses by about $250,000," he says. "We started this process in February. By March we'd found $619,000."

How did they do it? Among many other things, they:

  • Changed the practice's linen service contract, saving $18,000.
  • Rolled physicians' individual cell phone contracts into one large contract, saving $15,000.
  • Standardized the practice's supply catalog, making its purchases more uniform, saving $30,000.
  • Reduced the services provided by the practice's landscaping company, saving $10,000.

There were lots of other savings, too.

For example: "We looked at our answering service, and asked, 'What can we do to reduce our costs there?' And we examined the bill and realized that we had 11 physicians that still had their home phones answered by the group's answering service. Some of them didn't even know about it. We saved $12,000 a year by doing away with that. It's things as simple as that," Cockrell says.

Cardiovascular Associates did not nickel-and-dime itself all the way to $600,000 in savings. In fact, its biggest cost reduction -- some $400,000 worth -- was the result of changes in equipment ordering procedures in its nuclear department, something that may not be relevant to your practice.

Nevertheless, your group -- whatever its size or specialty -- can emulate the kind of thorough scrubbing that Cockrell and his team gave Cardiovascular Associates. 

To get you started, Physicians Practice scoured America in search of the most effective overhead reduction techniques in the country. Here are some of the best ideas we found:

Saving on staff

"Your biggest expense in a practice, or any business, is your payroll -- your people," says Alex Fernandez, manager of Gastroenterology Care Center in Miami. And for larger practices in particular, the task of managing all those people compounds the problem.

"I have 65 people to take care of, and that's payroll management, human resources, adding them into the various benefits -- the health and dental insurances, life and disability, and so on -- tracking their [paid leave] time, and keeping track of the payroll, workers' comp, the 401(k)s, and on and on," he says, almost breathlessly. "Even as I talk about it, I think, 'Oh my gosh, I can't believe I'm doing all this stuff.'"


But in fact, he's not. Instead of trying to manage all those employees internally -- something he figures would require him to hire a human resources manager at about $60,000 a year -- he contracts with a human resources company, Bradenton, Fla.-based Gevity HR. Under the arrangement, Gastroenterology Care Center and Gevity "co-employ" the practice's employees, including its 11 physicians, Fernandez says.

Gevity -- which is a type of company often called a Professional Employer Organization (PEO) -- does not hire or fire the workers, but it handles all payroll, benefits, and taxes, advises the practice on human resources issues, and protects the practice from labor law problems.

"I don't even have to file W-2s," Fernandez says. "In essence, I outsource not just payroll, but the whole HR department."

The practice pays a percentage of gross wages and a fee to cover taxes. But Fernandez says it is not simply a luxury -- it saves the practice money in clear, measurable ways.

In addition to eliminating the need for an HR manager, the company negotiates significant savings for the practice on benefits costs -- especially health benefits.

Double-digit annual increases in health insurance costs are killing small and mid-sized employers, but by pooling the practice's employees with the tens of thousands of others it represents, Gevity negotiates big discounts for its clients.

How big?

"Last year, they saved me about $100,000, and their fee was in the realm of $44,000 or $50,000," says Fernandez. "So they actually saved me something like $50,000 last year, based on the lower rates for insurance and benefits that they're able to negotiate. That's just the hard cash. That doesn't include the time they're saving us. And I'm not even thinking about the HR manager I don't have to hire."

Don't want to go so far as to co-employ your staff with another company? Steve Deas, administrator of Georgia Neurological Surgery, based in Athens, and Cockrell of Cardiovascular Associates have some other suggestions for saving money on human resources:

  • Cross-train staff. "When you have employees who are more versatile, you probably won't need temporary help should someone go out. Or if somebody gets behind, you have a person who can jump right in there," says Deas.
  • Consider using part-time, non-benefits workers for as many positions as possible. Hiring two part-time employees at $20,000 each to split duties may seem less efficient than hiring one person at $40,000, but it's cheaper when you don't provide benefits to part-time workers. "We do part-time whenever we can," says Deas. "I have six or eight people in our practice who are part-time."
  • Cut back on overtime pay. "Last year, we spent about $200,000 in overtime," says Cockrell. "We said to the physicians, 'We're going to cut that in half this year, and here's how we're going to do it: Here's your office schedule, you work your schedule, and if you're not efficient in working your schedule and you keep people here after hours, you get charged for that overtime.'"

Of course, Cockrell put it a lot more nicely than that, and so should you -- in fact, you'll need a physician "champion" to sell this idea. But if overtime pay is a big problem, this might be a battle worth fighting.

For all your employees, you should occasionally reevaluate the terms of your benefits package, suggests Elizabeth Woodcock, MBA, FACMPE, director of knowledge management for Physicians Practice.

"Many physicians have shifted some of the burden of employee benefits back to employees," Woodcock says. "Most physicians pay for the majority, if not all, of the employees' health insurance, but not their dependents. If you're not already doing so, this may be the year to make the transition."

Get rid of the paper

John Gastright, MD, is not what vendors would call an "early adopter" of new technology -- he's not the guy that needs to have the latest gizmo right now, if ever. So he's an unlikely spokesman for the virtues of an electronic medical record (EMR). Yet that's just what he's become with anyone who'll listen.

"I'm an older doctor -- 60 -- and I've used paper records my whole career," says Gastright, president of the three-physician West Ashley Family Medicine in Charleston, S.C. Old habits are hard to break, especially when you'd rather keep them, and Gastright worried that an EMR would force him to change work patterns he'd developed over many years of practice.

"For example, it has never been my habit to record information in the medical record while in the room with a patient. I've always done that out in the hall. My two associates - they're in their mid-30s, and they're multitaskers. They can talk to a patient and record history at the same time. I'd have to be reborn to do that. But can I still do it my way with the EMR."


OK, but how has the EMR (Gastright uses a product by Companion EMR) saved his practice money? Gastright says that in combination with its high-speed Internet connection -- a so-called T-1 line -- that allows it to submit most of its claims via the Internet, and a Web site that saves its staff time by answering many common patient questions up-front, the practice saves on personnel, claims adjudication, storage costs, and other areas.

Thanks to electronic claims submission, its time in accounts receivable would make a bean-counter drool -- only 10 percent of its claims go beyond 30 days -- and its staffing ratio of 2.8 full-time employees per physician is well below national benchmarks.

"Our overhead actually runs less than 50 percent [of revenue]," boasts Gastright. "And for a primary care-practice, overhead typically runs about 60 percent to 65 percent. We don't have a medical records department, because of the EMR; we don't have somebody who pulls charts and files stuff into charts. We don't have anybody moving charts around. For a practice our size, that's a full-time person right there that we didn't need to hire."

As for the cost, Gastright admits it was significant. The practice spent about $50,000 for its full-service EMR and it pays $1,000 a month in maintenance.

"But then when you see what it does -- immediately, you reduce personnel, you reduce the space and expense of storing charts. And we bill at about a 30 percent higher level on our follow-up visits than we were on the other systems [at other practices]. So not only does it decrease the cost of your operation, it gives you an increase in reimbursement per visit."

But do you need a full-blown EMR to achieve many of the same advantages? Not necessarily. Six years ago, Susan Miller, RN, realized about halfway through the EMR search she was conducting for Family Practice Associates of Lexington, Ky., that she wasn't going to find a system that precisely met the practice's needs. So instead of buying an EMR, she acquired only those pieces of technology that the practice needed to get rid of its paper records - scanners, desktop PCs in each exam room and elsewhere throughout the office, and the appropriate software. Since then she's been tweaking it and adding to it.

"It differs fundamentally from a traditional EMR in that it does not require the physician to enter data at the point of care," says Miller, administrator of the group of eight physicians and two midlevel providers. "Instead, we either create documents using a Word application or we scan into the system images of documents that we receive and/or create here. So essentially we've eliminated the paper chart and replaced it with a computerized medical record." Jeff Foxx, MD, Family Practice Associate's managing partner, appreciates the ease of use of the hybrid system.

"Once you get used to using it, organization is much better. Finding charts is easier. We've got 10 providers in two sites, and a chart could be absolutely anywhere," Foxx says.

Understanding how technology such as this saves a practice money means grasping the relationship between money and time. In Family Practice Associate's case, it's impossible to know exactly how much time staff used to spend hunting for charts that might have been in the practice's satellite office or sitting on a physician's desk. That's to say nothing of the time wasted processing reams of paper records that come from specialists, compared with simply scanning documents into the system.

"Everyone wants to know about return on investment," says Miller, "If you pin me down to hard dollars in savings, I'd say that in the first two-and-a-half years of implementation, we had about $160,000 worth of savings. Some of that is going to be shifted into other areas, such as maintenance of the software and hardware, but nevertheless, from an overhead standpoint, that's pretty significant - particularly when you're in the kind of environment we're in right now."

Within six months of implementation, the software paid for itself; the hardware took about two years. And the savings have kept rolling in: Miller says the practice has reduced its overhead by 2 percent each of the last three years.

Nobody pays retail anymore

If yours is a large practice that buys in bulk, it's imperative to get a handle on what you're purchasing.

Does your practice buy Styrofoam coffee cups for staff? Think about switching to mugs that people can wash and reuse. How many different kinds of pens do you have, and how often do you order them? Maybe you could switch to one or two types, and get a bulk discount without actually buying more. Steps like these might seem petty, but pretty soon you're talking about real money.

"Cutting a few dollars here and there can really add up at the end of the year," says Woodcock, "without affecting your practice style."
You'd be surprised by how much you can save when you look hard enough. Bill Cockrell was stunned to discover Cardiovascular Associates was using five different types of electrodes for its EKGs. "We switched to one and saved $25,000," he says. "That's not just low-hanging fruit -- that fruit's been crated and it's ready for you to pick up and put on the truck."


Here's another example: "A few days ago, a doctor called our purchasing manager, Mike Parsons, and said, 'This pen is what most of us want to use -- how much does it cost?' Well, Mike said it costs $1.98 a pen. That's expensive, but everybody likes it. So Mike picks up the phone, and by the time he's finished talking to the supplier, he's got that pen down to 98 cents. We came out ahead on that thing."

If you work in a smaller practice, you probably don't have the leverage or the time to haggle over what you pay for pens. Nevertheless, you know what things cost, so be always on the lookout for less expensive -- not necessarily lower quality -- alternatives. One way is to make purchases through business associations that buy in bulk, allowing some deep discounts. Your local chamber of commerce, and perhaps your medical association, may have their own purchasing groups, or at least should be able to help you connect with one.

And Woodcock points out it can't hurt to check out eBay or other Internet sources for the purchase of expensive items. One physician, for example, bought an AO binocular microscope for just $180 on eBay. And regardless of your size, you can leverage competition to your favor by forcing vendors to bid against each other for the honor of having you as a customer.

How long has it been since you took a hard look at your phone bill? Review your long-distance plan regularly, and check it against competitors' offers. Do the same with your business insurance, your employees' health benefits provider, and other contracts and agreements you have. Never let your business partners take you for granted.

"I negotiate with the bank," says Deas. "I don't want to pay any money whatsoever to my banker, and at one point I was paying a couple of hundred dollars a month in fees. Well, I negotiated. I negotiate everything. For example, we always negotiate on all large purchases [such as electronic equipment]. I try to get them to give me as much as they can. If we've got the price where we want it, then I'll ask them to give me an extended warranty -- if the warranty's for 12 months, I try to get them to give me 18 or 24 months. If the maintenance agreement covers $12,000, I try to get them to cover $18,000."

And don't forget about ...

Woodcock and others have some additional cost-cutting suggestions:

  • Decrease postage costs by sending less through the mail. "As revenue gets tight, physicians are cutting the number of patient statements they send out from an average of six to eight to a maximum of three," says Woodcock. "This saves more than $1.50 per patient. Those additional statements were probably ineffective, anyway." Deas has another idea: instead of mailing individual patient records to referring physicians, his practice packages the records of all the patients referred from a practice into one mailing.
  • Follow -- or revisit -- your own policies regarding bad debt. If your policy is to refer overdue accounts to a collection agency after 90 days, do it. "Don't just let bad accounts linger around," Deas warns. "Turn 'em over." It costs money to collect money, Deas notes, and money spent collecting the uncollectable is money wasted.
  • Reevaluate your use of professional advisers. Are you paying an accountant to provide you a monthly financial statement? Perhaps you could get a quarterly statement instead, tracking your expenses in the interim through your internal financial software. "Is there work you currently outsource -- like bookkeeping -- that some bright and eager person on your staff would happily take over in exchange for a small promotion?" asks Woodcock. Meanwhile, you can also do some things yourself. "I can water the plant in my office," says Cockrell. Why pay someone to do it?
  •  Instead of cash bonuses, consider offering employees extra time off for a job well done. "That costs you nothing and, in these time-starved days, employees may actually prefer a little free time to a small cash reward," notes Woodcock.
    Bottom line: don't be afraid to examine your operational costs routinely, never take anything for granted, and don't be afraid to use your imagination.

"With expenses, part of the problem is it's easy to get in that rut of, 'Well, we've always done it that way, we've always purchased from here, we've always purchased this type of item,'" says Cockrell. "Sometimes, you just have to be realistic."

Bob Keaveney, associate editor for Physicians Practice, can be reached at bkeaveney@physicianspractice.com.

This article originally appeared in the September 2003 issue of Physicians Practice.