Bottoms Up! Cut Costs to Improve the Bottom Line
With reimbursement cuts, physicians are continuing to put a priority on evaluating practice costs to ensure a more stable bottom line.
In this article, you will learn how to:
- Identify key considerations in adjusting staff costs
- Implement effective supply tracking and ordering processes
- Discover opportunities to reduce spending on information technology, communications and other vendor-provided services
With reimbursement cuts, physicians are continually evaluating practice costs to ensure a more stable bottom line. In a busy practice, there are many expenses to consider. Don’t be overwhelmed by the task. To assure a positive financial return for the time you’ll invest in effective cost-cutting, focus on a few key categories to start. Your goal is to identify appropriate cost-cutting targets – the ones that will not undercut your efficiency or compromise the quality of service to patients.
Try these steps to get expense-reduction efforts off to a positive start:
Establish a schedule. No one likes surprises with expenses, such as not finding out until April that your statement costs went up five cents a pop the preceding November. Keep in the know by scheduling an annual review of each vendor’s invoices. Run a report in your accounting software to retrieve an alphabetical list of your vendors. Divide that list into twelfths and carve out a few hours once a month to review a representative sample of several vendors’ invoices in detail.
In addition to ensuring that vendors invoice you accurately, spend some time to evaluate alternatives. Shop around for better prices by searching online, calling your current vendor to request a price reconsideration or seeking proposals from other companies in the same line of work. Supplement these efforts by watching for anomalies in accounts payable – such as the monthly bill that was typically $700 is now $1,700. Don’t just pay it; dig deeper to find out why.
Look at supply costs. Ordering supplies seems to become a favorite activity for many staff, particularly with administrative supplies. Because the staff does not pick up the bill, they find it easier to order five boxes of latex gloves instead of the two you need in stock. Although a few extra boxes won’t hurt anything, multiple this problem by five to 10 boxes of 100 other supplies, and you have a predicament. Determine what you require and create a comprehensive list of the type and volume of supplies you need on hand.
Find a vendor that can process your supply requests swiftly and allow you to order as you go. This “just-in-time” approach to inventory is a favorite of the manufacturing industry, and arguably has more potential in health care given the short shelf life of many supplies. In addition to reducing storage costs and eliminating the costs of “extra” supplies, managing your inventory means fewer expired supplies as well. Record the expiration dates for each supply on your crash cart, and in other areas were supplies are stored over a longer term. You’ll avoid having to dig through supplies to see what can still be used and what needs to be replaced.
Evaluate information technology. With the surge in automation, information technology (IT) is a constant presence and a good candidate for cost review. The sheer breadth of required equipment, software and subsequent servicing, combined with the complexity of features offered, makes bills from technology vendors a challenge to interpret. It’s often a chore just to understand if you are getting the services you are paying for – or if you really need those services at all.
Consider contracting with an IT consultant for a half day to review cost-cutting opportunities, such as switching to a different technology. For example, use a voice over internet provider (VoIP) instead of traditional landlines for telephones. Perhaps using different equipment (wireless tablets instead of laptops with docking stations) will produce savings. Maybe it’s time to switch vendors. Before you sign any contracts, review carefully and consider asking for expert help. Although IT companies may not budge on the purchase price, you may have success in negotiating a break on extra features, as well as additional training or support.
Analyze staffing costs. By far the highest single expense category in a medical practice is the cost of staff. Controlling this cost is every bit as challenging as managing the staff. Starting with the easiest area to control: avoid paying overtime. It’s expensive and often abused by staff. Hire enough people to cover the work that needs to be done. If the work load ebbs and flows, consider establishing a 36-hour work week but continue to pay employees their normal hourly wage.
In addition to decreasing overall expenses by approximately 10 percent, you may find staff absenteeism drops, too. A half-day off each week gives staff more time to take care of personal appointments, errands, etc. Plus, the shorter work week will give you the flexibility to ask for a few extra hours now and then without running up overtime expenses.
Be cautious when trimming staff costs; getting too lean in terms of staffing can actually diminish your productivity. Staff based on the demands of the job so that your time is optimally used and billed. Try to hire the most appropriate person for the job. For example, don’t hire a registered nurse to escort patients from the reception area to the exam room. Ensure that each staff member works to the top of their license. Don’t forget about benefits – ask your insurance representative about the options to reduce benefit costs by offering different products or alternative benefits.
Don’t leave any stone unturned. There are many expenses to target for potential reduction. Just because you’ve been paying the same bill year after year doesn’t mean that you should continue paying that same rate – or buying from the same vendor.
In the long run, the best way to improve the bottom line is to combine investments in growth and physician productivity with steps to reduce expenses. If the nation’s economic doldrums are stalling revenues in your practice, look to some judicious cost cutting. Today just might be the best time to start analyzing – and reducing - your expenses.
- Join a group purchasing organization (GPO) for medical supplies, drugs, business supplies and financial services
- Eliminate some office time each week. Close on Friday afternoons with only one staff member coming in to answer phones, file charts and make reminder calls
- Evaluate satellite offices – centralize when possible
- Evaluate employee benefits, such as health and life insurance rates
- Eliminate telephone book advertising, or reduce the size of your display ad
- Decrease telephone triage demands on staff time by instructing the nurses who handle these calls to steer patients with medical questions to schedule office appointments instead
- Evaluate cell phones and pager contract rates to make sure you are not overpaying and not paying for services you do not use, like unlimited texting
- Reduce workspace costs - consider moving, subletting unused space, or renegotiating a current lease. If you need more space, look for ways to use current space more efficiently – ask for expert advice
- Reduce transcription costs by using the latest voice-recognition software
- Reconsider outsourcing and insourcing. Consider whether billing, transcription – even some front office operations – might be outsourced without downgrading efficiency or customer service. At the same time, reconsider outsourced tasks: Could you hire a part-time bookkeeper instead of paying your accounting firm to perform this task?
- Reduce staff turnover by improving new staff orientation and training, pay close attention to workloads and office culture, and using every opportunity to offer modest or nonmonetary rewards to staff
JIT It - Inventory Control
Just-in-time (JIT) ordering isn’t just for auto manufacturers seeking to reduce parts inventories; it’s one of several strategies that medical practices can use to trim costs without reducing efficiency, service or safety. Staff may be routinely ordering supplies without consideration to storage, shelf-life or even usage. Implement a JIT ordering process, and you’ll find yourself with lower supply and storage costs, as well as reduction in the number of expired supplies.
Eye on Invoice
What would you uncover if you could put your vendors’ invoices under the microscope to study for unneeded services, overcharges, duplicate charges, and other common invoicing anomalies? Scrutinize each invoice at least annually to ensure that you’re paying what you intended.
Outsourcing is a great way for medical practices to save money, except when it doesn’t. Ask yourself the following questions: How much control must I have over the management of this service? Can I afford to give up some control? What is the current performance of the service? Do I believe that someone else can do it better? How much better? What level of communication do I need to manage the service? Can I afford to reduce that level? What is the current cost of managing the service? Do I believe that I can operate the service at a lower cost? How much lower? Before you outsource, look for a compelling answer to these questions.
Out with OT
By far the single highest and most challenging expense area to tackle in a medical practice is the cost of its staff. Be sure to remove the most often abused area of expenses related to staff: overtime pay. Eliminate it altogether by flexing staff hours (four 10-hour days, for example), reducing the work week to 36 hours per week so that a few extra hours here and there won’t put staff into overtime, or appropriately staffing for positions that consistently require overtime.