Reduce Overheads - ten ways

Doctors' Recession-Buster Guide: Ten Effective Ways to Lower Your Overhead

Gail Garfinkel Weiss, BBA, MSW

We sought money-saving tips from practice management consultants and practice administrators, who offered the following 10 suggestions.

1) Look at your phone bill.

Surprisingly, phone bills often contain opportunities to lower costs. Can you operate as easily with fewer phone lines? Is the practice still getting billed for numbers that were cancelled several years ago? Does your phone company offer a service plan that better suits your practice?

Hertz worked with a management services organization in which the bookkeeper conducted an audit and found almost $50,000 of erroneous billings from the phone company.

"So many practices just pay the bill when it comes in without ever really looking at it," says Hertz. "If there is something on the bill the practice doesn't recognize or understand, someone should call the phone company and ask questions." In addition, Hertz advises assigning a staff member to examine each phone bill for the following:

Excessive long distance calls. Check the area codes, the length of the calls, and the time of the calls. If calls are being made when the office is closed, who is making those calls?
Calls to Information. Discourage staff from running up charges by dialing 411. If they can't find a number in the phone book, tell them to try free Internet listing services, especially www.whitepages.com and www.yellowpages.com.
The phone numbers that are being billed. Often a practice continues to get charged for a number it thinks it has terminated, such as a fax number or an 800 number.
Consider other phone service plans or phone strategies. It may require a staff administrator or practice management expert to explore and recommend new saving opportunities.

2) Identify and reduce optional expenses.

"We always recommend not authorizing purchases that represent waste no matter the state of the economy," says Jeffrey J. Denning, a consultant with Practice Performance Group in La Jolla, California. "When times are lean, practices might have to reevaluate advertising and other forms of marketing to determine what is paying off and what can be scrapped.

"For example, display ads in phone directories are being rendered redundant by Google," Denning points out. "The way to know for sure is to look at how new patients answer the 'How did you hear about our practice?' question at the top of your registration form. If fewer than 10% are responding Yellow Pages, drop that ad."

3) Reduce work schedules.

If you are seeing fewer patients, you can save money by cutting employees' work schedules to 4-1/2 or 4 days per week. One benefit of this strategy is that when your situation improves, you can easily restore the original hours. Some employees might welcome the shorter workweeks. Others will accept them if the alternative is unemployment.

"You have to think a little bit differently," says Cynthia Dunn, a Medical Group Management Association senior consultant based in Cocoa Beach, Florida. "Often physicians and their office managers are so overwhelmed they spend their time putting out fires. They need to stop, evaluate the efficiency of workflow, and discuss what can be done to streamline or otherwise improve these processes."

If a full-time employee resigns, consider replacing her or him with 2 part-time workers who are willing to forgo health insurance and other benefits. "Before doing that, evaluate schedules and specific workload needs," says Dunn. Practices might be able to make do with part-time employees if they change the schedule depending on patient flow -- open later in the morning and expand evening hours, for example.

"You must know your patient base and communicate with your staff regarding appropriate coverage," says Dunn.

4) Provide lower-cost staff benefits.

You can reduce overhead by providing employee-only health insurance instead of family coverage, or setting up high-deductible healthcare savings accounts.

Dental and vision plan benefits are easy cuts because most employees can afford the cost of glasses and routine dental work. Speak with your insurer about possible changes in plans. Dropping vision and dental coverage can save you $15 to $30 per month per employee, Denning estimates.

5) Cap pay increases.

At Alabama Orthopaedic Clinic, a 20-physician practice in Mobile, raises were capped at 2%, and senior management volunteered to forgo a pay increase this year, says Dean Brown, the practice's chief executive officer.

Another option is to give employees bonuses instead of raises. If you do that, your staff's base compensation doesn't go up year after year, says Will Latham.

6) Save money on supplies and equipment.

Employees often find it easier to order new staples, markers, and other day-to-day items than to ferret out existing ones. Ditto for small medical supplies such as needles and syringes.

Ask staff to develop a system for monitoring supplies. Who is responsible for ordering office and clinical supplies? Does the practice have 3 months of supplies on hand, or 3 days? Does the practice track inventory, or does the medical supply company representative say that more things are needed and the practice orders them? Are there certain seasonal supplies you can hold off purchasing until absolutely necessary?

Take advantage of discounts. Ordering medical and office supplies online is frequently cheaper than shopping at retail stores, even after shipping charges are factored in.

7) Cut patient communication expenses (postage, telephone, etc.) by developing a Website.

Cynthia Dunn recommends doing this by means of a vendor with medical practice Website design experience, such as Medfusion (www.medfusion.net). The cost for developing a site averages around $5000 to $6000, Dunn says. Costs include design, a domain name, hosting, and maintenance.

Practices should consider having an interactive site. There are costs associated with each transaction, and these vary from vendor to vendor. Dunn suggests training a resident expert (via adult education or the Internet) to oversee your Website, make changes, add content, and download information as needed.

Once your site is up and running, it can reduce mailing and telephone expenditures by allowing patients to pay you, make appointments, and request prescription refills online. In addition, you'll increase office efficiency if patients can download forms and view educational materials on the site. Specific savings estimates are hard to come by, but according to Dunn, "Anytime you can save the practice a telephone call, you save the practice money."

8) Check into lowering your rent.

If you are renting office space, consider renegotiating your lease, says Latham. Your landlord might be willing to reduce your monthly rent if you extend the lease for another year or two.

Find out the current office vacancy rate in your area. You can often get that information by checking with local realtors or using an Internet search engine (for example, go to Google and enter "office vacancy rate" and the name of your city in the search box). It is also helpful to determine the vacancy rates in other buildings your landlord owns in your area. If the landlord is having a difficult time getting tenants, he or she may be more willing to renegotiate your rent.

9) Lay off 1 employee.

"When it comes to cuts, downsizing gives you the biggest bang for the buck," says Jeff Denning. This usually isn't an option in solo practices, Denning acknowledges, but if you have 6 or more employees and you are hurting financially, he advises cutting ties with one and redistributing that person's duties to the remaining staffers.

"Select the redundant employee based on the caliber of his or her work, work attitude, and mix of duties," Denning says. "It sounds heartless, but this is business and personnel costs usually account for half the overhead. A 3-physician primary care practice employs 14 people, on average, at a cost of $540,000. Cutting one position saves the practice some $40,000 in salary and benefits."

10) Ask for employees' help and suggestions.

Established staff usually have good ideas on how to cut costs. They're just not asked, says Hertz.

Call a staff meeting. Share money-saving goals with employees and be frank about the difficulty in making ends meet. Seek staff input on the best ways to collect outstanding balances, increase co-pay collections at check-in time, and control inventory and supplies, overtime, and other expenditures. Elicit ideas on how the practice might revise policy or better use technology to save some dollars. Emphasize that now, more than ever, customer service should be at the forefront of everybody's efforts.

Reward employees whose suggestions are adopted. Alabama Orthopaedic Clinic is about to launch a program that will offer employees a percent of savings realized if their proposal is implemented.

"The reward will be based on the amount of savings," says Dean Brown. "If savings are realized, the employee will receive quarterly bonuses based on a sliding scale: 5% reward for savings from $1000 to $10,000, another 2.5% for savings from $10,000 to $50,000, and an additional 1% for savings from $50,000 to $100,000."

Alabama Orthopaedic Clinic chose this strategy to uncover potential cost savings and give employees a larger stake in the success of the practice, says Brown. "We already have a very successful bonus program that is based on patient satisfaction scores, profitability, and individual job performance," he adds. "We re hopeful the cost-savings program will be successful, too."