Business

4 areas you can look to for lost profits

A column answering your questions about the business side of your practice

By Karen S. Schechter amednews correspondent— Posted Oct. 27, 2008.

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Question: I feel we have done as much as possible to contain expenses in our practice. We've spent a lot of time looking at supplies, equipment, insurance and payroll. However, our profit margin continues to diminish in spite of our increased productivity. What else can we do?

Answer: The profit equation has two sides: revenue and expenses.

Revenue is related to physician productivity, but can be increased in other ways. These often require additional capital that might not readily be available.

However, running a medical practice involves hidden costs that don't appear directly on the monthly income and expense statements. These include overtime costs, employee turnover rates, patient no-show rates and patient satisfaction. By tracking these items over six to 12 months, you may find that you are "spending" more than you think.

Overtime costs. Managers often view overtime as a way to reduce payroll expense by eliminating the need to hire additional workers. It avoids having to provide additional training and offers flexibility so staff are available on short notice. Generally speaking, employees enjoy the extra income, as long as they receive enough notice and it doesn't go on too long.

But prolonged overtime and/or overtime abuse increases payroll costs. While there is no benchmark as to what percentage of payroll expense should be overtime, the goal is to keep it to a minimum.

Prolonged overtime often occurs when the practice is understaffed (due to loss of staff or long-term illness) or when a special assignment needs to be completed. Overtime abuse occurs when staff are unable to manage their time, when there is "illegal" use of the time clock, or when there is no flexibility in the workday.

Employee turnover. If your turnover rate is high or increasing, it is necessary to determine the causes. These may include poor management, lack of appreciation, inability to grow in the position and/or inappropriate salaries.

Turnover comes at a price to the practice, including decreased productivity, recruitment/replacement costs, new-hire training, and several indirect costs associated with the loss of an employee (such as increased overtime) and with the recruitment, hiring and training of new employees.

No-show rates. If your patient no-show rate is more than 5%, then the practice probably is losing a good deal of money. One no-show a day with an average reimbursement of $100 translates to at least $20,000 a year in lost revenue. Patient no-shows also might compromise patient care.

Patient satisfaction. Don't assume a patient is satisfied just because he or she keeps coming back to you for care. To gain an understanding of patient satisfaction, implement an annual patient satisfaction survey. The purpose is to gauge the quality of service provided by all members of the practice staff (receptionist through physicians) and to make improvements where necessary.

It is said that a person will tell one other person about a good experience, but at least 10 people about a bad one. Those 10 people might represent current patients or potential new ones. Any patient who leaves your practice, or is discouraged from coming, equates to lost revenue.

Even more important, if enough unhappy patients complain to their health plans, the practice could lose that plan contract when it comes up for renewal.

Other hidden costs also could be degrading your profitability. But start by examining the items above.

If the financial situation of your practice is affected negatively by any one of these items, then you have an opportunity to make changes that will help to improve your bottom line.

Karen S. Schechter amednews correspondent—

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