5 simple ways to cut medical practice costs

With expenses rising faster than revenues, how do physicians tighten spending without affecting care? By focusing on little things that end up costing a lot.

By — Posted Jan. 9, 2012

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Physicians are finding that a few simple steps can open the door to big savings in operating a medical practice.

General operating costs for multispecialty practices have increased 52.6% since 2001, exceeding revenue gains in that period, according to the Medical Group Management Assn., which uses such groups as bellwethers for the overall practice economy. But those expenses were cut 2.2% in 2010, according to MGMA.

MGMA said the drop probably is due to closer monitoring of operating expenses by medical practices.

Physicians and consultants said the numbers reflect how $100 savings in different areas can grow into thousands, even tens of thousands of dollars, in savings to a practice without adversely affecting patients' experiences. The keys, they said, include negotiating prices, bargain hunting, being cost-conscious but not penny-wise and pound-foolish, and being cognizant of where your money is going.

"For optimal savings, don't look in one area only," said David Gans, MSHA, vice president of Innovation and Research for MGMA. "When you look at different areas, you find more ways to impact the bottom line."

Consultants and experts recommend looking for savings in five key areas: office supplies, office equipment, medical supplies, finance and consulting, and energy costs.

Office supplies

Practices can save money and go green at the same time by reducing, reusing and recycling office supplies, said Elizabeth Pector, MD, family physician with Spectrum Family Medicine in Naperville, Ill.

She reuses envelopes received in the mail for daily deposits, uses the back side of old faxes, copies and junk mail to take phone messages and turns an 8.5-by-11 piece of paper around so four receipts can be printed off one sheet. But make sure you aren't reusing anything that has confidential patient health information printed on it, she said.

When the Dejean Wellness clinic in Chicago held its grand opening in early 2011, it saved a couple hundred dollars by purchasing its business cards, postcards and other printed materials through an online printing service instead of a print agency, executive administrator Lolita Cleveland said. She said the clinic received 250 business cards free of charge with just a $5 shipping fee.

She said the family practice also found about $100 a year in savings by replacing multiple magazine publications with health literature provided free of charge by various organizations, including the American Diabetes Assn. and the American Health Assn.

Pens, fax paper and receipts are less expensive if purchased in bulk, consultants said.

Office equipment

Dr. Pector suggested buying used or reconditioned items for the office. She said she purchased equipment for the front office from a company that specializes in used medical equipment when outfitting her 4,800-square-foot office six years ago. She also used laminate countertops instead of desks at several work stations.

"I'm sure we saved at least half of what we would have paid for new, got equipment that will be useful for years and saved at least $10,000 outfitting the office," Dr. Pector said.

She likes shopping on online auction sites for deals from reputable vendors on gently used clinical equipment. She saved $3,000 by buying an older but perfectly good digital electrocardiogram unit; obtained used Toshiba M400 or M700 series tablets for $250 to $400 each; and bought several HP LaserJet printers for $100 to $150 each. Dr. Pector said some information technology consultants have buying discounts with major vendors, and that physicians should ask whether they can help find savings on reliable desktop computers.

Medical supplies

Vaccines, which have a short shelf life, and other medical supplies can cost a practice tens of thousands of dollars a year, Gans said. It is also an area where costs can be cut substantially, especially through group-purchasing deals.

David Hagan, MD, solo family physician in Gibson City, Ill., said he realized an 80% reduction in cost of services -- and a much more user-friendly contract -- when switching to group purchasing through the Illinois Academy of Family Physicians. He receives various discounts on a wide range of supplies.

As a bonus, the service provides proper disposal of biohazardous waste at a lesser cost. Dr. Hagan said it cost only $10 to join the purchasing group, and he has saved hundreds of dollars a year in biohazardous waste disposal costs alone.

Practices should buy large quantities of medications and other supplies they use a lot -- provided they don't expire and the practice has sufficient cash flow to do so, said Jeffrey Miller, MD, an interventional radiologist and phlebologist. For instance, Dr. Miller, who operates three Miller Vein Clinics in the Detroit area, said he receives a price break when ordering a certain number of catheters.

He also suggested that physicians be open to new vendors, who often provide free trials of the latest products.

Dr. Pector said she has seen a net savings of about $1,000 a year by going through vaccine-buying cooperatives or ordering directly from the vaccine manufacturer.

Gans suggested that practices follow Toyota's example of negotiating a contract with its suppliers for just-in-time delivery, a practice that some hospitals have adopted. It allows practices to get only the supplies they need, only when they need them.

He said under this model, suppliers will deliver supplies on an as-needed basis. In August, when pediatricians and family physicians are busy giving school physicals, a larger supply of vaccines will be delivered, with the amount decreasing in September.

Practices should evaluate its source of medical supplies, vaccines and consumables to make sure it is getting the best prices. Gans said although contracts with suppliers often are negotiated on a less-than-annual basis, medical practices need to examine continuously how well every supplier performs so they will know what needs to be rebid when the time comes.

Finance and consulting

Sometimes the best way to save money is to spend a little bit of money.

Andre Dejean, MD, a family physician, said one of his wisest decisions was to hire an accountant for his Dejean Wellness clinic, who showed him where his money is coming in -- and, more important, where it's going out. He discovered that a lot of money was being spent replacing everyday medical supplies like bandages and hand sanitizers.

"Was I surprised by how much money was going out? I was astounded. I lost enough to pay a salary," he said.

Often practices find it wise to hire a professional to create their practice's website. But Morgan suggested hiring a vendor who will let you make updates to the site in-house. She said some medical practices otherwise would pay a company $150 a month to maintain a website.

Banking and credit card processing fees also are a drain on practices. Morgan said the majority of patients pay with a credit card, since co-pays have increased. However, processing fees vary greatly, so it's important to shop around for credit card processing companies once a year.

Collection agencies, like accountants, can be money-producers in the long run. Morgan said that if a patient has received three bills and still hasn't paid them, it's time to turn the account over to a collection agency. She said the odds are very small that the patient will pay at this point, and it's expensive for the practice to keep sending out bills.

"It costs a practice about $25 to $35 per statement. It's not a trivial amount. It doesn't take long for collections to become unprofitable," she said.

Energy costs

With the low cost of many electronics today, it makes financial sense to get rid of older computers that use more energy than newer models, said Laurie Morgan, a consultant with practice consulting agency Capko & Co.

"Keeping old computers could be penny-wise and pound-foolish," Morgan said. "I worked with one practice whose computers were so slow they ran all night long, costing the practice $500 a month in energy bills."

She said little things like making sure everyone shuts off their computer and monitor each night add up.

Dr. Hagan saved money by changing the office's natural gas supplier. Many states allow competition for gas and electric services.

"The building stays warm, and it's another healthy discount I received through the local Chamber of Commerce," he said.

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How fast medical practice costs have risen

Practice costs have increased more quickly than the consumer price index and Medicare payment rates. These cumulative percentage changes are based on the growth or decline of practice costs based on the cost per full-time equivalent physician in 2001.

Year Practice costs CPI Medicare
2002 13.8% 1.6% (5.4%)
2003 16.6% 3.9% (3.8%)
2004 20.6% 6.7% (2.4%)
2005 30.0% 10.3% (0.9%)
2006 34.0% 13.8% (0.9%)
2007 44.5% 17.1% (0.9%)
2008 50.2% 21.6% (0.4%)
2009 53.1% 21.1% 0.6%
2010 49.3% 23.1% 2.9%
2011 50.9% 27.6% 2.9%

Note: Practices represent nonhospital, nonintegrated delivery service-owned multispecialty groups. Operating costs for 2011 are based on a three-year moving average projection of the previous year's data. The CPI is based on the July semiannual figure.

Source: Medical Group Management Assn.

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Walking a fine line between effective frugality and detrimental austerity

Instilling a culture of cost awareness and frugality into everyday medical practice operations can help a physician manage skyrocketing costs. But experts say being too miserly could adversely affect the quality of patient care, scare staff members and actually cost the practice more in the long run.

Announcing the implementation of an austerity program for a practice can frighten staff by suggesting that the practice is in financial trouble, said Laurie Morgan, a consultant with Capko & Co. medical practice consultants.

"My recommendation would not be knee-jerk penny-pinching, but rather vigilance about how the practice's money is invested," she said.

Morgan said looking for the lowest cost without considering other factors works only for commodities.

"So for things like shutting off lights at night and shopping for the lowest prices on copier paper, yes, pinch away. Looking for ways like these to save money without sacrificing productivity and security is a good idea," she said.

But Morgan pointed out that for practices, some expenses actually are investments in productivity and result in lower costs. Outside billing services, accountants and collection agencies can pay off in the long run, doctors and consultants agreed.

Morgan said a practice could encourage savings on commodities without creating a panic among staff by looking at how some expenses have increased over time, and explaining to staff that the increases seem out of line and they should all do better. She suggested offering a small reward like a gift card for the best ideas for saving money without sacrificing productivity or patient service.

Another approach that implies objectivity, not panic, would be to look at benchmarks to see if the practice's costs are in line with others in your area, consultants said.

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