In 2006, Medicare reimbursement may be cut by about 5 percent. "For a practice with a 50 percent overhead, that means a 10
percent drop in profit," says Keith Borglum, a consultant in Santa Rosa, CA, "and most practices have 60 to 70 percent overhead.
It's a serious issue—practices need to work on decreasing their costs."
What 10 specialties spend on overhead
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To determine which of your practice expenses needs the most work, check out the charts on the following pages, which show
what your colleagues spent in 2003. The data comes from Statistics: Medical and Dental Income and Expense Averages, 2004 Report Based on 2003 Data, published by the National Association of Healthcare Consultants, The Society of Medical-Dental Management Consultants, and
the Academy of Dental CPA's.
Then follow the advice below for reining in your office costs. We focus on the costliest expenses: payroll and benefits; rent
or mortgage; and supplies, both clinical and clerical.
What 10 specialties spend on overhead
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Payroll: Are you running a tight ship? With payroll at the top of the expense list, you can't afford an employee who isn't doing what she was hired for. Spot
check how well employees are doing their jobs, paying special attention to your claims-processing and billing staff. Is one
staffer billing out 50 charge claims a day, and another only 15? Outright firing should be a last resort—behind additional
training and a warning—but not out of the question.
"Also consider whether you'd get better results at less cost by going to a high-quality billing service," suggests Borglum.
If you already outsource billing, make sure the company is meeting industry standards on collection ratios (your financial
adviser or management consultant can tell you what those are for your specialty and locale). If your service falls short,
switch. Borglum works with a practice that switched, and saw reimbursements increase by 50 percent. "The previous service
was simply incompetent," he says.
But if you want to keep your billing in-house, do some sleuthing to see if bills are going out on time and if claims are being
followed up. "Go into the computer's billing system and review a random selection of claims," advises Reed Tinsley, a CPA
in Houston. "If you spot too many rejected ones, call the insurance company yourself to see what's been going on."
What primary care doctors spend on …
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After you've evaluated your existing staffers, consider whether you have the right number of people to operate your practice
efficiently. But while you're focusing on cutting your staffing expenses, don't lose sight of the fact that staff turnover
is expensive. And highly productive and profitable practices often spend more on staffing, points out Dale Rothenberg, head of the statistics committee of the National Association of Healthcare Consultants
and a consultant with DoctorsManagement in Knoxville, TN.
Your lease: Are you paying costs you shouldn’t? If you're renting, you need to check for hidden expenses in your office lease. The "operating stop" is one of them, says
Tinsley. This provision permits a landlord to calculate his yearly cost to run his building, and then allocate excess costs
to his tenants. It's the reason your rent goes up every year when you signed a five-year lease at $20 a square foot.
Practice Tools
