June 2001 Bulletin

Holding down the overhead

‘Before hiring new staff members, be sure there is a real need.’

Consultants tell how to keep lid on costs

By Carolyn Rogers

Many orthopaedic practices have seen their revenues decline in recent years as a result of managed care, so keeping practice overhead costs controlled is more important than ever in preserving your practice’s profit margin.

One of the most significant overhead cost factors in medical practices is staff payroll costs. In the majority of practices, in fact, staff payroll costs are the largest overhead expense.

Henry Dove, healthcare consultant and lecturer with Casemix Consulting, LLC, Hamden, Conn., stresses the importance of making the most of the staff you have.

"Make sure that your people are trained in multiple areas—to do multiple jobs—so if it’s slow in one section, they can pitch in somewhere else," Dove says. "Think of ways to keep the staff busy at all times. For example, you don’t want a receptionist sitting there idle, have her call to remind patients of upcoming appointments, call patients if the doctor is running late for some reason, or try to accommodate patients who would like to be squeezed in."

Although some people who work in a doctor’s office may not be nurses or technicians, they should be kept up as best as possible with what’s going on in the healthcare industry, Dove says.

"Give them reading materials—patient education info, etc.— that would make them more helpful to patients," Dove says. "This information can assist them in answering some patients’ questions themselves, rather than getting a doctor or a nurse. And patients are often more comfortable discussing certain concerns with administrative people."

Before hiring new staff members, be sure there is a real need. "The fact that it’s super-busy in the office for a few days, for example, is not sufficient to show there a real need to hire someone new," Dove says. "People are among the most expensive assets you have."

Using your staff wisely can also save physicians’ time and, therefore, money.

"Nurses can often be very helpful to save the physician time, just as the clerical people can save nurses’ time or technicians’ time," Dove says. "For example, when sales people stop by the office—people who want the physician’s time—you should make it difficult. Make sure the doctor really needs to see that person. Often the salesperson can give his pitch to someone else in the office, and that person can pass the information on to the doctor in a much shorter time. Same in the areas of insurance, insurance claims processing. In some cases, clerical staff can handle it, in some cases, the nurses. Only as a last resort should the physician handle insurance issues."

If you have access to the Internet, Dove suggests designating someone on the administrative staff who can be responsible for finding timely articles for the physician to read.

"There are a lot of good web sites out there, and doctors may want to spend a little time surfing the net," Dove says. "But in an efficiently run practice, the physician is reading what someone else found for him.

"It’s been my experience that if you hire smart and curious clerical people they can save the physicians an awful lot of time," Dove adds. "Make sure these people are given lots to do, without overloading them. Give them a chance to feel they’re part of the professional team—they’ll like the feeling of contributing to the practice. And those are the kind of people you want to hire in the first place."

Staffing is tricky, according to Lee W. Scroggins, principal with Clayton L. Scroggins Associates, Inc. in Cincinnati. "The number of people on staff depends on the way the doctor works," he says. "Some orthopods are more hands-on, with casting and removing casts, for example, while others delegate more. Plus, specialties like orthopaedics, Ob-gyn, and pediatrics necessarily need a fairly large staff and a large facility because they have a higher volume of people coming through. So orthopaedic practices are going to have a pretty good [high] overhead."

But if your practice is trying to keep staff benefit costs down by hiring more part-time staff, Scroggins warns, "you’re probably not saving in the long run."

"We find that employing full-time staff with good benefits, health insurance, etc., produces a better return than hiring a number of part-time staff. Not only are full-timers economically motivated to work, you can have everyone there Monday through Friday, so there’s better communication. Physicians, patients—everyone is served better when there aren’t as many people to try to juggle. The cost of benefits is maybe 2 to 3 percent of overhead, and they’re deductible. So you’ve really gained by hiring full-time people who are committed economically to the position."

Supplies

Orthoapaedic practices have many supply issues, Scroggins says. To keep supply costs under control, you should have a formal purchase order system in place, and try to come to a consensus on which supply items to buy.

"Practices often acquire and stock a variety of the same things—different neck braces, for example, because different doctors in the practice have different preferences," Scroggins says. "As a result, these practices may end up with stock they never use. While it’s natural for doctors to have a personal preference, if they can agree on the different supply items they distribute to patients, they can avoid some unnecessary overhead."

Office lease costs/size of practice

"The fewer offices, the better," Scroggins advises. "Multiple offices will drive up overhead. Having one office allows you to make the most of the facilities, staff and capital investment. It provides quick access to medical records, maximizes use of physicians’ time and allows all the staff to work together. In some cases, groups open satellite offices in order to try to cover a city, when moving the office to a more central location may be the better solution."

An ideal orthopaedic practice size would be two to five orthopaedists, Scroggins adds. "The two- to five-member groups provide good call coverage and the members likely will have similar levels of productivity—along with very tight communication. Beyond five members, it becomes more complicated as far as leadership, structure, overhead, and you’ll end up with physicians who are not similarly productive, which results in disputes over distribution of profits. The more similar the level of production, the more tolerable the levels of overhead because everybody’s experiencing the same thing.

"Beyond five or six, you have to know why you’re doing it," Scroggins says. "The question is how big do you get and why? Are you committing to a lot of ancillary services and profit centers, and trying to capture a regional market? Then that’s a reason to go larger. When large orthopaedic centers are gathering all the orthopods in an area or region, and they’re taking on an outpatient surgical center, physical therapy, etc., and bringing in subspecialty orthopaedics—that’s a reason to go larger. But in some communities, you can just get larger, but still won’t be able to develop a presence in the area. In situations like that, going larger may not make sense."

Other tips

"I’m a big believer in getting good information systems in a group practice," Dove says, "and that doesn’t necessarily mean getting the fanciest system. In a well-run practice, lots of people will have access to information on patients who are on the schedule, who are currently being seen, who will be seen in the near future, and who would like to be squeezed in. While this doesn’t require a top-of-the-line system, a good information system will save a lot of time."

Physicians in a group practice ought to be in strong agreement about the types of continuing education and other benefits they’re going to offer the physicians and professional staff, as well as clerical staff, Dove says. It’s a great money-saver if you look at those expenses carefully.

It’s always best to have one doctor in the practice who is the "financial" member—the one who consistently signs the checks. That’s the person who is naturally going to be more aware of what’s being spent, Scroggins adds.

When it comes to reducing overhead costs, though, "no one has any magic," Scroggins says. "If your overhead falls within statistical ranges for orthopaedic practices in your region, and you try to work to reduce it below the statistical ranges—and those differ from your competition—then you’re probably going to damage your practice. Net profit is the real issue. Better to make $300,000 and have a 50 percent overhead, than to work at it aggressively, cut your overhead to 40 percent, but make $200,000 a year. A reasonable overhead will increase the gross volume of the practice, which increases the gross income, and in turn the profit should be better."


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