Connections for Success

 

07.15.16

Cut Practice Costs to Improve Efficiency and Profitability
Jason Flahive

Maintaining profitability, staying up to date with the latest technology and providing quality patient services can be a difficult balancing act for medical and dental practices. In addition to reckoning with health care costs, practices need to keep an eye on staffing, leasing and other costs. The goal, always, is to cut unnecessary expenses when possible. Here are some ideas for doing so.

Analyze Staff Costs

Examine Workflows — Staffing costs are typically the largest expense in most practices.  Time is money. It is important to know the tasks that each employee is performing and ask questions such as:

  • Is every task necessary? Are there redundancies?
  • Can some tasks be eliminated or combined?
  • Are tasks assigned to appropriate employees?
  • Are there opportunities to add automation for certain tasks?

Compare the ratios of various types of staff per full-time physician to benchmarks from other practices.

Consider Salaries — Benchmark your staff salaries against the norms for different practice staff categories in your market. Begin with a pre-determined annual budget for staff raises and do your best to allocate it on the basis of performance.

Ask your CPA to help review your compensation structure. That structure should include salary ranges for each position, with minimums and maximums arrayed around the local average. Slow down salary increases as employees approach the maximum and provide incentive bonuses as an alternative to regular substantial pay increases.

Review Retirement Benefits — Is your employer-provided retirement plan still effective?  Is the plan encouraging enough participation to allow highly compensated employees to maximize their savings? A good retirement-plan third-party administrator can run “what-if” scenarios to get the desired results.

Don’t Forget PTO and Overtime — Establish written policies for paid time off, such as sick leave and vacation time, as well as for overtime. The industry standard for sick leave is five days a year, and two weeks a year (depending on service time) for vacation. Review state laws and consider implementing a use-it-or-lose-it policy, or set a limit on the number of unused days that staff members may carry forward each year.

Monitor overtime closely. Employees should require prior approval before working any overtime. Do not make overtime payments to exempt employees (state and federal law determine exempt vs. non-exempt).

Examine Your Lease

Most leases provide that a tenant pay a share of building operating expenses on top of base monthly rent, and many require tenants to pay a share of real estate taxes and/or insurance premiums, known as single-, double- and triple-net leases. Review your landlord’s calculations closely to make sure they include only legitimate operating costs and that their calculations appear reasonable.

Beyond that, ask yourself: “Is the practice paying for more space than it currently needs or uses? Can we rent out any unused space? Can we renegotiate the lease?” Some practices decide buying space is the most cost-effective approach for the long term. By paying off a mortgage instead of paying rent, they will eventually own a building.

However, buying has some downsides as well. Buyers likely will not have as much choice in location and will be faced with tough choices if space needs change. Owners also have to deal with such issues as heating, air conditioning and building upkeep in-house.

Stay Vigilant

Unnecessary costs can creep up on any practice, dragging it down and keeping it from being as profitable as it should be. Review your bottom line regularly and constantly strive to improve efficiency — your profitability depends on it.

For more information, contact Jason Flahive at jflahive@orba.com, or call him at 312.670.7444. Visit ORBA.com to learn more about our Health Care Group.

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