Don’t Forget The Small Things When Scrutinizing Practice Overhead

December 10, 2006

The group practice manager’s effort to control operating overhead never ends.  We all know that it’s not easy to hold overhead in line from year to year. But monitoring a few aspects of practice operations and making changes to them can bolster the effort.

To assess overhead, first complete a financial analysis that compares it as a percentage of collections. Next, compare it to prior-year statements (total expenditures and per area expenditures) and benchmarks.  Once a comparison is complete, look for areas that can be reduced. Following are tips to reduce medical practice overhead in specific areas.


There are several moves you can use to reduce overhead in regard to supplies. First, centralize purchasing – If one office runs out of supplies, a designated employee should first call the other office to secure additional supplies. Under no circumstances should an office be allowed to order more supplies. This also goes for single office medical practices – only one person should be in charge of supply orders.

Scrutinize exclusive relationships with vendors because oftentimes they often do not offer competitive prices. This is especially true if you have very long term vendor relationships. Develop a list of needed supplies and costs, then request bids from various vendors. Use Internet vendors, too.

Use an existing individual practice association (IPA) to create group purchasing power and leverage. Physicians can also get together to form their own management service organization (MSO) to create group purchasing opportunities. Aside from supplies, IPAs and MSOs often purchase malpractice insurance and laboratory, radiology and similar services.

Lease agreements

Verify that the operating stop provision of the lease contains charges related only to building operations. In typical leases, landlords allocates to tenants excess costs associated with operating a building. Sometimes operating stop provisions contain unrelated costs such as payroll and management fees. Inspect the provision every year.

Also, sometimes landlords require tenants to purchase insurance. Check if the insurance is necessary, and whether inexpensive alternatives exist.

Other costs

Numerous and often small costs can add up. They must be evaluated regularly. They include:

  • Small fees ­– i.e., bank charges and penalties. No practice should incur these. Review statements to ensure this.
  • Advertising – compare the benefits of advertising with its costs, particularly telephone directory advertising. Practices that have half- or full-page ads might consider reducing or eliminating them.
  • Outside billing – determine a potential collection rate, minus expenses, for internal billing and compare it with the same figures for the external billing agency.
  • Postage costs – are they the practice’s postage costs or employees’ own personal postage costs? Develop a system to determine and track postage cots.
  • Telephone costs – monitor long-distance calling to make sure they are business-related and ensure that the practice is not paying for lines and services it doesn’t use.
  • Petty cash – most often a fund that can be eliminated; look for unauthorized expenditures here.
  • Professional fees – fees for various services, such as accounting, often can be reduced by seeking service providers that offer lower fees or bring such services in house.
  • Ancillary costs – can work related to these services be handled internally for less money?

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