The 12-Step Way to Reduce Practice Expenses

February 6, 2010

To download the PDF, click here: The 12-Step Way to Reduce Practice Expenses: Part 1, Staffing Efficiencies

Staff-related expenses consume the largest portion of your overhead, so that’s where this 12-month plan begins.

With the overhead of the typical family medicine practice at around 60 percent of revenues, working to control practice expenses has to be a high priority for family physicians. Of course, overhead is a product not just of expenses but also of productivity. It can be reduced by increasing productivity/revenue, reducing expenses or both. This article will focus on reducing expenses. To modernize the old saying a bit, a dollar saved in practice expenses is a dollar earned, while a dollar earned by seeing more patients is less than a dollar earned since some of it is eaten up by practice expenses. While you may think your practice is so lean that you couldn’t possibly cut another dollar out of your expenses, chances are it’s not. Chances are you have several opportunities to capture money that is currently being wasted. If you can stop that waste, you’ll have more money for physician salaries or for reinvesting in the practice, and you’ll be able to practice more cost-effectively. Working to reduce overhead can seem daunting, in part because it’s hard to know where to begin. That’s where this article and the one in the next issue of FPM can help. We’ll break down your practice expenses into sections you can tackle individually, one a month, starting with the ones most likely to repay your effort.

Weighing in

Since you’re about to put your practice expenses on a 12-month reduction plan, it makes sense to start by getting baseline measurements. Your accountant should be able to tell you your overhead percentage and what you’re spending in several expense categories, such as staff salaries, supplies, and building and occupancy costs. The result might look something like the table on page 00, which shows that overhead expenses typically consume 59.74 percent of practice revenue, according to survey data from the Medical Group Management Association (MGMA).1 So, if a physician brings in $50,000 in revenue each month (which is roughly $76,000 in charges minus adjustments and write-offs), his or her monthly overhead should be about $30,000, according to the benchmarks.

If your overhead is below average as a whole or in certain categories, don’t let that stop you from trying to do better. You may still have opportunities for savings. If your overhead is above average, you too have opportunities for savings, but don’t assume that you’ll be able to reduce it significantly; your situation or practice style may somehow make practice particularly expensive. In fact, MGMA statistics suggest that physicians with the highest incomes often have more staff and higher overhead, which allows them to be more productive. So be careful that you do not reduce your expenses in such a way that you actually hurt your productivity and thereby increase your overhead.

To continue reading this article, download the PDF: The 12-Step Way to Reduce Practice Expenses: Part 1, Staffing Efficiencies

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