Medical Practice Management
Feb 10

Other Ways to Reduce Overhead Costs – Part I

Physicians everywhere are looking for ways to trim their overhead. However, most have found that there is not much else they can do. Here are a few ideas you might not have thought of…….. 

Merging with Other Practices 

All practices have a duplication of overhead. Each has an office manager, each has similar staff, each has office space, supply needs, and so on. One way to reduce costs is for practices to merge and to integrate as much as possible. The following are a few obvious examples of cost reductions when practices merge:

1.  Each office usually has its own office manager/administrator. A combined group practice only needs one.

2.  Each office has billing and collection personnel. Will all of these individuals be needed after the offices merge? Usually not.

3.  Each practice has its own office space. Rental costs will be saved if practices can be combined into one location. In addition, if practices are combined into one location, will all of the individual receptionists be needed at the new location? Probably not. 

These are just a few of the savings that can be achieved when practices merge; there are many more. Remember that when practices merge, regardless of format, they are now a bigger group with greater group purchasing power. This should lead to a reduction of additional costs. 

Align with or Form Your Own MSO 

Contracting with or setting up your own management services organization (MSO) can reduce costs. MSOs also have the ability to eliminate duplication of services, often at lower prices. If contracting with an independent MSO, the practice must compare what it will pay the MSO versus the direct reductions in overhead it can achieve. If overhead reductions exceed the amount paid to the MSO, such a relationship may be worth considering. In this situation, however, make sure the affiliation with the MSO will not ultimately impact cash flow. Some MSOs do well at billing and collection while others do not. It does not make sense to cut costs in this situation if practice revenues are going to decline. Make sure due diligence is exercised when investigating MSO relationships. 

Remember that doctors can form their own MSO instead of merging their medical practices; they do not need to contract with an independent one. In this situation, doctors would come together in the form of an MSO to combine their billing, collection, and administration duties. In this situation, duplicative overhead could be eliminated, and cost savings achieved by the participating physicians.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →