Increasing reimbursement rates are not always possible, particularly if the practice has a high percentage of Medicare. The practice owner must also look at the expense side of the practice and try to keep expenses under control

Can You Answer This Question?
How do your individual line item expense ratios compare to your specialty "benchmark norms"?

Why Compare?
One indication of potential financial problems within a medical practice, is the comparison of the practice's expenses with the specialty norms. Where there are wide variations from the norm, it is useful to review those expense categories to determine if this is a problem area which can be corrected or minimized. There are several valid surveys of specialty specific data that physicians and managers should be access. Not all surveys include all specialties so ask before your purchase. These include:

• MGMA- Medical Group Management Association - Cost and Survey Production Report and Physician Compensation Report. (303) 799-1111
• AMGA - American Medical Group Association (703) 838-0033
• NAHCC - National Association of Healthcare Consultants (900) 659-7000

Medical Economics magazine also regularly publishes data from the above sources. National Specialty societies also conduct surveys and publish their results. The California Medical Association may conduct a California based survey in 2003 and it will be important for as many doctors as possible to submit data so please participate in the survey to obtain California based results.

All of the surveys translate the actual dollars in expense into expense ratios. This means dividing each category of expense such as staff salaries, supplies, rent, etc into total collections of the practice. This means all income actually received whether it is in capitated revenue or Fee for Service. Most doctors know their total overhead ratio, but I have found that many do not know the individual line item expense ratios. For example, family practices often have a total expense ratio of 55-60%. Staff expense expressed as a ratio to total collections is now 25%-30%. For surgical specialties, which have higher collections and have less staffing needs can range from 8-18%.

It is important to adjust the national studies to California experience. Staffing and rent are two higher categories in California than national norms. Add 2-5% to staff and 2-4% to rent comparisons. After comparing your expense ratios to these studies, you should ask yourself the following questions.

• Are there any obvious areas where your expenses vary widely from the averages reported? If yes, what are they?
• Do you have any explanation as to why these vary? Can you reduce these costs?

If your net income exceeds comparison norms, you may be able to accept certain ratios if they are higher than norms. If your net income is below norms however, then it is time to analyze how these can be reduced.

1. STAFFING - Staff is the largest expense category for all physicians and should be watched carefully. MGMA has specialty specific benchmark data on individual staff positions expense ratio to collections and Full Time equivalents per position comparisons by specialty. Compare this data to your own practice to determine if you have the right amount of staff per doctor and are spending comparable amounts. Hire the best and brightest staff you can and motivate and manage them well. In a group practice, hire an office manager who is financially savvy who can look for ways to save money on practice expenses. A terrific manager can save and make the practice money.

• Mergers - Look at the needs to staff the practice versus retaining all staff members. Only one office manager/administrator is needed.
• Benefits - Take a hard look at benefits costs. Most practices can only afford to provide health insurance to the employee, not dependents. Ask your insurance broker to develop a flexible or Cafeteria style benefits plan. This helps recruit and retain good staff.
• RNs v. Medical Assistants - Use medical assistants to room patients, take histories and vital signs. Use RNs only as triage/advice nurses if your practice has a high percentage of capitation income to reduce utilization and office visits. Back office staff hours should be closely correlated with the hours the doctor sees patients. Have back office staff assist more than one doctor at a time if possible.
• Cross train - As many staff as possible should be cross trained to fill in for sickness and vacation to avoid temp work costs.
• Overtime - Doctors must adhere to state overtime laws. Know exempt vs. non-exempt categories. All staff with the exception of a true office manager are non-exempt entitled to overtime either over 8 hours in one day or 40 hours per week. No, you cannot make a staff person a salaries employee to avoid this. The job duties determine status. Eliminate overtime by flexible scheduling and stagger hours. A department can vote by secret ballot to change the workweek to eliminate overtime for example working four ten-hour days. State in the personnel policy and procedure manual overtime must be authorized. Hire a part time person if overtime costs are more than a new staff position would require.
• File Clerk - Hire a part time file clerk at a lower wage than paying an expensive staff person to file.
• Transcription - Perform a cost benefit analysis of outside transcription versus an inside Transcriptionist. For every one hour of tape time, it should not take more than three hours of transcription. A Transcriptionist should be able to type 12 lines per minute. Negotiate reduced costs for macros created. There are Internet based transcription services such as http://www.itranscription.com/ now for as low as $.9 per line.
• CQI - Continuous Quality Improvement. Make staff a part of cost reduction by implementing quality improvement techniques and reduce inefficiencies. Offer rewards or a quarterly contest for the best ideas that reduce costs.

2. CHARTS - Consider electronic medical records. The savings on staff and space often pay for the investment. In a group practice, decide on one chart order system for filing into charts for economies of scale. USE OUTGUIDES. These reduce staff time/costs spent looking for charts all over the office.

3. RENT - Plan your space needs and do not lease too much rent expense.
Depending on the specialty, most physicians need 900-1500 sq. feet of rent per physician. Before leasing space, calculate this expense as a percentage to your gross collections and do not exceed norms. Consider merging with other physicians to share office space with other physicians or expense share with other specialties. A doctor is most productive by having enough exam rooms to always have a patient ready to see. Increase exam room space and decrease physician office space and records storage space. Share physician office space if you are not in the office more than 2 days per week. Store records off-site in secure storage.

4. MALPRACTICE INSURANCE - shop and obtain quotes and have the carriers
make presentations if you are in a group practice. This is the one expense category doctors in California are lower than many national studies due to our tort reform. Continue to support the CMA lobbying efforts. If the cap on pain and suffering damages increases, your malpractice rates will dramatically rise. Your dues for CMA and SBCMS are well worth it to continue to support their efforts.

5. ACCOUNTING - These can be reduced by using bookkeeping software programs such as QUICK BOOKS. Many CPA firms will help train managers to perform accounts payable, and preparation of income/expense monthly reports, thus reducing dependence and cost of CPA prepared profit loss reports. Ask for CPA discounts for accounting for group practices.

6. OFFICE SUPPLIES - Shop catalogue prices and Internet based purchasing programs. All offices should have Microsoft Office software with MS WORD, EXCEL, ACCESS and POWERPOINT. This allows the practice to design forms and patient education materials to reduce printing costs.

7. MEDICAL SUPPLIES - Assign one staff member to purchase medical supplies and be sure this person is price shopping. Often, you can negotiate lower prices with your present supplier if you can show a lower price is available from another company. Make sure this staff member is not sticking with the present supplier due to a lack of imitative to shop prices or because the salesperson gives presents.
Assign this person the responsibility to rotate supplies and make sure expiration dates do not pass before returns are possible. Analyze inventory needs and prepare these on EXCEL spreadsheets. Take advantage of sales and discounts but do not over order to tie up cash needed to pay other expenses. "Just in Time" inventory management is a process. Take advantage of discounts for payment on time and do not incur penalties for late payment.

8. TELEPONE - Shop long distance carriers. Have long distance dialing only on certain phones. Check telephone bills and limit personal calls. Price voicemail and perform a cost benefit analysis to determine what you are spending on staff costs plus benefits versus automated attendant. Have separate voicemail lines for prescription renewals, billing, back office. Have voicemail systems for after-hours which allow immediate paging to the on call doctor and the option to leave routine messages for the office such as canceling appointments. This saves answering service fees.

9. DUES AND SUBCRIPTIONS - If you are in a partnership or group, share subscriptions to journals and rotate these among partners. Divide up memberships in national organizations.

10. PURCHASE USED FURNITURE/EQUIPMENT - There are several used office furniture stores in the South of Market Area. Many dot com and other companies go rapidly out of business and these items are in next to new condition. Certain manufacturers also have filing chart racks which can purchased used. IKON and Xerox also have used reconditioned copiers.

11. AUTO, TRAVEL, ENTERTAINMENT - This is a decision the physician/partners need to make to reduce these expenses if more net income is needed. These expenses should be kept separate or the partners can agree on equal amounts each can take.

12. ACCOUNTS RECEIVEABLE MANAGEMENT - Holding billing staff or the billing service accountable for achieving MGMA specialty specific benchmark norms or better can reduce the uncollectable amounts in A/R. This frees up cash to pay bills on time, take advantage of discounts and to pay the owner. Every physician owner and manager should know how to calculate the following ratios.

• Accounts Receivable Aging Spreads
• Accounts Receivable Turnover Ratios
• Gross Collection Percentage
• Adjusted Collection Percentage

These can be learned from the MGMA reports. Investing in practice management seminars for physicians and staff can reduce expenses and increase revenues for the practice.

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