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2017
Sep 20

How to Control Overhead Costs

You cannot control costs if you do not know what they are. Unfortunately, many medical practices do not have enough granularity in their budgets to determine what is actually going on, let alone where to start making necessary cuts.

Cost Breakdown
First, take a much harder look at your practice’s profit/loss (P/L) statement and budget, and then fill in the details. For example, “salary” alone is not detailed enough. Your budget should break out salary into more categories, such as staff benefits, staff salaries, payroll taxes, education expenses and overtime. If useful, you could also break these costs out by department or type of service to help determine the profitability of the various services you may offer. Then, compare these costs to national benchmarks for your practice’s specialty areas. This will allow you to pinpoint potential areas for cuts.

Look carefully at your large expenses, such as:

  • Malpractice Insurance
    Some insurance carriers offer discounts if practices attend a risk management course. Shop around.
  • Advertising
    Good advertising is tied to measurable metrics so you can evaluate return on investment (ROI). When you do this analysis, you will know what works and will be able to decrease or eliminate advertising, if need be.
  • Supplies
    Evaluate your inventory to ensure it is sufficient and efficient for your practice. Negotiate for better deals with competing vendors, and verify that billable supplies are reimbursed correctly.
  • Phone Service
    Phone companies are often willing to negotiate better prices to keep your business. Consider Voice over Internet Protocol (VoIP) options and bundled phone and Internet services. Analyze phone bills for trends and usage patterns.
  • Other Services
    Medical practices hire a variety of services, from cleaning to information technology. Consider whether some of these services can be handled efficiently in-house.
  • Equipment
    Upgrades, repairs or replacements — and usage itself — can cause you to rethink whether to lease or buy equipment. Your accountant can help you analyze the numbers to make the best decision.
  • Facilities
    Lastly, ask some key questions to determine whether you can cut back on facility costs. Does the size of your space fit your needs or do you have a bigger-than-necessary space? Do you have unused storage space? If you have a satellite office, is it making or losing money? Take a hard look at all of these areas and reduce costs wherever possible.

Benchmark Drawbacks
When comparing your own practice to national benchmarks, remember that one characteristic of benchmarks is that they report average or median values, and they may vary depending on the geographic area. These numbers can be useful for measuring your practice’s success and for determining places where you may be able to become more profitable. However, remember that they are not necessarily the most important factor. The significant factors should be the quality of care, patient satisfaction and the long-term financial health of your practice.

For more information and tips on how to improve your practice’s profitability, contact Larry Sophian at lsophian@orba.com, or call him at 312.670.7444. Visit ORBA.com to learn more about our Health Care Group.

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