Healthcare Advisor: Delivering Physician Practice Rx for Lowering Costs, Gaining Efficiencies & Increasing Profitability

May 24, 2016 by Ashley Noojin

Within the daily demands of providing care to patients, running tests, dictation and countless other tasks, it’s understandable that medical professionals can sometimes overlook the business of healthcare. For most, the medical profession attracts people who have a true desire to help their patients achieve good health. A physician practice is a prime example of a business that is dedicated to the service of others. Yet, as a business in today’s still-recovering economy, a physician practice can benefit from a detailed analysis that can lead to a new prescription offering greater efficiencies in operations and an increased cash flow for services rendered.

The business of healthcare has undergone massive changes following the Great Recession and the advent of the Affordable Care Act (ACA). At the physician practice level, the days of receiving rate increases from payors are rare and payors are much less receptive to negotiations. The changing landscape of managed care contracts requires new approaches to contracting with payors. (To learn more about managed care negotiations with payors, please click here).

The dynamics present in today’s economy demand that businesses from a wide array of industries focus on efficiencies — improving the bottom line by operating in a lean fashion. The economic conditions and the response needed from practices throughout the healthcare field are not unlike the quality-of-life choices doctors present to their patients every day. To make a positive impact on the health of the business, physician practices must perform analysis, examine the results and chart a new course that will lead to enhanced profitability.

The Importance & Value of Third-Party Analysis

Consider the following scenario: A given practice sees 100 patients or more every day. Meanwhile, the practice manager is so buried that he or she does not have the time during business hours to analyze the expenses or explore strategies that could lead to lower costs. In many cases, an analysis primarily led by the practice manager becomes a weekend or evening project that is often difficult and frustrating to complete.

If this scenario appears even somewhat familiar, the practice should consider utilizing a third party to conduct a review of expenses and potential efficiencies. Above the time management benefits, a third-party analysis brings a fresh set of eyes and an impartial approach in all areas involving expenses and maximizing productivity as a practice.

By comparing and contrasting to current best practices for workforce utilization and expense management, an outside third party is well positioned to evaluate – without an emotional bias – the workflow of the practice and identify efficiencies.

Like most businesses, the largest expense for a physician practice is the cost of personnel. Labor expenses can comprise as much as 75 percent of what a primary care practice spends on an annual basis. Addressing the area of personnel costs is obviously a sensitive subject. However — by putting all expenses through a detailed examination as part of developing a perspective on the practice’s overall costs  — an impartial third party can drill down into specific areas and recommend alternatives designed to bolster the bottom line of the business.

Personnel Costs: Taking a Closer Look

On the personnel front, many practices have kept existing staffing structures in place despite the fact that the healthcare market has changed. By examining the workflow in a practice, it’s possible to establish measurements related to productivity. The study of a practice’s workforce and efficiencies can lead to posing a number of critical business operation questions, including the following:

  • As measured against similar operations and market sizes, is the practice as productive as possible?
  • If not, does the workflow warrant the level of staff when compared against similar markets?
  • What are the daily or weekly tasks that add no value to the practice? How can these be changed, streamlined or eliminated? Is a practice using a functional staff or flexible staffing? For example, if the office is not as busy on certain days of the week, is the practice flexing the staff accordingly?
  • Is the practice paying its staff at market rate or above market rate? (For example, if staff members traditionally receive an annual raise, it is possible that their salary can rise above market rates).
  • Is there a possibility that some of the people who are working full time could transition to part time?
  • Have the overtime and sick leave policies been reviewed in the past few years?
  • Has overtime become the norm, rather than the exception? (Overtime should generally be approved before it can be taken).
  • Has there been a review of the employee benefit offerings? Has the healthcare package been shopped or sent out for bid in the past few years? Could the current package be renegotiated?
  • What is the practice’s policy on paid time off/vacation? How much time are employees allowed to roll over? (Large amounts of accrued time can lead to potential liabilities for practices).

Cost of HIPAA Compliance & Increasing Demands on Information Technology

The transition to electronic health records and compliance with the HIPAA Privacy, Security and Breach Notification Rules has significantly impacted the IT costs for physician practices across the nation. With the recent announcement that the United States Department of Health and Human Services has begun to initiate Phase 2 HIPAA audits for covered entities and business associates, the demands on a practice’s IT resources will undoubtedly grow in the near term. Corresponding budget increases in IT resources stands as one of the unanticipated costs that practices must consider going forward. To learn more about the important role a strong HIPAA compliance program plays in the effective operation of a physician practice, please click here.

A third-party analysis allows a practice to review the overall picture of the practice’s current IT resources (or vendor contracts) and project anticipated future needs with cost estimates. The third-party review provides an opportunity to examine efficiencies with billing and collections, electronic workflow and collections at discharge.

Office & Other Operational Costs

A thorough cost analysis of a practice provides a detailed look at all line item expenses, including office facilities, supplies, phone contracts, postage policies, advertising and even the relationship a practice has with its bank. Of these and other fixed ancillary costs, the biggest non-salary expense is office space for the practice. A third-party review would examine the terms of a lease or the potential to refinance a mortgage, and explore potential savings options.

We Can Help

The Elliott Davis Decosimo Healthcare Team has developed a comprehensive program for reviewing costs and developing greater efficiencies for physician practices. Our team has the expertise to perform an in depth analysis of the expenses found within the operation of a practice. We have experience in offering proven strategies for lowering costs, increasing productivity and helping a practice increase its profitability. To learn more about how to take the first steps to securing a comprehensive practice review, please contact your Elliott Davis Decosimo advisor or Ashley Noojin via email.

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