Expense Survey: What it costs to practice today

Here's what physicians spend to run their practices—and what you can do to trim costs and boost profits.

By Gail Garfinkel Weiss
Senior Editor

Are your practice expenses under control?

If you're unhappy with your income, you can blame managed care, or Medicare, or the sluggish economy. But there's not much you can do about those. You can also look at your expenses. Those you can control, at least to some degree.

Pruning expenses involves making careful choices, though, not just slashing away. "A lot of medical practices don't hire enough staff, or spend what it takes to attract good staffers," says Will Latham, a practice management consultant in Charlotte, NC. "They're happy that they've got low expenses, but then collections lag, and they end up losing money."

You can gauge how your expenses compare with your colleagues' by checking the charts and tables that follow. They show total expenses for 10 specialties, as well as average expenses in selected expense categories. The numbers were gathered by the National Association of Healthcare Consultants and The Society of Medical-Dental Management Consultants in a survey of their members, who reported data from 6,500 doctors in solo and small group practices.

To help you get your own numbers in line, we asked Latham and other consultants for ways to trim some of the larger expenses. We also asked when spending more money can boost your profits.

Staff: the biggest expense in primary care

"It's no surprise that primary care doctors spend more on staffing than specialists," says Judy Capko, a consultant with The Sage Group in Newbury Park, CA. "They need extensive resources to manage their office-based practices."

"Hire the best staff you can afford," says Keith Borglum, a consultant with Professional Management & Marketing in Santa Rosa, CA. But be sure to use your people wisely. "Are you paying a licensed nurse to do work a file clerk could do? Does your staff of four stay and get paid overtime when there's one late patient, or does only one staffer stay late?"

Average salaries in 2002 for clerical positions range from $19,000 to almost $27,000, according to the Professional Association of Health Care Office Management. Salaries for clinical and supervisory positions range from $21,000 for a laboratory technician to $40,000 for a financial supervisor.

Your local medical society can help you adjust the figures for your location and specialty. If your staff turnover is low, Latham cautions against giving annual raises in perpetuity and suggests instituting a bonus system instead. Doing so could easily backfire, though, so be sure you explain the rationale behind the change to your staff and the process and criteria for determining bonuses. He also notes that some practices—like most nonmedical businesses—have trimmed personnel expenses by passing some health insurance costs on to employees, or by raising employee copays.

Your office: too large, or not large enough?

Making the most of your office space requires a careful assessment of your practice's needs. Get too much space, and you'll waste money; get too little, and you'll sacrifice income to a cramped, inefficient practice.

"In primary care, adding another exam room might enable you to see an additional three or four patients a day—easily covering the extra rent," Borglum says. "On the other hand, a specialist might have a large, fancy office that he uses only two days a week. Maybe he should be sharing the office, or subletting space. It's not how much you make, it's how much you keep that counts."

If you have too much space, consider giving some footage back to your landlord and renegotiating your lease, Latham advises. The Medical Group Management Association's Cost Survey Report has approximate figures on how many square feet of office space physicians in different specialties need. The report can be purchased on the MGMA's Web site (www.mgma.com), or by calling 877-ASKMGMA.

Cutting corners the sensible way

"The best way to deal with rising expenses is to get more productivity out of the doctor," says Borglum. "For example, not having the doctor open his own mail might allow him to see one more patient a day." Beyond increasing your own productivity and that of your staff, you can save money by following some of these tips:

Clinical supplies. Find out if your hospital has a buying program; you might be able to save 10 to 15 percent. Also, online suppliers such as www.pssd.com can save you money. No matter where you buy supplies, don't hesitate to ask for a better price. "Everything you buy is negotiable."

Clerical supplies. If you're part of a group, make sure your practice has a centralized ordering process, so that one person oversees all supply purchases. That way, you can take advantage of bulk ordering discounts and cut down on duplication.

Professional services. "Every couple of years, renegotiate your contracts with your billing, accounting, and lab services. These vendors have a way of tweaking up the amount you pay annually," Latham says. When a practice that Latham works with let it be known that it might find another service, its billing company cut its fee by 20 percent.

Equipment. "Leasing is always more expensive than borrowing the money to purchase equipment," Latham says. Take advantage of today's low interest rates. "If you have outstanding loans, renegotiate."

Conventions and seminars. To rein in the big spenders in the group, charge these costs directly to the physician. Or set a limit—say, $3,000—on what each doctor can get from the practice. "So if one physician wants to spend $10,000 on CME," Latham says, "he'll have to come up with the additional money himself."

"I tell my clients that fear of rising overhead can get in the way of investing in the future," Capko notes. She advocates investing in technology to reduce staff time spent on tasks, minimize errors, and improve communication. "PDAs and moving toward a paperless office are the most important changes practices can make to reduce costs in the long run.

"A sophisticated telephone system is also at the top of the list," Capko adds. "These advances not only reduce overhead, they improve patient services and employee satisfaction, and let the physician manage his time better."

What primary care physicians
spend on selected items

What other specialties spend on selected items

 

Gail Weiss. Expense Survey: What it costs to practice today. Medical Economics Dec. 9, 2002;79:36.