Laying off an employee to save money

June 25, 2012

Is your practice still feeling the pinch of the economic downturn? Learn what you can do to bring down your overhead.

A: The inquiry a practice management consultant hears most often is: "How can we lower our overhead?" It's frequently possible to save some serious money in larger groups, but in practices with one to 10 physicians, it's much more difficult. Nonetheless, it's worth a look. First, realize that trimming overhead implies the existence of waste in the budget. It's always recommended to withhold approval of purchases that represent waste, no matter what the state of the economy. The difficulty is that as groups get larger, more arguments occur over exactly what constitutes wasted expenditures. One physician's essential is another's luxury.

What is the best advice? It's probable that you have limited energy to apply to cost-cutting, so start where you get the most bang for the buck. It's the same place for just about any business: payroll. Personnel costs typically account for half of a practice's operating expenses. In a practice where half of the collections go to overhead and half of that is staff cost, a reduction in work force is very noticeable. If your income is down because you are seeing fewer patients, you probably can do without as many staff members.

For example, a three-physician practice typically will employ 14 staff members at a cost of approximately $540,000 per year. Cutting one position saves the practice around $40,000.

So if you have six employees, lay off the one you feel the least loyalty to and redistribute his or her duties to the remaining five employees. Select the redundant employee based on the caliber of his or her work, attitude, and mix of duties. It sounds heartless, but remember that you're running a business, and increasing the productivity of all workers is a good thing.

After you lay off the employee, you'll need to make an announcement to the remaining staff members to keep them motivated. Tell them how difficult a decision it was for you and how much you regret having to do it, but remind them what's been happening to the practice's reimbursements and costs. Tell them you're confident that the practice can avoid further cuts by becoming more efficient and absorbing the laid-off employee's duties and streamlining the rest of the work. If cutting one position really is a tragic step, then ask each staff member to each cut some hours to total one full-time employee equivalent instead of losing a well-trained staff member.

Need more reductions? If you have a satellite office, look there. If you're not getting a higher yield of the kind of patients and procedures you really want, why go there anymore? Closing satellite offices usually makes physicians more available at the home office, increasing business there.

Answers to our readers' questions were provided by Judy Bee, Practice Performance Group, La Jolla, California. She is also an editorial consultant to Medical Economics Send your practice management questions to medec@advanstar.com Also engage at http://www.twitter.com/MedEconomics and http://www.facebook.com/MedicalEconomics.