The very term of “fixed costs” suggests inflexibility and, in today’s tricky economic environment, perhaps something inherently negative. But all of your practice’s fixed costs may not be as set in stone as you think. By taking a careful look at where your money is going, you may be able to identify ways to lower fixed costs and, thereby, strengthen your cash flow.

Get to know your own finances better and expand your budget consciousness, and you could be surprised by some of the cost-saving measures that arise. Here are just a few areas that may warrant a closer look.

Employee Benefits

Care should be taken in developing a competitive overall benefit package for your staff without being overly generous. Cost sharing on health benefits, if offered, is essential and has been demonstrated to have a favorable impact on reducing unnecessary utilization.

Providing options to reduce deductibles for those who avoid unhealthy behaviors, such as smoking, will also likely pay nice dividends in reduced utilization costs. Having higher cost sharing for those with less healthy lifestyle choices may provide an incentive for change.

Many businesses now limit placing spouses on their plans if the spouse has insurance available through his or her own employer. Even if the spouse pays the full cost on your plan, his or her utilization patterns may drive up your premiums for the group overall.

In addition, encouraging staff to use generic drug discounts at local pharmacies will keep your prescription plan costs from increasing rapidly.

Other benefits that can drive up expenses include substantial vacation allowances coupled with sick time allowances. Utilizing a paid time off (PTO) model allows total days to be reduced and places the responsibility for effective utilization on the employee.

For example, a two-week vacation allowance plus six major holidays and a week of sick leave adds up to 21 days. Under a PTO plan, you may be able to offer 18 days to be used at the employee’s discretion. Saving three paid days per full-time employee adds up to savings quickly. Also, staff is less likely to be off “sick” just to avoid losing something they’re entitled to.

Can you afford uniform allowances, memberships to local gyms and other extras (such as providing office lunches)? The answer is most likely no. If you already have these or other extras, you may want to pare them back gradually to lessen staff dissatisfaction. Education of your employees regarding continuous declines in reimbursement and the need to make changes should help.

Outsourcing

Several areas of variable cost, including transcription and billing service, require a careful consideration of the potential benefits gained from outsourcing. This strategy can help:

•  Keep your employee roster lean,
•  Reduce payroll taxes and benefits costs,
• Eliminate potential challenges posed by employee lawsuits and workers compensation claims, and
•  Reduce the square footage needed to operate your practice.

Clearly, outsourcing is only productive if you can get the quality and service you require in addition to the savings desired.

Supply Expenses

Depending upon your specialty, supplies can be a large share of your costs. Ideally, physicians will take advantage of a purchasing cooperative to reduce costs for office and medical supplies. But don’t get too comfortable with any one vendor, and make every effort to negotiate additional discounts. Continual review of the numbers and types of supplies, as well as lower cost alternatives, is essential.

Watch for hidden costs involved with expedited shipping. Your staff should plan effectively to avoid crisis deliveries. Too much inventory can be costly to store and may limit your options when less expensive replacements are identified. Another hidden cost involves the shelf life of items you receive. Upon receipt, supplies should be carefully matched with packing slips, and expiration dates should be reviewed. Items close to expiration should be returned and vendors should be advised that this is unacceptable.

Medications and vaccines are expensive, and failure to order appropriate quantities and monitor expiration dates will increase your costs significantly. Finally, take advantage of prompt-pay discounts that may be offered and, at all costs, avoid late fees.

Operational Costs

For those practices that are already lean and cannot work any harder, it’s time to work “smarter.” Evaluation of where technology can supplement or replace certain functions is a great place to start. Some practices are saving costs in transcription by using a voice recognition program instead of having staff perform this function or outsourcing it. These systems have improved significantly over the last decade and require minimal postdictation corrections.

Another cost-saving measure is implementing an electronic health records (EHR) system. While startup may be labor intensive, these offer many long-term advantages in both clinical care and billing. Conversion to an EHR system requires a full review of current operations and often identifies opportunities to reduce duplication and streamline processes. Practices that have become paperless are no longer spending countless hours and labor expense managing, storing, and retrieving paper. Even without an EHR system, paper records can be scanned and stored on disk to reduce storage space. Do you have the most efficient office technology to support your staff? We’re referring to items such as:

•  Insurance card scanners,
•  Multifunction print, copy, scan and fax units,
•  The latest telephone systems, and
•  High-speed Internet access. Having fast, reliable and up-to-date technology can help a practice handle extra workload without adding staff.

Technology aside, when it comes to billing and collecting, there are huge savings to be achieved by doing it right the first time. Verify all insurance before providing services whenever possible — especially high cost procedures. Denials and resubmissions because of demographic errors, incorrect codes and other careless errors, along with missing filing deadlines, add significant cost.

Failing to collect copayments and deductibles at the point of service also reduces your eventual likelihood of full collection. If you outsource, having a billing service that’s paid on the basis of collections ensures better focus on accounts receivable follow-up and may reduce the number of accounts that go to a collections agency.

Insurance Policies

Physicians must be diligent about shopping multiple vendors for their many insurance needs — including health, malpractice, disability and life coverage, just to name a few. Evaluate the age and health needs of your staff to enable selection of a plan that meets their needs without adding items that drive up cost while failing to add value for you.

In a tight economy, many brokers are willing to give additional discounts to get and keep your business. The same goes for your banking and accounting services as well as many others.

Office Space and Utilities

Is your office space too large? Perhaps you can sublease to another provider, timeshare for certain days or hours, or consider a smaller space. This strategy works quite well for surgical specialties. Opportunities exist to reduce square footage while improving workflow, both of which will help to reduce overhead costs.

Watch out for utility costs as well — especially if they’re not included in your lease. Staff needs to be sensitive to turning off lights and equipment when not in use.

Additionally, careful attention to rental costs, including hidden expenses present in your lease (such as maintenance repairs, common space and cleaning service), can also contribute to cost reductions.

Revenue Pressures Will Continue

In summary, revenue pressures for physician practices will continue. Even if you’ve been cost-conscious for a long time, another in-depth review may yield just enough savings to keep your income stable as reimbursement rates move lower toward Medicaid levels.

Imagine you’re 64 years old and a drop in the stock market has caused your retirement funds to lose 50% of their value. You had planned to live off that money! What’s worse, you’re having difficulty recruiting young physicians to join your practice because the local hospital hires all candidates at a premium. And your health insurance premium has risen 42% in the last three years with recent health care reform expected to increase the rates an additional 10% next year. Suddenly, your plan of retiring at a reasonable age doesn’t seem so feasible.

In the past, most physicians began thinking of selling their practices for retirement one to two years before their anticipated retirement dates. There was a time when it was easy and normal to find a willing buyer for almost any practice. In fact, during the mid to late 1990s, physicians, corporations and hospitals were all competing to buy physician practices. There were instances in which doctors had the luxury of selecting potential buyers from a number of interested parties. And, in many cases, the sale was done informally with only a limited transition period. For better or worse, those days are gone.

Selling Is No Longer Easy

Over the last few years, the landscape for practice transition has been very challenging for selling physicians. The rules and regulations of transitioning a practice have become more complex. Physicians have a limited time to remain with a practice if it’s sold; cost of malpractice “tail” policies have affected the selling process; and managed care reimbursement issues are affecting the market for practices. The number of potential practice sellers seems to be increasing, while the number of buyers appears to be going down dramatically.

Hospitals that are acquiring practices tend to be less prepared to run the much more complex operations that practices have become. Issues with compliance, HIPAA, billing, coding and human resources are overwhelming to many potential private practice buyers. This has lengthened the traditional transition period of practice turnover. In turn, this increased period is causing an increase in the failure rate of practice transitions.

Despite these difficulties, the value of a practice’s assets (which include accounts receivable and equipment) are still a substantial part of any physician’s net worth. Therefore, today’s physicians can no longer afford to wait until one or two years before retirement to plan an exit strategy.

Getting Started

We recommend you begin at least five years before your planned retirement date to begin developing your transition plan. Along with that transition plan, you’ll need a good financial plan as well as a personal fulfillment plan. Regarding the latter, you should visualize what your retirement will look like: Will you play golf every day? Teach? Volunteer? See how you want the future to be. What will you need to develop your transition, financial and personal fulfillment plans? A quiet place, uninterrupted time, a good night’s rest and a blank sheet of paper will get you off to a good start. Before sitting down to reflect on where you have been and where you’re going, do some initial investigation regarding what income you may have available from sources such as:

•  Social Security benefits,
•  Personal investments,
•  Employer-provided retirement plan accounts,
•  IRA balances, and
•  Family income.

After getting a general idea of your finances, reflect on where your career started and how far it has come. List the triumphs of your practice and the failures. Doing so will assist you in the most difficult aspect of the process: deciding that you’re emotionally and psychologically ready to sell or give up control of the practice. You must be ready to go.

Once you have made the decision to go, the next decision is: Should you do it gradually or suddenly? Your choice in this matter may depend on the size of your practice and its fixed expenses. A smaller, leaner practice will likely be easier to unload quickly.

Next determine the living expenses and lifestyle that you will want after retirement. Review your investments and retirement income with your investment advisor and your accountant to determine whether you’ll be able to meet your expectations.

Once these preliminary determinations have been satisfied, develop a customized practice transition plan complete with objectives and dates. The plan must be specific to your goals and the characteristics of your practice. Your financial needs are vital in determining a firm date for the practice sale, closure or incorporation into a hospital model as well as the terms of the outcome.

Work with your accountant to establish a value for the practice. Far too often physicians have a price for their practice in mind that has no basis in reality. Use an accountant with experience in health care to help you estimate a valid, defensible worth of the practice.

Finding A Buyer

You’ll likely need to aggressively recruit a potential partner or buyer. There are still physicians who want to remain in private practice or start one. But you’ll probably have to work hard to find them.

Small to medium-size practices may want to hire an associate with the thought of offering partnership in one to two years, with the senior partner transitioning out of the practice over the next three years. Again, the pool of candidates to join a private practice in this model is likely smaller than when you started practice, but it does exist. You’ll just need to dedicate the time to finding the right candidate.

The key is to start the process early. Doing so allows the new physician to begin to learn the business aspects of the practice and to establish a reputation. Also important in this process is working with a good health care attorney to develop a partnership/buy-sell agreement.

You may be able to recruit a potential buyer by placing advertisements in professional journals or via contacts at a local hospital’s physician services area, medical schools or suppliers. In other words, you’ve likely got to network to find the right person for your practice.

Once you have identified candidates, expect to spend a significant amount of time interviewing and getting to know the person. Most physicians want someone similar in nature, clinical style and personality to carry on the culture of the practice they have built. Be sure to explore the philosophies of the new physician/buyer, so you can be comfortable with the idea that this is the person who will be carrying your business forward.

When you finally do select the buyer/partner, you’ll need to negotiate the sales price. Be sure to explore all options for fulfilling your individual needs. Also, discuss the distinctive aspects of your practice type and local market with your advisors before making this decision.

If you chose to join a hospital or health system to finish your career as an employee, don’t shortchange your practice! Bring an active practice with you to the new position so your compensation model will reflect the fact that, unlike a startup practice, you have patients. Your financial advisors can help you review the costs of closing/transitioning your practice and project the revenue consequences of collecting old accounts receivable.

Finding The Best Path

Planning and implementing your exit strategy is one of the most important business decisions you’ll ever make. This is no time to go it alone! You’ll need advisors such as business consultants, accountants and attorneys with experience in health care to find the best path.

If you are like most physicians, you receive daily reminders from your beleaguered office staff of how hard they are working, with little improvement to show in your bottom line. It is becoming harder and harder to adequately staff a physician’s office to handle all that is required to ensure prompt and full payment for the services you provide.

Because staffing is the most expensive part of overhead, it may be time to look to technology for help. Fortunately, there is plenty of it available for you to consider and, if appropriate, integrate into your practice. Here are a few examples to learn more about.

Automated patient reminder calls

The revenue cycle begins the moment a staff member answers the telephone to schedule a patient visit, new or existing. Key information must be requested during that call, along with reminders regarding what the patient needs to bring on the day of his or her visit. Supplementing this initiative with automated patient reminder calls is a good strategy.

Reminding your patients of their pending appointment not only decreases your amount of “no shows,” but also prompts patients to remember their insurance cards, copayment or deductibles, and balance payments. There are many companies that offer this service and allow you to personalize the message. Just think of the staff time you will save.

Card scanning technology

When patients arrive, it is crucial to make copies of insurance cards and driver’s licenses. Have you ever noticed how often your receptionists leave their work stations to go to the copier? Once at the copier, they need to make copies of both sides of each card.

Simple card scanning technology at the check-in window will allow them to swipe the card without leaving the desk. They will then be more readily available to check-in additional patients and answer patient calls more promptly.

Electronic eligibility

Given frequent changes in employment and insurance coverage as well as increasing medical identity theft it is necessary to verify that the insurance information presented is valid. Contacting insurance carriers to check the eligibility of each patient is time consuming, but failing to do so can result in denials for “not eligible on the date of service.”

Now, technology is available to perform real-time verification of insurance coverage through “electronic eligibility.” This service may already be something your practice management company offers or can help you locate. Along with identifying whether the patient is eligible, some insurance carriers will even give you information on the copayment and deductible amounts, which will allow you to collect at the time of service.

Electronic claim scrubbing software

Slow or no payments on the claims you submit will drastically impact your cash flow. Sending claims error-free or “clean” will increase payment on the first submission, thus increasing your cash flow. Each carrier has hundreds of edits (error checks) that can stop a claim from getting paid.

Electronic claim scrubbing software can identify these edits and hold claims until they are fixed. Once correct, claims will be paid the first time. The average cost of labor, phone calls, faxes and mailing associated with investigating and correcting a denied claim is commonly estimated to be about $25 per claim. The American Medical Billing Association (AMBA) notes that, each time a claim needs to be resubmitted, your chance of getting paid decreases and the cost incurred reduces the return on the claim by the following amounts:

Depreciation in cash value per billing cycle required for payment

Electronic patient statements, claim posting

The days of printing, folding, stuffing and licking envelopes for patient statements are over. The cost of a manual statement process is typically estimated to be around $5 per statement. Electronic patient statement costs, including necessary postage, are minimal by comparison. Setting up your statements to be sent electronically will reduce costs and eliminate delays in billing patients.

Another technology available from many insurance carriers at no additional cost is electronic claim posting. This enables your practice management system to automatically post your payments and denial reasons. Benefits of this technology include reducing common errors inherent in manual payment posting and freeing staff to work on other billing functions.

Contract management software

Once payments are received, how do you know the claim has been paid correctly by the insurance carrier? A National Health Insurer Report Card compiled by the American Medical Association shows an error rate of more than 5% for many of the largest payors and almost 20% or more for a few.

Contract management software provides the ability to identify incorrectly paid claims based on the contract you negotiated with the carriers. Contract your practice management company to see whether your software has the ability to perform this key analysis. If not, there is also standalone software that will assist you in identifying opportunities to increase your revenue by ensuring you are being paid according to contract.

Work harder and smarter

As you can see, there are multiple electronic technologies available to improve your cash flow and financial return. And the expense of these upgrades can often be recouped in operational cost reductions and improved payment speed. As reimbursement continues to shrink, can you afford not to use all of the tools available? After all, technology such as this can help your office in working smarter, not just harder.