Operating a Medical Practice in a Time of High Inflation

Aug 15, 2022 at 08:51 am by steve

Gerard J. Kassouf

When reviewing medical practice financial statements during 2022, many practice administrators have been challenged to reassess day-to-day operations. Reimbursement rates have not kept pace with the increased practice operating costs over the past few years, which has eroded owner compensation and reduced the amount of funds available for expansion and new equipment. Practices that routinely analyze their financial position have the best chance of working through these issues that continue to put pressure on cash flow.

How can your practice cope with finances? First, put a few key physicians along with your practice administrator in charge of the financial side of the practice. Create a timetable to have financial statements prepared and reviewed each month, including an analysis of how your practice stands against a reasonable budget. If you can't prepare a detailed budget, start with the key practice expenses:

  • Staff compensation
  • Retirement plan contribution
  • Professional liability and property and casualty insurance
  • Occupancy costs, including rent and maintenance
  • Billing and collection costs, including software
  • Supply costs, and more importantly, high-cost reimbursables
  • Other significant costs associated with your practice

Utilize this information to develop a financial strategic plan--a portion of the overall strategic plan that every healthcare organization should utilize. Calendar routine meetings to review and discuss ways to improve profitability.

Let's review some specific opportunities to help generate a greater profit during times of inflation. These will include the possibility of additional top-line income, controlling expenses and ultimately increasing the bottom line.

Look at operational opportunities to control expenses. In most practices, staff salaries and benefits are the number one expense. While each practice operates to the desires of the owners, reviewing staff scheduling and the practice's operating hours could create an opportunity for savings. First, review overtime to determine if the workday scheduling is appropriate. Then, look at productivity during the workday. In one practice, a new human resource member noticed that some staff were spending the last 30 minutes to an hour each day with little to do. When asked, the individuals told the HR member that they had to stay until 5:00 whether they had work to do or not. The group rearranged the work schedule allowing those who had completed their workday to leave before 5:00. The individuals were happy to get home earlier in the day, and the practice saved salary costs not having to pay for unproductive time.

Most healthcare practices provide a great benefit with an employer provided retirement plan contribution. It may be a match to a 401(k) deferral or an employer profit sharing contribution, or both. Take a look at your plan's design. Have a professional review your retirement plan to determine if the design is optimal for your group. There could be cost savings in the retirement plan contribution options and in the charges for plan investments, recordkeeping and reporting. If the practice is currently paying the operating costs of the plan--such as investment fees, recordkeeping fees, and the audit fee consider having them paid directly from the plan instead.

Take a look at the practice professional liability insurance coverage and cost, as well as other business insurance. Determine if you have appropriate coverage - who is covered and the cost of the coverage. Business insurance includes coverage on equipment, workers' compensation, retirement plan, cyber liability, directors' and officers' liability, and other coverages specific to your practice. Raising the deductible amount could reduce premium costs. Eliminating unnecessary insurance and bundling coverages could also save premium dollars.

Is your lease near a renewal or expiration date? Summarize all leases and lease terms. Consider all leases--including those for equipment and automobiles for the practice. Assess the amount of space you use and need, the equipment you lease and whether owning is better than leasing. Also consider if the satellite locations remain appropriate.

As you move towards the end of the year, re-think holiday parties and gifts. Many practices have warm and meaningful gatherings without all of the expense and glamor of those of yesteryear. Open your home with catered food on a weekend to show appreciation to your staff in lieu of a night out at an expensive restaurant. Having a cozy time socially with your staff could generate much needed goodwill and be well received.

A few other areas to consider on the expense side. Many healthcare practices sponsor events and teams. Review those that the group supports to confirm that the sponsorship builds value for all involved. Review continuing education costs for physicians and staff. Many events are held in both live and virtual formats. While it's great to attend in person, consider rotating the events so that there is some virtual attendance. Or rotate the staff to alternate years of in-person attendance and attend the other years virtually. Utilize group discounts where fees are lower if two or more attend from the same group. Review services and subscriptions. Since many groups have removed magazines during the pandemic, be sure subscriptions are cancelled. Look at your cable bill to see if the programming could be curtailed.

There are also several considerations from the revenue side of the practice to consider. Add providers who can generate additional income for the practice. New providers can practice without significantly increasing the practice's fixed costs. Consider splitting fixed costs by x + one. If you move from one provider to two providers, fixed costs are shared equally. If you move from four providers to five providers, fixed costs are shared 20 percent vs. 25 percent each. The difference for each provider can significantly increase practice net income.

Review your practice revenue cycle management operations. Review practice explanation of benefit forms and confirm that you are properly billing for services performed, and that you are capturing all charges.

Monitor the billing and collections of high-cost drugs and supplies used by the practice. One lost opportunity to collect could cost thousands of dollars.

Remember, every practice is unique. Consider how this information could affect your specific practice before making major changes. It is important to consider new options and applications to move the practice forward and better operating results.

Gerard J. Kassouf, CPA CFP® is a director of Kassouf & Co., P. C, a regional accounting firm headquartered in Birmingham. He practices in the area of health care, financial planning and tax compliance and planning. He can be reached at gkassouf@kassouf.com.

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