Penny-Wise, Pound-Foolish

Most physician practice leaders are cost conscious.   Many practice administrators, and sometimes other key personnel, are rewarded with bonuses or other incentives based on their cost effectiveness.  The basic accounting formula is:

  Revenue – Expenses = Net Income

So, if physicians reduce expenses, the result would be greater net income for the practice.   However, as the old British saying, “Penny Wise, Pound Foolish”, alludes, it is easy to fall into the trap of excessive focus on cost containment for small, insignificant items that end up negatively affecting revenue to a greater extent.  Some recent surveys indicate that this is the case for many physician practices. 

The Medical Group Management Association (MGMA) annually publishes cost and revenue survey data for all types of practices.  The survey is the largest of its kind in the nation.  Further synthesizing these data, the results are shown based on practice specialty, size, geographic location and structure (independent or hospital owned).   In the January/February 2017 issue of MGMA Connection, David Gans, MGMA staff member, said “The practices that focused on minimizing costs unfortunately appear to have starved production, resulting in a low level of revenue and even with the least cost, the worst bottom line…”  He went on to describe that the results showed that the practices that focused on maximizing revenue reported a median net medical revenue per FTE physician significantly higher than the groups purely focused on cost issues.  So, he concludes that the practices that have the greatest costs also have the highest revenue. 

In focusing on revenue enhancement, it is not suggested to begin willy-nilly spending without some understanding of its contribution to increasing revenue.  The following are a few suggestions for increasing investment:

1. Technology – Physicians have already been bombarded with federal regulations concerning EMR’s, meaningful use, etc.  What I am suggesting are things like check- in kiosks and well designed web-portals that would streamline check-in. Patient reminders using email or text that will reduce no-shows and potentially speed patient flow will provide a return on investment.
2. Social Media – Times are changing.  Department stores are closing.  Why?  The convenience of online purchasing.  People today expect information, usually on their phones.  When viewed as a communication tool, investing in media can have a positive impact on attracting patients to a physician’s practice.
3. Staffing and Training  Referring to the surveys previously mentioned, using data for all practices nationwide, the median total clinical support staff per FTE is 1.83, but for the “most profitable” practices, the ratio is 2.02 per FTE.  If additional personnel are hired, it is important to invest in training the staff well to do what will increase practice revenue.

Physician practices should first know what their costs are and how they contribute toward generating revenue.  Then, physicians can be “Pound-Wise” and focus on revenue, the sustenance of the practice.  Concordis Practice Management, LLC can assist the practice evaluate their financial health by conducting a revenue cycle review or billing and coding review to determine those areas that may need improvement.  Contact Concordis today by calling 210-704-1014 or visit our website at www.concordispm.com for a complete list of our services.

Rick White, MBA, FACMPE, is a Sr. Consultant for Concordis Practice Management, LLC.  He can be reached at 210-275-9210 or rick@concordispm.com