Issue: November 10, 2012
November 01, 2012
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Frugal innovation requires moving beyond theory to adopt lean tactics
An expert offers a starter kit of tactics you can employ to enhance profits and efficiency in your practice.
Issue: November 10, 2012
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He who does not economize will have to agonize.
– Confucius
Thrift comes too late when you find it at the bottom of your purse.
– Seneca
Last month we discussed the emerging mandate to provide lean eye care and explored the pedigree of lean thinking that has developed since World War II in most industries other than health care.
This month, we will cover five dimensions of this new mandate and examples from each dimension you can effectively employ in your own practice.
Practical applications
Here are 25 frugal innovations divided into five basic dimensions spelling out the word “aspen”: add, substitute, postpone, eliminate/reduce, negotiate.
If you work in a well-managed practice, some of these basic frugal innovations may already be in place. In the most vanguard setting, you have moved well beyond these basic tactics. As you review this starter checklist of profit and efficiency enhancements, make a note of new items that could be applicable in your practice that you are not yet using.
Add
- Although “frugal” connotes cutbacks, greater profit may actually come with looser purse strings: adding a tech so that you can see more patients, going to a weekend course to learn a new procedure, or elevating one receptionist to “front desk lead” to better coordinate the check-in process.
- Add the work that change requires. Do not take shortcuts when you see a process or policy that needs to change. Call together all of the involved parties. Agree on the problem and the best revision. Put one person in charge of writing up and implementing the change. Audit for compliance and to assure that the change is actually working.
- If you see 60 patients a day and have only one visual field machine, this may represent a choke point in patient flow. De-bottleneck your practice by buying a second field machine (and put it in the same room — it is possible for one tech to run two field exams at a time). Alternately, schedule local patients to return on a less-busy day.
- Add hours. The typical eye care office is open 40 hours per week or less. If patient demand is sufficient, expand office hours to evenings and weekends, bringing in supplemental providers and staff to extract more value from your fixed overhead costs.
- Every ophthalmic practice is filled with lots of delicate, expensive equipment that will last longer if given regular service and cleaning. It is easy for service intervals to be forgotten until a costly repair is required. Keep a master calendar noting all of the major service dates. Include mundane smoke alarms and external emergency generators, as well as testing and treatment equipment.
Substitute
- Labor substitution. Are you thinking about adding a new member to the team? If you think it is time to add a surgeon, investigate if an optometrist would be more appropriate. Think you need a certified ophthalmic technician? Ask, “Would a trainee suffice?” This goes all the way down the food chain. Think you need someone new in medical records for routine filing? Would an after-hours high school student be able to get the job done for less?
- If your accounting firm is still generating your monthly financial statements, shift these in house (it is a snap with QuickBooks) and reserve accounting fees for things you cannot do yourself.
- Make all possible payments with cash-back or travel-point credit cards.
- Use space to its best purpose. If you can gain new revenue-producing clinical space, shift storage, billing and similar business functions to less costly nearby space. Turn all but two private physician offices into exam or testing rooms, leaving one private office for the managing partner and creating a bull-pen office with study carrels for all other providers. Find out if you can relinquish part of your existing space to your landlord or sublease it to a compatible user.
- The next time you hire a technician, aim for someone who is handy doing minor repairs around the office, which can save the time and cost of outside repairs.
Postpone
- Delay nonessential repairs and maintenance. Patients probably will not notice if you paint the building every 7 years instead of every 5 years, but over a 30-year practice span, you will save 28%.
- Rather than moving into larger office space, hire an ophthalmic space planner and see if you can repurpose your existing quarters. Shrink exam rooms. Revise how you use the chart room now that you use electronic health records.
- Avoid or delay entry into service segments shown to be problematic in many cases:
- Dispensing hearing aids
- Selling vitamins or pharmaceuticals
- Providing skin resurfacing and similar medi-spa services with high upfront capital equipment commitments
- Performing LASIK, unless you are in the right market and are very well-capitalized
- Raise the bar for larger, less-than-essential purchases with a purchase requisition system that obliges the person placing the order to research alternative options (eg, making do with existing materials, purchasing reconditioned rather than new equipment, leasing equipment, and sharing with other offices or departments).
- Postpone taking on a low-paying managed care contract until it is clear that your profit per owner-physician per hour will increase by doing so.
Eliminate/reduce
- Frugal innovation is more often a matter of subtraction than addition:
- Can we omit some exam elements for certain patients?
- What is the very least we can put in a cataract surgical tray?
- Can we simplify and combine office forms?
- Are there management reports we run that are no longer used to make business decisions?
- Can we sell, donate or discard unused equipment and other assets cluttering up the hallways?
- Do not be the kind of practice administrator or CFO who says, “We spent $120,000 on marketing last year; let’s make it $130,000 in next year’s budget to keep up with inflation.” Start out with $0 on the marketing line and only add back those tactics that have a proven value in your practice.
- Payroll is the No. 1 cost in every practice and is generally fat-laden, even in otherwise well-managed practices. Have the discipline to keep fully burdened lay labor costs under 30% of cash flow in a general practice and under 28% in most others:
- Use periodic or discretionary bonuses in lieu of base salary raises.
- Limit overtime to not more than 3% of total payroll hours.
- Overtime should be approved in advance rather than retrospectively approved after it has already been taken.
- Revise the common standard that 40 hours per week are guaranteed.
- Taper health insurance benefits. The typical practice now pays about 70% of staff premiums and 0% of dependent premiums.
- Eliminate staffing satellite offices during downtime when physicians and patients are not present; roll the phones over to the main office.
- Do not buy things you do not need and will not use. Remember that anything more than you need is wasted:
- Redundant equipment
- Software upgrades that do not boost functionality or access to support (and may actually be less stable)
- Service warrantees for equipment that is unlikely to break down and can be cheaply replaced (such as off-the-shelf printers)
- Professional advice that you are not prepared to implement
- Annual or monthly fees that can be replaced by an on-call service by the hour or by the project
Negotiate
- Most eye surgeons hate confrontation and create practice business cultures that avoid negotiation like the plague. It is time to change your mindset in this area because the ability to negotiate fairly, firmly and with a win-win approach will be a core practice survival skill in the years ahead. It is time to get comfortable with the mild confrontations that will yield you a lower price for the same value or more value for the same price.
- Periodically re-bid all vendor contracts as a matter of good corporate hygiene:
- Postage meters
- Insurance
- Credit card processing
- Office cleaning
- Accounting and tax preparation
- Marketing communications and ad agencies
- If you can turn around repairs and construction work faster and get your facilities up and running more quickly, you will be dollars ahead. So when you sign off on a work order, include a completion date and a performance kicker: “I’ll accept your $12,000 bid to outfit two new lanes for us, providing that if you do not get it completed by December 15, the price will drop to $10,500.”
- Make longer-term commitments to whittle down enduring costs:
- Life and disability insurance renewability periods
- Magazine subscription periods
- Ask every service vendor you are happy with and will likely use for many years if they would extend a discount (or augmented services) to you for a longer commitment.
- Is it time to share? If you practice in an urban or suburban setting, there are probably at least five practices just like yours within a short drive. Each of these practices has an administrator, a computer system and a full battery of special testing equipment — as well as lots of non-overlapping subspecialty interests. Sit down with your colleagues and negotiate changes that could help all of you.
- Coordinate your RFPs for a new practice management or EHR system.
- Collaborate to co-hire one retinal surgeon to cover two or three practices.
- If the administrator of your practice is about to retire, could the high-energy manager of a friendly neighboring practice take over and run both practices part time?
- Share staff expertise: Have their billing manager consult with you on collections while your head tech gives their staff a refresher course on refracting.
This is only skimming the surface, of course. This starter list may have you thinking about missed opportunities lying all around you. But however excited you may be getting about the prospects for savings in your practice, do not get carried away. Do not get “frugaled” by taking frugal too far.
Make sure that you continue to preserve strong economic incentives for the top lay and doctor producers in your practice. Foster creativity and experimentation. Do not beat staff into an impression that “there’s no use bringing that up; the board would never approve it because it would cost too much.” Even as you taper excess resources, build in enough of a shock absorber to take on peak workloads or new opportunities.