PUBLICATION EXCLUSIVE: Cost Containment: Getting the Lead Out

“Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.”
– Antoine de Saint-Exupery

It is hard to get and stay lean. In any year, roughly one out of every seven Americans goes on a diet. And the number of people who desire to lose weight is even greater than the number of people who actually undertake a weight loss program.

I bet the statistics are about the same for ophthalmology practices and the business equivalent of weight control: “cost containment.”

A majority of practices are larded with too many workers, under-used office space and wasteful capital outlays.

Why is this?

Many practices staff for peak patient volumes. They guarantee 40 hours of work a week throughout the year, even when snowbirds are absent. They grant overtime without justification. They throw people at problems instead of better protocols and training.
New client practices commonly are found to only be using about 60% of their available exam room capacity because the surgeons only want to work during prime time.
Most practice owners are undisciplined in their approach to acquiring new equipment. Rather than performing a financial analysis of how the latest gold-plated device will impact their bottom line, most surgeons simply sign off on the purchase order.

The value of zero-based budgeting

A useful catch-all for more effective spending is called “zero-based budgeting.” As is often the case these days, Wikipedia says it best: “In traditional incremental budgeting, managers justify only variances versus past years based on the assumption that the ‘baseline’ is automatically approved. By contrast, in zero-based budgeting, every line item of the budget, rather than only the changes, must be approved. Zero-based budgeting requires that the budget request be re-evaluated thoroughly, starting from the zero-base; this involves preparation of a fresh budget every year without reference to the past.”

You needn’t become a zero-based budgeting zealot to extract value from the concept. Lots of benefits come from simply asking a few unaccustomed, new questions:

Would this purchase improve practice performance in quality care terms, financial terms or both?
What would be the consequence of delaying this purchase?
Can we extract more value from what we already own rather than buying something new?
Is what we are paying for now still working, effective and necessary?
Can we share this cost with someone else?
Are we paying the best price available? Could we negotiate a lower cost?
Should we bundle or unbundle our purchases? For example, buying our own ads directly rather than through our advertising agency.
Are we buying more than we need? For example, excess insurance coverage.

Let’s look at this more closely through the three biggest cost centers: labor, facilities and marketing. Combined, these three line items make up about two-thirds of all practice expenses in the typical setting.

Click here to read the full publication exclusive, By the Numbers, published in Ocular Surgery News U.S. Edition, November 10, 2016.