Should you reduce staff, wages, benefits or hours to trim labor costs?

ByJohn B. Pinto

Decisions in the business of ophthalmology, as in every commercial sector, should be guided by the answers to three simple questions, asked in this order:

Is it ethical?
Is it legal?
Will it make us a more profitable company?

It's by looking through this three-part lens that you can perhaps most clearly see your way to addressing the difficult question of how to trim labor costs. This assumes your staff costs are too high in the first place (and they are, if your general ophthalmology practice is spending any more than about 32% of annual collections on wages).

There are four possible approaches to reducing excessive staffing costs:

1. Reduce the number of staff. This is the fastest, most direct, least kind but often most effective way to reduce costs. This is especially the case in client practices where overstaffing in selected departments has become a chronic institutional flaw.

2. Reduce staff wages. This can be done selectively or across the board. With a 6% annualized drop in the GDP over the past 6 months, rising unemployment rates and slight deflationary trends in the cost of living, this is now seen as more palatable than ever before in the last 50 years. While few owners are doing this yet, one expects that if surgeon income continues to drop, lay staff will inevitably be next in line for a temporary or permanent 5% to 20% pay cut. Seen positively, this approach to cost savings (along with reducing hours, below) is much kinder to the staff, who all at least get to keep their jobs, and more practical business-wise because you preserve the investment you've made in training staff.

3. Reduce benefits (including bonuses). This is a relatively dull instrument, with little material impact on overall wage costs. However, there is considerable low-hanging fruit in this area: Dental and small life insurance policies, although low in cost, are rarely seen of as much value by younger staff. If you still pay 100% of staff health benefits or any dependent health insurance, you're now an outlier in the typical setting. Bonuses, in most settings, are seen by staff as an entitlement and rarely linked to practice or personal output. Most staff, and especially younger workers, pay the most attention to the raw hourly wage.

4. Reduce hours. This is helpful as a temporary measure and is well-tolerated by staff, especially in markets where unemployment is high. Indeed, a long-ago survey of female workers seemed to indicate that aside from the financial hit, working a 32- or 36-hour week was seen as a real plus, especially for working mothers. Obviously, trimming just a few hours here and there leaves benefit costs intact (typically 15% to 20% of total wages, a higher percent when hours are cut).

There is obviously an occult fifth way to reduce staff costs as a percent of collections — simply increase your collections. I've worked with many overstaffed clients through the years where that approach was effective, feasible and certainly more palatable than making cuts.

Being practical, if your practice costs are untenable, and you can't merely grow out of them, it's unlikely that you will use just one of these tactics. Your best approach may be to use all approaches to one degree or another.

This discussion can obviously be unpleasant. Most surgeons and administrators entered medicine, in part, to help people. Taking away jobs, money and benefits runs counter to the typical health care ethos. Just remember: In medicine, it's common to subject the patient to side effects, even amputation or organ removal, in an effort to restore overall health. Your practice (the "patient" in this analogy) may need your radical intervention before the Great Recession concludes.