Managing costs and getting the most out of your practice

Issue: July 2005

ByDouglas W. Jackson, MD

Douglas W. Jackson, MD [photo] --- Douglas W. Jackson, Chief Medical Editor

William Osler, MD, said, “You are in a profession as a calling, not a business.” He warned us to not operate on a purely business level lest we lose our influence and the true light of our lives.

That “calling” remains at the heart of why we went into medicine. However, much has changed in the business aspects of medicine since Dr. Osler practiced our profession. The principles we use as physicians remain the same, although our ability to act independently continues to be challenged and controlled by others. The patient-physician relationship and decision-making process now must take into account reimbursement intermediaries and outside authorizations.

Net profit dropping

None of us were called to the profession of medicine because of our desire to become a businessperson. Yet, we find ourselves in a very competitive business environment trying to maintain the traditional practice of medicine. Medicare price-fixing, continued reductions in reimbursement schedules, and limitations on allowable treatment regimes and technology are just some of the aspects of the altered landscape.

Delivering quality care and maintaining a good patient-physician relationship requires finite blocks of dedicated time. These time requirements for our hands-on and face-to-face service limit how many patients we can reasonably see in the office and can operate on in the surgical suite. This approach makes us “piece-workers” who find it difficult to adapt to the challenges of the changing medical business environment.

Unlike some business owners, whose plants or employees generate income when the owner is not working, most of us already work as hard as we can or want to work. In 2005, if we continue exactly as in 2004, net profit will most likely drop across our profession. Few will see higher reimbursements.

When one adjusts for inflation and rising overhead — even if we generate the same revenue — we will not keep pace with expenses. The reimbursement level is set for most practitioners and we cannot pass rising expenses on to third-party payers. Some surveys claim our incomes are keeping up — even outpacing inflation, but that certainly is not my experience. Figures from our group’s practice show that income from traditional hands-on and face-to-face patient care stopped increasing in 1994. So now we either continue to absorb these slow erosions in our income or we react like other small business owners by lowering overhead further and/or looking for alternative revenue streams.

“Some surveys claim our incomes are keeping up – even outpacing inflation, but that is certainly not my experience.”

How can we decrease our overhead further? The easy cuts have been made. Deeper cuts will most likely force additional changes in our old ways of doing business.

I have seen this in my own practice. We have benefited from more sophisticated office administration and management systems that help us adjust to these downward revenue pressures. We also have benefited from spending time listening to the individual perspectives, desires, and collective thinking of each member of our group. The practice partners and the experienced professionals are part of our working “office team” that monitors, analyzes and adjusts our responses to changing trends.

But to make the best decisions, we need more supporting data and analysis capabilities related to patient care and to the business of caring for our patients. In our practice, now more than ever, we see the need for monthly financial trending and tracking. We have had to invest to obtain this support. What’s clear is that holding the physicians’ income at the same level for the same expenditure of time and effort will require more business applications and discipline than we have had.

One of the real problems with new managers and/or consultants is the potential for a new layer of middle management and increasing overhead. I have been so frustrated over the years expecting others to manage the business side of “our” practice. My experience has been that the physician must be involved and understand the analysis and oversee the changes. We are held to high levels of accountability in caring for patients and we must demand similar expectations from our “business team.”

Outsourcing has the potential to save money. It can bring access to better technology, greater expertise and a less labor-intensive workplace. Outsourcing also supports paying for services on an “as-needed” basis, thus avoiding the cost of idle resources. The downside: a loss of some independence and control. And once you dismantle the in-house system, it is usually expensive to bring it back in-house.

In the future we will need more digitization of record keeping, roentgenograms, more sophisticated cost accounting and access to good practice-management tools. Yet, there is a good chance these new processes will not lead to immediate savings. They are, instead, more of an investment in the future. They will allow more creative record storage and ease of transmission of information to surgical centers, hospitals, physicians and insurance companies. Expect it to be easier for the new generation of physicians to adapt to the most efficient data entry techniques in record keeping, coding, billing and follow-up patient information.

Shifting costs

Another area we unfortunately must consider — just as other small businesses have — is shifting more health care costs to our employees. In addition, we should continue to re-evaluate how we fund office pension plans. Some employees see it as a real benefit while others would rather have the income. Administering and managing pension plans can cost between 2% and 3% each year for relatively small medical practices. It is difficult to accumulate significant growth with that type of management “taxation” on the potential of compounding. In addition to high costs, the financial services available to small companies can be less than ideal.

The potential exists for orthopedists to increase income without working longer hours by investing in alternative practice income. Many already have in-house rehabilitation services and imaging services including MRI. Others have invested in and opened surgery centers. Many provide orthopedic supplies, equipment and medications. These alternatives require knowledge of the current regulations and Stark law implications, but they can be done ethically and within current legal and ethical restraints.

What’s more, investment opportunities within orthopedic-related industry and medicine emerge every year. Our special insight into these new products offer orthopedists potential investment opportunities with more understanding than we may have in other areas of investing.

All of these alternative income sources require some creativity and many take time to understand and monitor. In future columns and articles, we will share more details about some of the innovative and creative ways colleagues have supplemented incomes without compromising the quality of patient care.

The good news is that we still are able to practice our great specialty, relate to and care for our patients and maintain a good income. We are in a profession where the benefits we can bring to our patients remain a light in our lives and one of our greatest sources of satisfaction. For most of us, the demands of the job require that we be totally committed and work hard. But we need to pay more attention and be involved in the changing business trends that are occurring around us and make some necessary changes or they will impact “our calling” more then we will find acceptable.