Practice Makes Perfect: Addressing the rising tide of operating costs

In June, the MGMA-ACMPE released the results of a questionnaire that ranked members' most pressing practice management challenges. In this edition of "Practice Makes Perfect," we'll tackle No. 1 on that list: Dealing with rising operating costs.

Physician practices are doing more and more to innovate and respond to our rapidly changing environment and to meet the needs of their patients, but they're doing so with fewer resources. As they meet these changes, they are also working diligently to manage rising operating costs and prepare for potential cuts to reimbursement rates. According to MGMA Survey data, costs for multispecialty, not-hospital owned medical practices have increased by 64 percent since 2001. Because of this, you may now find yourself between a rock and a hard place: Operating costs continue to rise and revenue may be declining. How can you manage this?

I've worked with practices all over the country that are attempting to mitigate this dichotomy. In the end, it comes down to rigorous business discipline and applying it consistently throughout your medical practice. Focus time and energies on the places that can really make a difference. For example:

When was the last time you studied, and I mean really studied, every entry in your general ledger? You must really understand your costs to really have an impact on them. Most practices I work with don't look deep enough into what everything costs them. The more familiar you are with your data, and the more you benchmark your efforts with national data, such as that found in the MGMA Cost Survey (link), the more likely it is that you can adjust you costs.

Ok, maybe not everything, but almost everything is negotiable. Spend time to review and negotiate your office lease, your cleaning service, your service contracts, your equipment leases, your office supply costs and your medical supply costs, among other items. Don't make assumptions that these costs are set in stone. Try to negotiate with your vendors and suppliers.

To accomplish true cost management, everybody who "consumes" something in the office must be engaged. This is bigger than one person. Develop your budget from the bottom up, not from the top down. Engage your staff in the process of developing plans and processes to reduce costs. Some practices set up a contest and reward staff members with cash bonuses based on the actual savings achieved. It's important that cost management not be perceived as a burden in the office, rather, it should be something that everyone does their part to address. Develop a preemptive cost containment or reduction plan before a need arises.

Certified medical practice executives (CMPEs) are proficient in the eight domains comprising the MGMA-ACMPE Body of Knowledge, the guide to managing a medical practice. One domain is all about financial management. Don't underestimate the impact of a well-educated, well-informed, knowledgeable staff. It's our job as managers to ensure that our staff understands what is happening in the industry, as well as within our organization, and how they can help mitigate costs and reduce wasted resources that could otherwise be directed toward patient care.

Many businesses today have become transparent with their employees and have shared monthly or quarterly financial summaries. This can help staff better understand financial management in their organization.

A conversation regarding operating costs would not be complete without a discussion about maximizing revenue. Ultimately, the costs (expenses) arise from providing patient care, but patient care generates revenue. It is critical that practice leaders take measure to ensure that proper coding, documentation and revenue-cycle management occur, thus generating maximum revenue.

Get back to the basics of managing costs. Successful practices will understand the rigors of business discipline, apply these principles regularly and ensure full engagement throughout their organizations. This will, in the long run, help you address the rising tides of operating costs.

Kenneth Hertz, FACMPEPrincipalMGMA Health Care Consulting Group