Six Steps to Make Your Practice More Profitable
This article by By Terry Flanagan, DC, DABCO, MPH, MBA first appeared in Chiropractic Economics • Issue 8 • May 23, 2008
The assault on your practice profits come from all sides. Reduced reimbursements from group insurance and Medicare are cutting into your cash flow. At the same time, your expenses are increasing. The recession – whether official or not – is also having an effect on your practice. Patients are losing their jobs and with it their insurance coverage. Finding new jobs is difficult and finding a new job with adequate insurance coverage is even more difficult. The lack of insurance causes health care to be considered as an elective expense on the part of the patient. What is a physician to do? In spite of all this apparent bad news, some practices are surviving quite well and achieving new records for production and collections. And they continue to make this progress because they have built profitability into their practice.
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Step 1. Understand how much it costs to practice.
To build profitability in your practice, the first step is to understand the nature of costs and how they effect what happens to your practice. In general, what you need to know is how much it costs to practice.
Costs come in two varieties, fixed and variable. Fixed costs are those expenses you have regardless of what goes on in the practice. The cost will be there whether you have one patient or one-hundred patients. Fixed costs come in monthly, quarterly and yearly varieties and include ongoing expenses such as rent/mortgage, electric, heat, telephone, salaries, taxes, advertising, office expense, all insurance, dues/fees, etc. As you can see, most of your operating costs are fixed.
Variable expenses include items you only need at certain times. These will include items such as nutrients, cervical pillows, orthotics, etc. Costs for things like X-ray film can be considered fixed if you take X-rays on a majority of patients or variable if you only take a few films.
To determine your cost structure, you need to determine your operating costs. You can take your expenses off your year end tax report or you figure it on a monthly basis as long as you apportion the quarterly and yearly costs along with the monthly figure. In either case, you need to deduct any expenses you have in your practice that do not go to the actual operation of the practice.
When you have your operating costs, you can:
• Divide it by the number of new patients to get your cost to operate per patient
• Divide it by patient visits to get your cost per patient visit
• Add back variable costs to the fixed costs on a per patient basis.
You now have an idea of what it costs you to have a practice. You can now also evaluate your practice to determine how to increase your profitability.
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Step 2. Marketing and Practice Management.
Review your costs and your results. You now know how many new patients it takes to break even. Your marketing program can be as subtle or as bold as you like, as long as it produces adequate results. Your practice management group is usually a large cost. It should provide you with advanced management support along with new patient acquisition strategies.
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Step 3. Audit your charts.
If your new patient flow shows you should be doing better than you are, audit your charts for services performed but not billed, missed appointments and poor recall follow through. Poor compliance in these areas can cost many patient visits per year and slowly increase your cost per patient.
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Step 4. Review your own activity
We all do things to sabotage our own success. If your cost per patient keeps going up, is it a result of your spending habits which load debt on the practice? Do you lose patient visits by being chronically late to the office or have long waiting time for patients? Do you have poor follow through with phone calls to check to see how new patients are doing after their first visit?
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Step 5. Increase your efficiency
Are you spending too much time with patients? A physician’s primary inventory is time. Focused health care is time well spent. Long office visits consisting mostly of determining the local team’s pennant chances is not. Two additional office visits per day can add an extra months worth of income over the course of a year.
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Step 6. Buy equipment that will help save you money
Too often, equipment purchases are made for the wrong reason. I can’t tell you the amount of times I have heard the equipment sales person try to convince the doctor to buy because “only two new patients and you’ll break even”. Now that you know your cost per patient, you know why you won’t. Buy equipment that will increase your efficiency (billing, documentation) instead of equipment that takes you in a different direction from your core business. Understanding and controlling costs is an important activity for every business but it is especially critical for small businesses with narrow margins. Reducing costs increases your margins and makes your practice more successful.
