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A Fresh Eye on Medical Practice Profitability

November 23, 2016

Medical Practice ProfitabilityThere’s a trend lately in the medical practice community to fight the commodification of health care. For a health care provider, that’s completely understandable, but it’s also important to remember, that as a practice manager or administrator, it’s a natural progression. After all a health care practice is, above all, a business, in which profitability is defined as revenue exceeding expenses—as it is for all other businesses. In that way, a medical practice is bound by the same rules of commerce and sound business principles as any other successful business if it wants to grow and thrive in a competitive market. 

The economic reality is simply this: To continue to provide quality care for your patients, your business has to make profit. 

The Path to Profitability

If profit is defined as what is left of your revenue after expenses are subtracted out, there are really only two ways to improve your financial position—increase your revenue or decrease your expenses. Unfortunately, changes in health care reimbursement models and the overall patient population of insured versus uninsured means that revenue is increasingly at the mercy of third-party payers, who are not operating with your best interests in mind.

You can renegotiate payer contracts and market your practice to change your patient mix in favor of fee-for-service contracts to tweak revenue a bit here and there. You can even ramp up your patient collections with a robust payment policy, but overall, revenue is a more or less static number for most small and medium-sized practices.

Even if you change your fee schedules and raise prices, your reimbursement (and ultimately your revenue) really doesn’t change all much. Which means, of course, that any improvements to overall profitability must come from the expense side of the ledger. 

Cutting Costs in a Medical Practice

The first place many practices look for cost-cutting is staffing—number of employees, compensation and benefits. On the surface, this seems like a good idea, but it can lead to unintended consequences and negative returns. For example, one practice cut its coding and billing staff by 25%, from eight to six employees, and increased the workload of the remaining staff to cover the deficits. 

The first month, absolute costs did go down—but the next month, the real cost of the switch became more clear, as the error rate increased 15%, which lowered third-party reimbursement and required extensive time on reworking and resubmitting claims and patient bills. Ultimately, the errors increased billing costs more than 20% above what the practice had been spending on its original eight coders and billers. 

Looking for Inefficiencies—and Stopping Them

The key for medical practice managers is to employ some successful management techniques, such as Lean or Lean Six Sigma, where the focus is to root out inefficiencies in workflow and processes to improve profitability.

Related Articles: How to Reduce Cost of Office Supplies Up to 40%

For a medical practice, that might be finding duplicate steps in patient registration or coding and billing that hamper productivity. It might be revamping the encounter process so that provider time is maximized on activities only a credentialed provider can do.

It may even be taking an honest look at in-house processes to look for outsourcing opportunities— everything from coding and billing to credentialing, and even purchasing and procurement. 

The point is, medical practice administrators have to “think outside the box” to cut expenses and rework inefficient policies and procedures. What worked ten or even five years ago may not be enough in the current health care economy. After all, the definition of insanity is doing the same thing over and over again and expecting different results. 

If you are looking for ways to increase profitability in a static revenue environment, M-Scribe has solutions to help you lower costs for coding, billing, and even purchasing and procurement. Contact us today to see what we can do for your practice.


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