Medical practices are facing an uncertain future – at least financially. A recent report by Deloitte found that nearly half of all medical practices are either uncertain or very uncertain about their ability to stay in business over the next three years, with 40% of respondents noting that they were not confident about their financial stability. As a result, many practices are taking steps to reduce operating costs in the interest of remaining solvent. This article will discuss some actionable steps that medical practices are taking to minimize operational costs in the pursuit of fiscal stability.
Why Do Medical Practices Need To Cut Costs?
Cuts in reimbursement rates are one of the primary factors motivating medical practices to reduce costs. As reimbursements decrease, administrative costs make up an increasingly large percentage of practice revenue. A Deloitte report on the state of the industry notes that in 2018, 39% of respondents reported spending more than 20% of their day on activities related to billing and collecting payments. Analysis by the Medical Group Management Association shows that in 2016 billing and collecting accounted for 38% of total operating expenses for American physician groups.
In addition, the lasting impact of COVID-19’s lockdowns, restrictions, and mandates has severely impacted medical practices financially. Atrius Health reports that at the height of the pandemic, patient footfall rates were down 75%. That translated to revenue losses of as high as 50% for some clinics and medical practices. While things are improving steadily as life begins to approximate normality, these deficits have still necessitated immediate cost-cutting measures.
How Medical Practices Are Minimizing Operating Costs
There are several different approaches medical practices can take in an attempt to minimize their operational costs while staying afloat.
Using Technology To Reduce Labor Costs
Many medical practices opt to reduce costs by using new technologies or developing tools that help increase productivity or automate tasks currently performed by humans. For instance, one study on hospital-based emergency department physicians found that more than half are interested in incorporating wearable diagnostic devices into emergency triage protocols because they can reduce false-positive diagnoses which are costly to both patients and providers.
In addition, with advancements like electronic health records (EHRs), remote patient monitoring (RPM), and telemedicine services, doctors can spend less time focused on administrative tasks and more time concentrating on patients. According to a study published by Health Affairs, telemedicine services are estimated to have saved the Medicare program $136 million between 2010 and 2013 through reductions in face-to-face office visits. Healthcare Finance News estimates that practices that take advantage of these emerging technologies can save up to 50% on operating costs.
Shifting Billing Online
A recent survey of healthcare providers found that 56% of respondents were interested in receiving payment online, either through electronic checks (EC) or credit card payments. Implementing online billing and collections systems allow providers to save on administrative expenses associated with paper billing systems, which cost approximately $0.06 more per invoice than online alternatives.
A survey conducted by WebMedRx found that providers are among the heaviest users of appointment scheduling software, with nearly 90% of respondents reporting some utilization of an online scheduling platform. By reducing the number of times providers have to actively book appointments during their clinic hours, they can cut costs associated with administrative assistants and front desk staff.
Reducing Staff Hours
Many practices are reducing hours to cut costs. According to Fierce Healthcare, more than one-third of physicians have reduced hours or overtime for part-time employees to limit operating costs. In addition, Forbes reports that 20% of top-performing practices have cut some staff hours.
While simply reducing hours is enough for some practices, others have opted to reduce staff hours by reducing the number of staff they have on payroll.
Renegotiating With Service Providers
Many practices are also beginning to renegotiate their agreements with vendors and providers in an attempt to reduce operating costs. This strategy varies based on the needs of each practice. However, many practices have luck when renegotiating leases (where rent reductions of up to 20% aren’t unheard of) and contracts with IT and maintenance service providers who need to contend with high levels of competition.
Making Marketing More Efficient
Although marketing can be an effective strategy for attracting new patients, an inefficient marketing strategy can be a drain on resources. Therefore, to remain profitable and minimize operational costs, medical practices should focus their marketing efforts on the channels most likely to produce a return on investment. Uncovering these channels through a marketing strategy audit will require an upfront investment, but doing so allows practices to get the most out of their marketing budget.
Another area where practices are cutting back on expenses is supplies – namely by reducing waste. While single-use supplies are attractive due to their ease of use and low upfront cost, they actually cost practices more in the long run due to frequent reordering. One Canadian hospital reports that by reducing their use of single-use supplies by 30%, they were able to reduce their supplies expenditure by $570,000 annually. This influx of cash allowed them to hire more specialists and schedule 150 additional operations the following year. Smaller practices will likely see proportional returns, but reducing waste remains an extremely attractive method of reducing operating costs.
Finally, another way that medical practices are cutting back on costs is by reorganizing their operations. Practices can do this in multiple ways—such as relocating to a smaller office space with cheaper rent, having one physician provide services across multiple locations, and optimizing workflows to reduce the need for overtime. Often, small operational changes create ripple effects that lead to reductions in operating costs which exceed the cost of implementation many times over.
Reducing Operating Costs Is A Win-Win
By taking steps to reduce operating costs, medical practices are adapting their business models to remain profitable in the face of a changing industry. This isn’t just good for medical practices, though. Reducing operating costs means that funds are freed up to improve the quality and scope of patient services offered. Nobody loses out when organizations take the time to streamline their operations, and that makes exploring cost-cutting strategies a no-brainer for any medical practice.