Managing medical practice overhead expense
Shrinking reimbursements are a progressive reality of the healthcare practice environment. Under these conditions private practices need to make smart decisions about how to manage their overhead expenses. Reduced growth in income means that previously manageable expenses may envelop a larger percentage of potential earnings.
In addition, normal business expenses are expected to rise naturally through inflation and other factors affecting price indexes. There a number of ways to reduce overhead expense but a few which come to mind are A) lease re-negotiation B) vendor contract re-negotiation and C) practice expense sharing arrangements or medical practice mergers.
Many private practices lease the office spaces in which they are located. These leases may have been negotiated in more favorable economic environments. Reduced demand and lower occupancy has persuaded many landlords to be flexible to new and existing tenants. If possible, practice owners should approach their landlords for reductions or other concessions, even if their practices are faring well. The uncertainties of healthcare payor reimbursements going forward may make this a wise future option while still potentially available in today's environment.
Another step which practice owners may consider is the renegotiation of contracts with vendors and service providers. This can be helpful in reducing a wide range of practice expenses. The outsourced medical billing company may be one place to start, especially if their percentage fee of collections has not been adjusted to account for changing norms in the medical billing industry.
An additional option which may be helpful to some medical practices is entering into an arrangement with another medical practice. This can range from a basic cost sharing agreement between practices to a full-fledged business merger. The medical practice merger is a way to leverage economies of scale, negotiate more favorable payor contracts, gain unique competitive edge in a particular market, or extend reach into new markets. A less-binding alternative is cost sharing with another medical practice. This could be as simple as a single shared expense or common piece of equipment, or as involved as a full split of all practice expenses including staff and lease. Major factors to consider when entering into such arrangements are the financial health and staying power of the practices involved as well as the business strategy, trust level, and risk threshold of the respective practice owners. Naturally, a competent medical practice mergers and acquisitions team should be involved in such dealings.
- Written by Transition Consultants