Managing Overhead Costs: Eight Ways to Reduce Staff Expenses

Published: Oct 27, 2017
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Eight Ways to Reduce Staff Expenses

Do you know how much your office spends on overhead? Physician practice overhead exceeds 60 percent of billings, on average, and that ratio is growing as the ACA reduces payments to providers.

The bulk of overhead comes in four areas: staff, supplies, purchased services and office facilities. Careful management of these costs can have a big impact on your profitability, so a review of overhead expenses should be a regular practice.

Even if you think there’s no more waste left in your office, you may be surprised by the savings a review can turn up.

Your Biggest Expense: Staff

Office staff is by far the biggest overhead cost in most practices. To get a handle on yours, approach it two ways. First, look at the big picture – how many employees do you need? Then take a more granular, line-item look at staff expenses to see what you can reduce.

To calculate your practice’s optimal workforce, you could start with your present headcount and work down. But it can be more enlightening to start at zero and then, alongside a comprehensive list of necessary tasks, build up from there.

Either way, approach the matter objectively. Analyze roles and tasks, not individuals, and don’t jump ahead to worries about layoffs. Outside of an emergency, there are usually other ways to trim payroll.

Here are eight ways to reduce your staff costs:

1. Let providers provide

You must know each doctor’s “break-even” load – how many patients he or she must bill in order to cover the practice’s overhead. Then let that number drive overhead decisions on staff size and deployment.

For example, does an MD really need to enter medication notes for each patient, or could an hourly-wage assistant do it — possibly making room for another patient or two in the doctor’s day?

2. Take advantage of attrition

Whenever someone leaves your employ, take a close look at the position and ask if a full-time replacement is necessary. You might be able to fill the role with a part-time hire, or leave it unfilled entirely if other staff can absorb the duties.

3. Cross-train employees

A receptionist can’t replace a skilled nurse, but employees often want to expand their healthcare skillsets or just try out a different job in a familiar environment. Could the practice leverage some training courses for your staff to develop new skills? By doing so you might avoid temporary hiring to cover vacations or illness.

4. Use salaries and bonuses strategically

If the duties of a critical position consistently require overtime, consider making it a salaried job with corresponding benefits. But be aware that straight-percentage salary increases mount up quickly, so compensate in other ways as well. Cash bonuses, for instance, are always welcome and can slow the salary spiral.

5. Control overtime costs

Regular overtime, when taken for granted, discourages some people from completing their work in a standard workday. Overtime work may be necessary, but get a handle on it by requiring that it be authorized and justified. Over a month or so, review the justifications to assess the real need for it.

6. Crowd-source your cost cutting

You’ll never glimpse the amount of waste your staff sees, so enlist them in an office-wide initiative. Set goals and reward individuals or departments whose ideas or actions save the practice money. Use contests, prizes and bonuses to make a campaign out of it.

7. Hire smart and retain good employees

Turnover is a major staff expense, and you can’t fully avoid it. But vet new applicants carefully to help ensure a good fit in your practice, and offer useful training and competitive compensation to remain attractive to your employees.

8. Manage health insurance

When was the last time you bid out your insurance? It’s easy and it may turn up quick savings. In addition, could you provide your employees certain medical care for free, or at a reduced rate, in lieu of some insurance coverage? (Discuss this with an attorney before offering it.)

Depending on the urgency of lowering costs, you may also need to consider adjusting deductibles, premiums, copays or coverage to obtain a less expensive policy.

Don’t Go Overboard

Managing overhead can be tricky, and cutting too much is risky. For example, the Management Group Management Association notes that the highest-income practices frequently pay a greater portion in overhead so they can devote more physician time to revenue activities. Finding the sweet spot takes effort and analysis.

Healthcare Practice Strategies - Fall 2017