Reducing Overhead is Key to Primary Care Survival

CHARLOTTE, NC —In most insurance-based practices, the billing and reimbursement have become so complex that it’s difficult for many physicians to even figure out how they are doing financially.

Doctors these days have a sense that things are not going well, and that they’re working more yet making less. But the book-keeping can be daunting and many physicians, sensing the worst, take the attitude that it is better not to know. 

Ignorance is really not bliss in this situation, and it is impossible to be proactive if you’re unwilling to reckon with the truth of your current situation, said Dr. Brian Forrest, a family physician based in Apex, NC. Speaking at Holistic Primary Care’s 2nd annual Heal Thy Practice: Transforming Primary Care conference, Dr. Forrest offered a simple formula for getting a handle on your practice’s fiscal health.

It takes just a minute to run this quickie calculation:

forresthtp2010Look at the number of patients you saw last year, and then look at your take-home income. Divide the latter by the former, and you’ll see exactly what you personally earn from each patient visit.

“Odds are, you’ll be sadly surprised,” said Dr. Forrest, who chaired this year’s Heal Thy Practice conference. “In many insurance practices, the average is $16-18 per visit. That’s really, really low.”

In a traditional insurance-based practice, if you bill $100 and your collections are roughly 65% (the national average), then after deducting overhead, you’re only making at best about $25. “That’s about the same as people get for cutting hair. And people wonder why the quality of health care is going down! If we’re paying doctors the same as we’re paying barbers, then that’s what we should expect.”

From the outset of his career, Dr. Forrest chose not to take insurance or participate in federal programs. His “Access Health” model is based on a simple principle he calls the Rule of Two: charge half as much; collect twice as much; cut overhead in half; see half the typical schedule; spend twice as long with patients; create twice the satisfaction for patients and yourself.

He charges patients a flat $49 office visit fee, with additional fees for tests, though these seldom exceed $30. He also offers prepayment plans of $29 per month, plus $15 visit fees, with a bonus of free annual physicals. The low fees are within reach of low-income families, yet they give Dr. Forrest a personal income 3-4 times higher than what he would earn in insurance-based practice.

The key to making this work is to reduce overhead to the barest minimum. Dr. Forrest’s total overhead never exceeds 25% of revenue.

He strongly encourages primary care doctors to get out of the insurance game. But even if you choose to stay in insurance-based practice, reducing overhead will put a bigger chunk of revenue in the positive numbers column. Here are some of Dr. Forrest’s cost-cutting tips:

Direct Billing for Lab Work: If you pay the diagnostic labs directly and ask patients to pay out of pocket for their basic lab work, you can save everybody a lot of money.

Dr. Forrest explained that for a lipid panel billed to insurance, most labs charge around $174, a grossly inflated fee. The labs know that payors will only reimburse  $86-100. By dealing directly with the labs, Dr. Forrest gets the very same test for $2.50!

“What motivates a lab to give that kind of rate? They have the same insurance issues as we doctors do. They have to deal with collections, ICD-9 code mismatches, rejected and denied claims. But if they send me a bill directly every month, and I pay it instantly, they save all the overhead normally involved in collections. They get their money immediately and they don’t have to wait on it. So they are willing to give me substantial discounts. I pass savings along to my patients and use it as a revenue stream for myself.” 

Do Your Own Blood Draws:Most doctors aren’t comfortable doing this, and I wasn’t either when I first started,” Dr. Forrest said.  Some argue that it’s not efficient for a doctor to draw blood, that someone else ought to be doing that. In truth, you can end up saving a lot by doing it yourself. 

“Those ‘free phlebotomists’ from the labs really aren’t free. The labs make up those costs by marking up the test prices. You’ll never get a lipid panel for $2.50 from a lab that’s putting a ‘free’ phlebotomist’ in your office.” If you pay a phlebotomist, you’re talking about a $40,000 to $50,000 full time employee who’s really not doing that much.

Dr. Forrest estimates that he spends a total of about 10 minutes per day drawing blood. “That’s worth doing myself! I figure we’re making somewhere between $450-550 per hour for drawing blood.” Plus, patients generally prefer to have their own doctors take their blood, “rather than being passed around from person to person like a dinner plate.” Doing the draws yourself creates opportunity to build the relationships with your patients. 

Minimize Inventory: Only stock the medical supplies you really need for day-to-day patient care. “If you go into your supply closet you’ll probably find that you have like 20 air casts, five sets of crutches, all these orthopedic supplies, and more Solu-Medrol than you could use in a year.” Excess supplies take up valuable space and overstocked medications expire. Anything you paid for that you then have to throw out has just added to your overhead.

“Keep it really lean,” said Dr. Forrest, who has a simple system for keeping on top of inventory. “When I use something, I tear off the box top and give it to my medical assistant, who puts it in a stack. At the end of the day she calls the medical supply company, and the next morning I have brand new ones. I don’t have more supplies than I need. I keep one of everything, not more.”

Take Out Your Own Trash:  Many practices pay as much as $15,000 per year for janitorial and custodial services. Unless you’ve got a very large practice with a huge facility, that’s an unnecessary expense, Dr. Forrest said.

“I have colleagues who make fun of me because I carry out my own trash. But I consider it a badge of honor. I take out the trash, my NP does the vacuuming, and our medical assistant does the bathrooms. We switch it up sometimes so nobody gets bored.” Economically it makes a lot of sense to keep the custodial work in-house with one or more of your staff members.

If you think they won’t go for adding janitorial chores to their daily duties, lay out the economics. “If you ask somebody, would you rather me pay somebody else to do this stuff or give you another $5,000 on your salary, what do you think they’ll say? Vacuuming really only takes about 10 minutes per day. That starts lookin’ pretty good for an additional $5,000 per year.”

Avoid Staff Turnover:Hire the right people the first time, and then treat them like the valuable assets that they are.” Having to find and train new staff is very costly in both time and money. It is also distressing to patients, who value consistency and ongoing personal connections with staff. “Your staff really needs to be involved in your vision for your practice. Turnover can really set back your practice.”

At the same time, since staff salaries are a major part of overhead, it is important to keep staff to the minimum necessary to run your practice well. Nationally, primary care practices average 4-5 full-time staff per physician. By shifting out of insurance-based care, you can eliminate 3 of those positions: the biller, the coder, and the referral coordinator. “These are insurance driven jobs. You’re paying their payroll but the plans should be. They are the ones that have made this a necessity in your office. I say, let’s kick ‘em out!” said Dr. Forrest.

Even if that switch is not feasible in your practice, it is important to consider staff carefully, making sure that each position is truly needed, that the person filling it  is right for the job, and that you are keeping staffers happy and productive.

Use Utilities Wisely: Make sure you turn off all the lights at the end of the day. Set thermostats on timers. Weather-proof the office if you work in an area where winters are cold and heating is a major line-item. You’d be surprised how much you can save through more efficient energy use. Plus, it’s eco-friendly.

Search for Bargains:  Need new office furniture? Consider hospital surplus outlets. Dr. Forrest said he’s gotten chairs, carts, and other items of office furniture for as little as $1 per item from hospitals eager to off-load things. “If they’re remodeling and they want to get rid of stuff, they will just about give it away. My whole office furniture cost me maybe $50!”

Do Away with Unnecessaries: “There are a lot of things we doctors pay for simply because everybody else pays for them.” In many cases, these are unnecessary expenses.

Paid background music service is a good example. “There’s a big practice in Tennessee that told me they pay $14,000 a year to have Muzak piped into their speakers! I have a $30 wireless intercom from Home Depot. I put an easy listening station on the radio, and lock the lock button on the intercom. Guess what? Muzak for free! You can use satellite radio which costs a little, but it has no commercials and it is still going to be a lot less expensive.”

Costly answering services are another example. Ask yourself if your service is really doing anything you couldn’t achieve with a good four-line phone system.

The point is to look closely at everything you pay for and assess the extent to which it is really necessary for either improving patient care or improving your practice efficiency. If something is not meeting either of those core criteria you probably don’t need to be paying for it. 

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