Erik L. Goldman offers ways practitioners can cut overhead costs and make wise economic decisions for their practice.

by Erik L. Goldman

The recession has definitely taken its toll on many integrative practitioners. Yet others are surviving well despite the downturns. Aside from the obvious factors like providing great service and cultivating word-of-mouth referrals, one of the key distinctions between those who are thriving and those who are thrashing is in how they handle their practice overhead costs.

Many holistically-minded folk, quite understandably, do not like book-keeping and often prefer not to think about things like overhead and administrative costs.

But ignorance is really not bliss in this domain, especially these days. If you’re unwilling to reckon with your practice’s fiscal vital signs, you’ll be unable to help your practice heal.

Dr. Brian Forrest, a family physician based in Apex, NC, offers a simple formula for getting a handle on your practice’s fiscal health. Look 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, speaking at Holistic Primary Care’s 2nd annual Heal Thy Practice: Transforming Primary Care conference. “In many practices, the average is $16-18 per visit. That’s really, really low.”

Some practitioners are only making about $25 on every $100 they bill. That’s because they lose a huge chunk to overhead—the national overhead average for primary care practitioners is about 65%.

Dr. Forrest chose not to take insurance or participate in federal programs, and he bases his practice 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.

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

Why will the labs sell tests so cheaply? “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 the overhead normally involved in collections. They get their money immediately and they don’t have to wait on it. I pass the savings along to my patients and use it as a revenue stream for myself,” Dr. Forrest explained.

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 do it. 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.

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. Excess supplies take up valuable space and overstocked medications or supplements 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. “I don’t have more supplies than I need. I keep one of everything, not more.”

Take Out Your Own Trash

Some 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 unnecessary, 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.” Economically it makes a lot of sense to keep the custodial work in-house with yourself and one or more of your practice partners.

If you think partners or staff won’t go for it, just ask them, “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 sounding pretty good for an additional $5,000 per year.

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.

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. “My whole office furniture cost me maybe $50!”

Do Away with Unnecessaries

There are a lot of things you may be paying for simply because everybody else pays for them. 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!”  Satellite radio is another option. It has a small cost, but the music has no commercials and it is still going to be a lot less than canned music services.

Answering services are another example. Is a service is really doing anything you couldn’t achieve with a good four-line phone system? Probably not.

Scrutinize everything you pay for and assess whether it really helps you to A) improve patient care or B) improve your practice efficiency. If something is not meeting either of those core criteria you probably don’t need it.