American College of Physicians: Internal Medicine — Doctors for Adults ®

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Physicians try to rein in runaway overhead

Innovations include scheduling software and fielding patients' phone calls at home

From the March ACP Observer, copyright 2004 by the American College of Physicians.

As a solo practitioner, Steven D. Atwood, FACP, is determined to keep his overhead costs down. Two years ago, he decided to dump his answering service. Instead, he began leaving his personal cell phone number on his office answering machine when his office is closed.

Dr. Atwood, who practices in Springfield, Mo., admitted the approach could have potential drawbacks. "If you're in the hospital all the time, you might not be able to take your calls," he said. "And if you have patients who misuse the paging system, they could really make your life unpleasant." To date, however, his patients have shown restraint in calling him at home—and his practice continues to save about $140 a month.

In an era of stagnant reimbursements and rising expenses, Dr. Atwood is far from alone in trying to control the spiraling costs of overhead. With practice overhead eating into physicians' revenue, practices are looking for ways to attack overhead, without cutting into the core services they offer patients.

Figures from the Medical Group Management Association show that while the revenues of group practices have climbed steadily since the late 1980s, operating costs have more than kept pace. Through much of the 1990s, in fact, booming overhead meant that many practices saw no net gains in their income.

Because personnel costs account on average for about one-quarter of the operating costs of internal medicine practices, internists are looking for ways to cut their number of staff—or use their staff time more wisely.

To find out what practices are doing to reduce costs, we talked to several internal medicine practices. Here is a look at innovations they've adopted to trim their overhead costs or get more mileage out of them.

Eliminating positions and bad payers

To cope with the volume of phone calls coming from patients who want to schedule an appointment, some practices are finding ways to automate their scheduling systems. The goal is to reduce—or redirect—the time spent by staff members answering the phone.

Jeffrey P. Friedman, FACP, an internist and partner at Murray Hill Medical Group in New York City, led the creation of a Web-based appointment scheduling system for his 34-physician, 100-employee practice.

The system, which went live in 2001 and is now being marketed under the name Scheduware™, leaves blocks of time for appointments based on the purpose of the visit. (The system will assign patients a 15-minute appointment for any type of follow-up visit, for example.) It then sends patients three reminder e-mails to make sure they don't forget about their appointment. "It's a fully automated system," Dr. Friedman said, "so there's never any human intervention."

Patients can view their physicians' calendar and pick a time that's good for them. Only existing patients can use the system, Dr. Friedman explained, which means the practice has already verified the patient's insurance information. "Patients can go online and make appointments in our schedule book much like you would do for an airline ticket or a Broadway show," he said.

Currently, about 35% of the group's appointments are scheduled online. As a result, the practice has been able to reassign or let go 20% of the staff it used to have working the phones—about five staff members. Dr. Friedman estimated that the system saves the group about $170,000 a year.

Another perk? The cost-cutting measure also improves revenue: The no-show rate for patients who schedule their own appointments online is less than 1%, compared to 10% for appointments scheduled over the phone.

McDuffie Medical Associates in Thomson, Ga., has also used technology to pare staff positions. Last year, the four-physician group began using an automated appointment scheduler, part of a new practice management system. According to Jacqueline W. Fincher, FACP, a general internist with the group, the new system has allowed the group to cut one-and-a-half staff positions, for a savings of close to $28,000.

The practice was able to cut another position by taking an unorthodox route: Dr. Fincher and her colleagues opted out of a contract with an HMO that covered about 18% of their patients, but was their worst-paying contract.

That move freed up room in the group's appointment system for patients covered by better-paying plans, she said. The group's nurses can now spend more time with patients—and the practice was able to let one staff person go who used to spend time dealing with the HMO's onerous precertifications.

Boosting productivity

Eliminating staff positions, however, is only a one-time fix, pointed out Bruce A. Johnson, JD, a consultant with Medical Group Management Association and a health care attorney with the Denver office of Faegre & Benson LLP. The flip side of cutting overhead is to maximize the revenue you can earn with those fixed and variable costs.

" 'Do you have your staff doing the right work?' is as important a question as 'do you have the right staff?' " Mr. Johnson said.

Getting the right work done is the goal of Medical Associates of Northern New Mexico, a group in Los Alamos that has seven physicians and two physician assistants. According to Carolyn A. Linnebur, FACP, president of the group, the practice was getting hundreds of phone calls a day, and roughly half were from patients and pharmacies asking for prescription refills. The volume was overwhelming the practice's staff and driving up its costs.

The practice earlier this year decided it will no longer issue refills over the phone. As of Jan. 1, all refills for the next six months or a year must be ordered at the time of a patient's visit—or patients must come in and order refills from a physician or triage nurse. Some patients don't like the new policy, but the practice felt it had no choice.

"Physicians are getting inundated with faxes and phone calls from pharmacies and patients to refill prescriptions," Dr. Linnebur said. "We simply don't have the resources any more."

Instead of spending much of their day chasing down charts for refills, two of the group's nurses are now doing pre-physical exams. One week before a scheduled physical, patients come to the office and work with a nurse to get all their blood work, vaccinations and booster shots, as well as X-rays and screening referrals.

"When they come in to see the doctor, everything is ready," Dr. Linnebur said. "The idea is not to make money, but to become more efficient."

An incremental approach

Other internists are trying different approaches to reduce the cost of patient phone calls.

In addition to saving money by going without an answering service, Dr. Atwood has found that digital dictation is another way to reduce costs. He transitioned from an offsite transcriptionist to digital dictation 15 months ago, spending only $150 in setup costs. The move now saves him about $600 a month on transcription, while also eliminating the hassle of getting microcassette tapes to a transcriptionist.

He also took a practical approach to another common problem: the huge stack of faxes that used to greet him at the office every morning. His solution: Banish them to a computer designated to receive incoming faxes.

Dr. Atwood and his staff still have easy access to the faxes, but they end up printing only the documents that they need. "I get about 60 faxes a night and about two-thirds of them are junk," he explained.

He bought off-the-shelf software to handle incoming faxes and uses the same program to send faxes directly from his office computer. "It saves some cost," he said, "and a lot of time."

Mixed results

Efforts to cut overhead can be a trial-and-error process. They can also sometimes backfire.

Dr. Atwood, for example, said that at one point his practice decided to cut back on computer equipment and not give every staff member a computer. While the practice saved some money on hardware, Dr. Atwood found that staff productivity just wasn't the same when people were forced to wait for access to a shared machine. "Efficiency and speed greatly improved when everyone could access all the scheduling and patient contact data," he said.

Similarly, the practice at one point decided against employing a back-up medical assistant. While it was easy enough to find temporary help for vacations and other scheduled absences, chaos would ensue when an assistant unexpectedly didn't show up for work. The practice would typically have to ask a bookkeeper or file room clerk to help out with patients, a situation Dr. Atwood said was less than ideal.

Today, the practice employs four staff members, including two certified medical assistants. Dr. Atwood said that both can manage patients and handle paperwork and lab activities. The small staff goes even further by having incoming calls transferred to a portable phone, which one of the assistants keeps with her as she moves around the office.

And R. Michael Amedeo, MD, a general internist with the two-physician Advanzed Health Care in Arlington, Va., has found that some of their biggest savings in overhead come from giving staff incentives.

For more than 10 years, Dr. Amedeo has given staff bonuses on a quarterly basis. The office determines collections minus expenses and compares it to performance the prior year. The staff then shares 15% of any increase—either due to increased revenue or decreased expenses—to the bottom line.

While some doctors hesitate to share financial information with their employees, Dr. Amedeo believes his staff appreciate the feedback. "I think it's money well spent," he said, adding that his employees received about $1,000 each in bonuses last year. "I've seen my nurses working with suppliers, haggling to get the cost down on vaccines or changing suppliers to get a better price."

Every little bit counts

And finally, physicians who have tried to trim costs say that it's often the little things that can make a difference in taming overhead. Here are some tips:

  • Review financial statements and bills line by line and evaluate costs associated with each category regularly. One practice manager said that this kind of review showed the practice was paying about $5,000 a year for phone lines it was no longer using.

  • When renewing existing contracts, scrutinize the terms. Consider raising deductibles on insurance policies, getting competitive bids for supplies, leasing instead of buying equipment and extending your office lease to lower your rent.

  • To reduce your benefits costs, consider new options. By opening flex plans, which are allowed under section 125 of the tax code, you can deduct payments for benefits before that income is taxed, reducing not only the employee's taxable income, but the practice's as well.

  • Consider staggering your staff's work shifts. Monitor both your practice's peak and slow times. Then stagger staff shifts—for nurses and receptionists, for instance—to get the coverage you need without having to pay costly overtime.

  • Keep track of the volume of supplies you use every year and try to get discounts from vendors based on volume. If your volume is too low to attract competitive bidding, consider joining a purchasing agreement with other groups to get more leverage.

  • Pay your good employees what they're worth. Constant turnover and high training costs—particularly if a new replacement doesn't work out—really add to overhead costs.

  • Make sure you're not "dumbing down" the workload of your best staff. Hire a part-timer to process routine claims, for instance, while using your most experienced billing person to try to resolve longstanding payment delays or denials.

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Maximizing staff and office potential

While practices are looking for new ways to drive down costs and boost their revenues, one rural internist is taking a decidedly minimalist approach to private practice.

David E. Sandvik, FACP, a geriatrician in Rapid City, S.D., and Governor for ACP's South Dakota Chapter, works in what could be called a virtual practice. "I'm only in the office four full days a month," he said.

Dr. Sandvik works from an office he shares with another geriatrician and an internist—and pays minimal overhead. (He shares the cost of two part-time nurses with the other geriatrician, while all three physicians split the salary of their office manager.) Dr. Sandvik said he spends most of his time seeing patients in the local hospital and two area nursing homes, and attending to his medical directorship roles there.

While he describes his practice setup as "minimalist"—he has no laboratory or X-ray machine, and he performs few procedures—the office is still the most expensive place for him to work.

In a recent analysis, he discovered that his reimbursement per encounter is $68 in the office, $113 in the nursing home and $121 in the hospital. (He estimates that at least 90% of his patients are Medicare beneficiaries.)

"The trend in practice is the place we spend the most to see patients is actually where we get the lowest reimbursement," Dr. Sandvik said.

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