8 Ideas for Optimizing Profit in Private Medical Practices

Posted by Clark Love on Jul 10, 2018 8:22:01 PM

Medical Practice ProfitabilityMy company provides advanced diagnostic testing services (primarily urodynamics testing, anorectal manometry testing, and other incontinence related services) to practices all over the country.

Through our work, we are exposed to practices at all profit levels from those that are hugely profitable to those that can barely pay the bills.  Based on our work, we have compiled a few ideas below that should help any practice be more profitable.  We hope that one or two will hit the mark for you.



1) Approach to variable costs and fixed costs - In our humble opinion, most practices have too high of a ratio of fixed costs.  (Note: we consider full-time employees fixed costs because they cannot be adjusted quickly.) With high fixed costs, a practice can easily have poor financial performance during periods when things are slow or when certain practitioners leave the practice. As an example, one of our urology practice customers recently had one of the two primary practitioners become very ill for an extended period,  causing a profitable practice to become unprofitable for many months.  Practices can avoid scenarios like this by moving more costs from fixed to variable cost.  One might ask how exactly is this accomplished.   The easiest way to have a significant impact is to use staffing companies for a portion of your staff.  With staffing companies, you can quickly release temps at a moment’s notice with no overhand of severance, benefits, insurance, etc….  For example, if you have eight LPNs in your practice, it would be advisable to have two or three of them sourced through a staffing company.  Furthermore, you can use outside vendors to provide specific services as opposed to doing them internally.  As an example, many of our customers use us to provide urodynamics testing services. We offer the equipment, the staff, the supplies, and the software, enabling our customers to make all the costs for a Urodynamics Lab entirely variable as opposed to fixed.  In summary, by moving the ratio from 90% fixed costs to 60 to70% fixed costs, practices can deliver more consistent profit and be much more flexible with ever-changing operational scenarios.

2) Offering ancillary services - Ancillary services are a great way to layer in multiple additional revenue streams.  Furthermore, ancillary services are quite profitable, and many of them require limited upfront investment and overhead.   (Note, we would advise avoiding those ancillary services that need significant upfront investment unless you are certain of the revenue they are going to generate.)   Ancillary services that are provided by an outside vendor in a turnkey format are often ideal. They avoid having to buy equipment, train staff, or undertake other actions that lead to high upfront investments.  Examples of great ancillary services include Urodynamic Testing such as the ones we provide, allergy testing, nuclear medicine, and certain types of rehab services.

3) Tracking the exact performance of marketing dollars – The precise tracking of marketing dollars has moved from an art to a science in today's data-driven world. An excellent general rule of thumb is “do not spend a single marking dollar on anything where you cannot track exact performance and ROI."   In marketing parlance, there is a term called CPM, which is the cost per thousand impressions.  I have a marketing degree from one of the top marketing MBA programs in the country, and I think this is the dumbest metric ever. No one cares about impressions.  Getting a million impressions from a group of people that don’t care about your service or product is a total waste of money and time. Practices and businesses should care about customers and patients.  No one cares about seeing an ad if nothing happens.  Newspapers, magazines, trade publications, and traditional marketing agencies will talk extensively about impressions and how many impressions you can get for a dollar spent.  I would avoid any spending measured in CPM.  Only pursue marketing where you can track exactly how many new patients are realized.  You should strive to track marking dollars to exactly the new patients that arrive at your doorstep and avoid all other marketing spending.   Examples of marketing where you can track the exact patients delivered are Google AdWords, Facebook marketing where you track conversions, and other types of direct response marketing.   For each marketing type, you should be able to derive an exact dollar spent to deliver a new patient. For example, if you have a Google AdWords marketing campaign targeting your geographic area, you should know that it is going to cost $X to deliver a new patient on average.  A typical per patient Google AdWords costs is often between $50 and $200 per new patient if you have a good AdWords campaign with the right search terms and correct geographic focus. The Google AdWords Campaign Manager will tell you this specifically.   (Note, the above marketing advice may not apply to large organizations that are doing “image marketing." The above marketing advice is intended for small to mid-size private practices.)

4) Leveraging mid-level service providers - Every practice should be leveraging mid-level providers (i.e., Physicians Assistants, Nurse Practitioners, and specialized RNs).  By doing this, practices will improve their profit margins.  These mid-level providers can provide services that bill at the full reimbursable rate, but the mid-level providers are not paid the same salary levels as physicians,  which expands gross margins.    For the most successful practices, we see there is typically a ratio of 2 to 3 mid-level providers for each physician.  Practices that are not leveraging mid-level providers at this level are probably missing a tremendous profit opportunity.

5) Building and tracking referral systems - Referrals are typically the most cost-effective mode of marketing because very few dollars must be spent cultivating good referrals.  However, very few practices actively track their referrals. Referrals simply “come in."  However, by not monitoring referral sources the practice loses its ability to manage its referral system actively and will not know where to put its referral cultivating emphasis.   Good referral systems must be developed, or referrals can be directed elsewhere. Referral systems may not cost much in actual dollars spent, but time must be spent on them to ensure they are working optimally. For example, a specialist practice such as a urogynecology practice may be receiving referrals from 10 different internal medicine practices.  However, two of those practices may account for 80% of the quality referrals, but if referrals are not tracked the specialist will not know where to spend his time and effort nurturing and protecting those referrals.  Similarly, patients also act as great referral sources, but tracking patient referrals is often quite complicated. However, it can be done. Referrals can simply be captured via a few questions on a standard intake form.   The critical factor for cultivating patient referrals from other patients is to ask for the referral. Your practice must get into a habit of asking for referrals, which can be accomplished with a paper form, email, or in a face-to-face office visit.  The combination of tracking referrals and consistently asking for referrals can materially enhance revenue.

6) Practice manager support systems - In many practices the practice/office manager is asked to do all types of different tasks, and they are often asked to do this without a proper support system.  Office managers need a lineup of professionals that they can tap into to help them effectively run a practice.  These professionals include business consultants, IT consultants, HR consultants, marketing consultants, and multiple virtual assistants.   Office managers should be thought of as quarterbacks as opposed to a one-stop shop for all types of tasks. For example, an office manager should never have to schedule a lunch or perform personal tasks for physicians. In today’s online and outsourced world this can quickly be done by a virtual assistant or a service such as fin.com or taskrabbit.com. By using such services, the office manager is freed to focus on higher priority tasks such as pursuing additional service lines or hiring for open positions.

7) Practice manager compensation package  -  Practice/office managers are often paid a fixed salary or a fixed salary with a minimum bonus.  Given what an office manager is responsible for, this is a poor choice for compensation in our opinion.  Office managers should be paid more in the lines of a 60% base pay and 40% performance pay to properly incentivize them to pursue more revenue and decrease costs.  We see many office managers that are paid a base salary only, and they seem always to be "Dr. No" - they merely want to keep everything as is rather than pursue new opportunities that could lead to higher profits.  On the other hand, an office manager with 40% incentive pay will jump through endless hoops to figure out a new service line that can add materially to the bottom line. 

8) Reducing overhead and non-clinical staff – A practice wanting to achieve optimal profit should look very carefully at the headcount for all personnel that is non-clinical.   In today's world of online services, outsourcing, and automation, having such additional overhead is usually a function of a decision made many years ago.  As a simple example, I am not sure why anyone would have dictation services in-house any longer.  As an additional example, I am not sure why staff would ever need to call a patient to remind them of an appointment in today’s world when text messages have a much higher open-rate and can be fully automated.  To get this right, having the office manager incentivized and compensated on profit, rather than base pay only, can help make this happen.

If you would like to discuss any of the items above, feel free to reach out to us at info@bhnco.com. If you have other ideas for topics we should add to the list, please let us know.   

Furthermore, if you are interested in offering additional diagnostic testing services at your practice, click the button below. We can provide you with additional revenue and profit.

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Topics: urodynamics, ObGyn Practices, urodynamics profitability, Medical Practice Operations

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