The Importance of Variable Cost Structures in Urology Practices

Posted by Clark Love on Jul 27, 2022 4:11:36 PM
Urologist Analyzing Fixed Cost versus Variable Cost

Many urology practices struggle to find some form of balance: They need to cut costs to boost profits, but they can't neglect customer service or patient care.

Businesses that want to thrive must implement effective cost management practices. This is easier said than done, but learning the basics of variable cost structures can help. Here are some fundamentals to be aware of as a urology practice owner or manager.

Variable vs. Fixed Urology Costs


Medical practice costs are typically classified as fixed or variable. So what's the difference?


  • Fixed costs don't change, often because they're part of long-term agreements. Some examples might include your malpractice premiums, facility rent, and utilities.
  • Variable costs evolve, typically in tandem with sales or patient volume. Typical examples include supplies that you might be able to get at a bulk discount, such as disposable urodynamics test components or scrubs.


Which cost structures should you pay the closest attention to as you run your practice?

Urology providers have a lot to gain from variable cost structures, which are typically overlooked and underutilized. Unfortunately, drawing clear lines between fixed and variable cost structures might not be as easy as you'd assume.


Consider staffing: Although many economists label hiring as a variable cost, this isn't always how things play out.  An economist would argue that staff is always a variable cost component since we live in an “at-will” employment society and staff and be hired and fired any time. 


However, In urology practices, staffing routines are often resistant to change – so much so that they essentially become fixed. For instance, even though wages aren't set in stone, it's in your best interest to pursue HR contracts and practices that minimize variability. Ensuring you can pay reliably consistent salaries contributes to job satisfaction and makes accounting more manageable.


Diagnostics procedures exemplify how the distinctions can prove confusing. Consider the fact that you typically pay a fixed amount to perform a single comprehensive urodynamics test, like a battery of anorectal manometry assessments. The total cost, however, is variable because it depends on the number of patients you serve and how many of those individuals require testing.

If you are interested in moving your urodynamics to a variable cost structure, click here to get more info and receive pricing.  Review Urodynamics Outsourcing Options


How Variable Cost Structures Help Urology Practices

It's no surprise that most healthcare admins and practice owners focus on fixed expenditures. After all, these costs are much easier to understand and predict.


Another possible contributing factor is that the majority of practice costs are fixed. For example, according to one assessment of outlays at a large hospital, variable costs only accounted for 16 percent of the total expenditures.


Life is different when you're running a urology practice, however. For one thing, as a smaller business, you'll lack the ability to negotiate favorable fixed contracts like a bigger health system might. You'll also lack the patient volume that larger providers rely on to cover many of their fixed costs.


You should know that certain fixed costs can represent serious liabilities no matter how big or small your business may be. Examples include paying for diagnostic equipment using loans or training staff in extremely niche areas, such as urodynamics or lithotripsy.


Variable models can help urology practices improve how they work and deliver unique advantages to their patients. Many of the strategies we'll cover next can contribute to improved cost control – making them particularly helpful for practices facing business changes such as adding or loosing practitioners or possible future mergers. 


Improving Diagnostic Access and Specialized Knowledge Via Outsourcing

Are you a urologist that commonly performs specialized testing? Try outsourcing the diagnostic work to reputable vendors where you pay per patient. It's a great way to move from a fixed cost to a more variable cost structure, making your business more flexible and resilient. 


Urology practices' heavy reliance on diagnostics also affords them the unique opportunity to reduce costs by outsourcing training. Practices that take this route can use their savings to fund additional service offerings and compensate for their unavoidable fixed costs by serving more patients.


Reducing Capital Costs

Some fixed-cost strategies are simply unattainable for practices that aren't well bankrolled or willing to take on debt. For instance, urological test equipment represents a massive capital cost.


What's more, the fact that you can foot the bill today doesn't guarantee you'll be able to keep it up tomorrow: You might finally pay off your expensive devices someday only to discover that they've fallen behind the times.


Once again, tactics like outsourcing make it easier to stay current. You don't have to pay for major equipment or software licenses when you contract with an expert – They'll bring the correct diagnostic hardware, software, and skilled operators to each appointment.


Outsourcing protects you from having to pay for assets you'll only use rarely. It also gives you a slight competitive advantage over larger practices that are saddled with aging, depreciating medical devices.


Surviving Market Fluctuations

Just because you're a healthcare provider doesn't mean you can't get sick. Similarly, being in a line of business commonly thought of as "stable" doesn't make you immune to broader economic issues.


We've previously discussed how supply chain issues like urodynamic catheter shortages can take healthcare providers by surprise. Variable cost structures may improve your odds of weathering these passing storms.


Here's an easy example. Imagine being a small practice with a large percentage of fixed costs. A market hiccup that makes people less likely to book in-person consultations (pandemic, anyone?) might force you to close your doors for good.


Variable cost structures leave you less dependent on your income streams – even though you'll still need reimbursements and paying patients to stay afloat. The key difference is that when you sink less funding into sizeable upfront costs, you'll have more flexibility to adapt to the unexpected.


Final Takeaways

Urology practices derive most of their costs from expenses they can't avoid. From labor and office overhead to equipment and facilities, some expenditures are simply realities you have to accept.


There's still hope, however: Just because a cost is unavoidable doesn't mean it's impossible to mitigate. Whether you're itemizing your accounting or picking suppliers, preferring variable cost structures and procurement strategies can help you fulfill your mission. Best of all, you won't have to compromise service quality – or risk caving under the strain of external market factors.


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Topics: Urodynamics Cost, Urology Practice Cost Controls

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