The Fourth Lever of Practice Profitability: Expenses

Expense management is a critical component of maximizing the bottom line for medical groups. According to a 2018 Medical Group Management Association (MGMA) study, median operating costs for primary care practices have risen by 13 percent since 2013. What’s more, a survey of the top issues ruining medicine for physicians revealed that rising expenses ranked number 7 on the list. Investing the time to better understand your group’s overhead structure and implement cost savings can significantly impact both your net revenue and job satisfaction.

Defining Overhead

Overhead is the financial term often used to describe all collective expenses associated with the operation of your practice. Overhead is calculated as practice costs divided by practice revenue. Typically, employee expenses (salaries and benefits) followed by facility/lease costs will be at the top of the expense list. According to MGMA, practice overhead generally comprises about 60% of practice revenue.

Measure then Manage

As the old saying goes, you can’t manage what you don’t measure. With declining reimbursements, groups must have a solid grasp of their expense structure and seek opportunities for savings when possible. Leadership must closely monitor their expenses on a monthly basis and look for trends over time. Baseline data and benchmarks should be routinely monitored to compare current expenses to your own historical data so that upward trends can be addressed promptly.

Questions to ask:

  • Have your expenses grown in the last 12 months? Which ones? How much?
  • Which expenses have grown the most?
  • Which expenses comprise the greatest percentage of your total expenses? 

Data Driven Cost Cutting

Once you have developed benchmarks and evaluated your expense structure, let the data lead the way to cost cutting opportunities:

  • What story does the data tell you?
  • Which expenses have grown the most rapidly in the last 12 months?
  • Are there any big outliers?

Rank your expenses by those that have shown the greatest percentage increase over prior years. Focus on these areas for quick fixes and swift results to your bottom line. Once you’ve moved past the obvious savings, look for bigger opportunities in long-term savings such as office space, equipment leases and health insurance. Cutting expenses for these big-ticket items may take longer to negotiate but will likely yield a greater impact to your net income in the long run.

Contact Us

The experts at Practice Partners Inc can evaluate your expense structure to identify savings opportunities for your organization. Contact us to learn more about how we can help improve your practice’s bottom line.