Trimming Costs to Increase Income

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Shopping around for less expensive medications and buying used medical supplies and equipment can boost the bottom line.
Shopping around for less expensive medications and buying used medical supplies and equipment can boost the bottom line.

Although medical practices typically focus on billing and collections to maintain and increase income, they should not forget about reducing what they pay for pharmaceuticals, medical supplies and equipment, and other aspects of running a practice.

“For every dollar you bill, you get back 50 cents, but for every dollar you save, you get a dollar,” said Chris Zaenger, principle at Z Management Group Ltd., in Elgin, Illinois.

Zaenger said he got involved with helping doctors cut costs years ago when working with a large physician's office that did some of its own lab work and contracted out the rest. The doctors billed patients and the lab billed the doctors. The doctors then paid the lab for the tests. He found many mistakes. He went through 3 months of bills and found $30,000 in missed charges on $100,000 worth of labs. He also found incorrect lab codes and charges on the lab's bill for tests not ordered.

“Clinical costs are going up in virtually every practice, and there is opportunity to save money on those costs,” Zaenger said. “One of the biggest areas where doctors have problems that can get away from them is clinical supply costs.”

If multiple vendors supply a certain medication, practices should shop around to find less expensive alternatives, such as generics, or to identify a competing vendor (which is not always possible) or group purchasing organization that sells it at a lower price, he said.

Practices need to keep up with costs. The price of botulinum toxin preparations for urinary incontinence, for example, changes frequently, Zaenger noted, so it is important to track. If the cost goes up quarterly and payers are charged the same rate for a few years, a practice can go from making 20% over cost to 20% under, he said. Practices can get an idea of costs charges using the Centers for Medicare & Medicaid Services (CMS) website, which publishes the amount CMS pays for medications regularly. Expensive medications like botulinum toxin should be turned over quickly to keep carrying costs down, Zaenger said. Physicians need to pay attention to pharmaceutical expiration dates, rotation of stock, and spoilage, he said. Some practices have an inventory management program to do this, but most will probably have to track inventory manually. Practices should never let pharmaceutical vendors into their inventory, as vendors' drugs tend to get moved to the front of the inventory area and competitors' drugs are shifted to the back where they expire, Zaenger said. 

Inventory control

Debra Phairas, president of San Francisco's Practice & Liability Consultants LLC, stresses creation of an inventory control standard for supplies. For example, practices need to decide how much of a supply they need (say, 3 cases of cotton balls) and at the end of the month, take inventory and order only up to the control standard.

Practices also should look at how many different types of a certain supply are being stocked and whether this can be winnowed down to reduce inventory. For instance, it may be necessary to keep a supply of gloves in different sizes, but not in different colors.

Group purchasing

Taking part in group purchasing organizations or buying through associations is another way to cut costs. For instance, a benefit of joining the Association of Independent Doctors is its AID-SAVE program with McKesson Corp., of San Francisco, a distributor of medical supplies and pharmaceuticals. The program offers discounts upwards of 15% on supplies.

Various national and state associations – including the California Medical Association – have negotiated discounted rates on everything from supplies and equipment to liability insurance and waste disposal. These organizations typically offer a better deal, but practices should look over contracts before joining, Zaenger said. Some require physicians to use only certain product lines or purchase only through that organization.

Second-hand goods

In addition, practices may want to consider used furniture and office and medical equipment. On numerous websites, including dotmed.com and Ebay, furniture and equipment can be purchased at half price or more, Phairas said. Ebay even offers a money-back guarantee if equipment does not work. Companies going out of business want to unload their furniture and equipment, and they often try to sell it on Ebay. Phairas paid $300 for a conference table and desk and $200 for lateral files that would have cost about $700 and $500 new, respectively.

Other cost-saving strategies

Clinical supplies, malpractice, furniture and equipment are but a few places to save. Other target areas, Zaenger said, include telephone service, biohazardous waste disposal, and staff expenses—from paid time off and overtime, to insurance benefits, retirement plan contributions, and time-clock management.

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