Maintaining profitability, staying up to date with the latest technology and providing quality patient services can be a difficult balancing act for medical practices. In addition to reckoning with health care costs, practices need to keep an eye on staffing, leasing and other costs. The goal, always, is to cut unnecessary expenses when possible. Below are some ideas for doing so.
Staffing costs are typically the largest expense in most practices. It’s important to know the tasks that each employee is performing and ask questions such as:
Compare the ratios of various types of staff per full-time physician to benchmarks from other practices.
Determine the salary norms for different practice staff categories in your market area. Stop awarding annual salary increases annually or haphazardly. As a general rule, give no more than the prevailing average in the area. Begin with a predetermined annual budget for staff raises, and do your best to allocate it on the basis of performance.
Ask your CPA to assess the fiscal and human-relations integrity of the compensation structure. That structure should include salary ranges for each position, with minimums and maximums arrayed around the local average. Consider slowing down salary increases as employees approach the maximum and providing incentive bonuses as an alternative to regular substantial pay increases.
Is your employer-provided retirement plan still effective? A profit-sharing retirement plan, for example, may allow greater flexibility than the mandatory annual payment of a defined benefit plan.
If you do opt for a profit-sharing plan, pay attention to the plan’s vesting schedule. A good retirement-plan third-party administrator can run “what if” scenarios to get the desired results.
After checking state laws, establish written policies for paid time off, such as sick leave and vacation time, as well as for overtime. The industry standard for sick leave is five days a year. As an alternative to paying employees for unused sick leave, carry any unused days to future years or convert part of it to vacation time.
The industry standard for vacation time is two weeks (depending on service time). It’s important for hardworking employees to take regular time off to rest, and so staff members can share tasks and job knowledge. But set a limit on the number of days that staff members may carry forward each year.
When it comes to overtime, the office manager should determine when extra hours are necessary. Does overtime require prior approval? It should. Don’t make overtime payments to exempt employees (state and federal law determine exempt vs. nonexempt).
Most leases provide that a tenant pay a share of building operating expenses over the landlord’s base amount — commonly known as the “operating stop” provision. Ensure that the landlord’s calculations include only legitimate operating costs.
Beyond that, ask yourself: Is the practice paying for more space than it currently needs or uses? Can we rent out any unused space? Can we renegotiate the lease? Some practices decide buying space is the most cost-effective approach for the long term. By paying off a mortgage instead of paying rent, they’ll eventually own a building.
But buying has some downsides as well. Buyers likely won’t have as much choice in location — and what to do if the space needs to change. Owners also have to deal with such issues as heating, air conditioning and building upkeep in-house.
Unnecessary costs can creep up on any practice, dragging it down and keeping it from being as profitable as it should be. Don’t let small costs become bigger problems. Look over your bottom line regularly with an eye to cost cutting and revenue building.
Contact Kathy Walsh at kwalsh@cohencpa.com for more information.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this publication should be taken only after a detailed review of the specific facts and circumstances.