Controlling operating overhead expense is a never-ending task. In today's challenging business world, it's not easy to hold overhead in line from year to year. Monitoring your practice operations and making even minor changes can improve the bottom line. In order to assess overhead, look at your financial statement. The Medical Group Management Association (MGMA) has developed a standardized financial statement format so that groups can compare significant operating categories to other similar practices. If your statement is not in the MGMA format, consider modifying it. Then, make sure that each expense account has a percentage of collection calculation. Next, compare it to prior-year statements reviewing total expenditures as well as individual expenditures of your practice. Then, compare your practice numbers with the MGMA or other specialty-specific benchmarks. Once this comparison is made, look for expenditures that can be modified. The following tips can assist you in reducing medical practice overhead in specific areas. There are several major areas of medical practice expenses — rent, salaries, employee benefits and supplies, to name a few. Rent Take a look at your lease to determine its expiration date. If it's within the next year, begin your negotiation for renewal. Explore options to space in nearby locations if your efforts fail, or as a secondary position if the negotiation stalls. Usually, the longer to lease period, the more willing the owner will be to offer leasing incentives or build out/tenant improvements, lowering the effective lease rate. Verify that the operating stop provision of the lease contains charges related only to building operations. In some leases, landlords allocate excess costs associated with operating a building. Sometimes operating stop provisions contain unrelated costs such as payroll and management fees. Also, sometimes landlords require tenants to purchase insurance. Check if the insurance is necessary and whether inexpensive alternatives exist. Salaries and Employee Benefits Reviewing the compensation paid to staff requires significant effort. Study salary surveys (MGMA, or similar groups provide healthcare salary surveys) to determine the area compensation by job classification and length of service. Compare the survey to your current salary to determine changes for the upcoming year. Look at the job function to determine if the position can be filled with someone who earns a lesser hourly wage. For example, consider a medical assistant to fill a job previously held by an LPN, if appropriate. Review the benefits offered to determine if the staff is really interested in them or if they would prefer others. Supplies There are several moves you can use to reduce overhead in regard to supplies. First, centralize purchasing by allowing only one person to be in charge of supply orders. Scrutinize exclusive relationships with vendors to verify that they offer competitive prices. Develop a list of needed supplies and costs, then request bids from various vendors. Consider Internet vendors, too. Use an existing individual practice association (IPA) to create group purchasing power and leverage. Physicians can also get together to form their own management service organization (MSO) to create group purchasing opportunities. Aside from supplies, IPAs and MSOs often purchase malpractice insurance and laboratory, radiology and similar services. Other Costs These can add up quickly, so evaluate them regularly. · Small fees, i.e., bank charges and penalties: Work to eliminate them. These are generally avoidable. · Advertising: Compare the benefits of advertising with its costs, particularly telephone directory advertising. Practices that have larger ads might consider reducing or eliminating them. · Outside billing: Review your outside billing cost, as well as the collection rate. Calculate the cost of billing internally and determine if the difference warrants bringing it in-house. · Postage costs: Develop a system to determine and track postage costs as valid business items. · Telephone costs: Monitor long distance calls to make sure they are business-related and ensure that the practice is not paying for lines and services it doesn't use. Shop long distance services. · Petty cash: Make sure the expenditures are authorized and documented. Tackle one item at a time — it will be easier to develop a plan to review the expenses than to work on all of them simultaneously. Split the items into small areas and develop a working time frame. Remember, the goal is a better bottom line. Gerard J. Kassouf, CPA, is a director in the Birmingham accounting and business consulting firm of L. Paul Kassouf & Co., PC. January 2007