Controlling overhead costs

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Controlling overhead costs is a challenge for health care medical staff and administrators alike. Overhead costs range from 50% to 60% of revenues. Since overhead represents one of the most significant costs in a medical practice, this is an excellent place to find ways to reduce the bloated overhead in most practices. While the primary focus remains on providing exceptional patient care, a medical facility’s financial health is crucial for its sustainability and growth. In this article, I discuss the strategies medical staff can adopt to manage overhead costs effectively without compromising patient care quality.

Analyze and understand overhead costs: The first step in controlling overhead costs is thoroughly analyzing and understanding where the expenditures lie. This involves categorizing expenses such as rent, utilities, administrative salaries, medical supplies and equipment maintenance. By clearly showing where the money is being spent, medical staff can identify areas for reductions or optimizations.

Implement lean practices: Lean management principles derived from manufacturing industries can be applied to health care settings to eliminate waste and inefficiencies. Encourage staff to identify unnecessary workflow steps, streamline processes and optimize resource utilization. Medical facilities can significantly reduce overhead costs by minimizing waste without sacrificing quality.

Negotiate with suppliers: Building solid relationships with suppliers and negotiating favorable terms can lead to substantial cost savings. Explore options for bulk purchasing, negotiate discounts and consider alternative suppliers who offer competitive pricing without compromising on quality. Additionally, keep an eye on market trends and be open to switching suppliers if better deals become available.

Embrace technology: Investing in technology can streamline operations and reduce overhead costs in the long run. Electronic health records, telemedicine platforms and automated billing systems can improve efficiency, reduce paperwork and minimize administrative costs. While the initial investment may seem daunting, the long-term benefits of technology adoption far outweigh the costs.

Optimize staffing levels: Staffing costs typically represent a significant portion of overhead expenses in medical facilities. Analyze patient volumes and staffing requirements to ensure optimal staffing levels. Avoid overstaffing during slow periods and utilize flexible staffing models such as per diem or temporary staff to manage fluctuations in patient demand.

Focus on preventive maintenance: Equipment breakdowns can result in unexpected expenses and disrupt patient care. Implement a preventive maintenance schedule for medical equipment to prolong its lifespan and minimize repair costs. Regular inspections, servicing and calibration can prevent costly downtime and ensure equipment operates efficiently.

Reduce energy consumption: Energy costs can be a substantial overhead expense for medical facilities, especially for practices that own their facility and for those practices operating around the clock. Implement energy-saving initiatives such as installing energy-efficient lighting, optimizing HVAC systems and promoting staff awareness about energy conservation practices. Small changes in energy consumption can lead to significant cost savings over time.

Outsource nonclinical functions: Evaluate whether certain non-core functions, such as janitorial services, IT support or billing and coding, can be outsourced to specialized service providers. Outsourcing can often be more cost-effective than maintaining in-house capabilities, particularly for functions that do not directly impact patient care.

Monitor and benchmark performance: Establish key performance indicators to track overhead costs and monitor performance over time. Compare your facility’s performance against industry benchmarks to identify areas of improvement and set realistic targets for cost-reduction initiatives. Regularly review financial reports and adjust strategies as needed to stay on course.

Empower staff engagement: Engage frontline staff in the cost-saving process by encouraging them to identify opportunities for improvement and implement cost-saving initiatives. Foster a cost-conscious culture where staff members are empowered to suggest ideas for reducing waste, improving efficiency and controlling overhead costs. Consider a financial reward for anyone who can offer suggestions for reducing overhead costs. For example, one of my staff suggested cutting urine dipsticks in two, which was a small cost-saving measure but rewarding in that the employee demonstrated our commitment to controlling overhead costs.

Bottom line: Controlling overhead costs is essential for the financial sustainability of medical practices. Still, it should never come at the expense of patient care. By adopting a strategic approach focused on analyzing expenses, implementing lean practices, leveraging technology and optimizing resource utilization, medical staff can effectively manage overhead costs while maintaining the highest standards of patient care. Through collaboration, innovation and a commitment to continuous improvement, medical facilities can achieve cost savings without compromising quality, ultimately benefiting patients and the organization.

Neil Baum, MD, a Professor of Clinical Urology at Tulane University in New Orleans, LA. Dr. Baum is the author of several books, including the best-selling book, Marketing Your Medical Practice-Ethically, Effectively, and Economically, which has sold over 225,000 copies and has been translated into Spanish. He contributes a weekly video for Medical Economics on practical ideas to enhance productivity and efficiency in medical practices.His 5–7-minute videos and short articles provide practical ideas that can be easily implemented and incorporated into any medical practice. Dr. Baum can be reached at doctorwhiz@gmail.com.