Increase Net Income by Mitigating Resource Waste

Net income is the most important financial measure for a medical practice. It is the cash that the physician owners can use to support their families and invest in the practice as needed. The most efficient way to increase net income is to increase the value of the resources the practice already possesses, especially its staff.

Declining net income

Any decline in net income should command the attention of physician owners. If it is the result of a strategic decision, like preparation for anticipated growth or a switch in practice emphasis, the decline is not a cause for concern unless it is significantly larger than expected.

An unexpected or precipitous drop in net income, however, is a red flag. In a new practice, it indicates that the business plan assumptions may have been too rosy. In an established practice it often signals a change of some sort to which the practice must respond. Once a trend of declining net income has become established, the practice is likely to be in trouble.

The quickest way to increase net income is to reduce expenses. Another method is to increase revenue by adding ancillary services. Neither of these is necessarily a bad idea, but each needs to be implemented judiciously. Expense reduction that has a negative impact on patient satisfaction will eventually have a negative impact on revenue, and ancillary services generally increase expenses for a period of time before revenues go up, if they ever do.

Waste mitigation

Any practice looking to improve net income for the mid- to long-term, is well advised to look first at minimizing the waste of practice resources.

Cost control and waste mitigation are two very different things. Costs are essential to procure the resources we need to produce value. They are neither good nor bad. Waste is always bad because it consumes more resources than the value it creates. The people best situated to inform a waste mitigation effort are members of staff.  Here are some key areas to look at:

• Supplies and equipment

Employees know how many sets of forms are sent to patients and routinely ignored. They know what they have too much of and what is in short supply. They will also know when making do with a single piece of equipment instead of several is a false economy.

• Productivity

Ask your staff what makes their job hard and what seems to be a waste of time. You will be amazed to hear that equipment is poorly located, that they have been taught processes that make no sense to you or them, and that a great deal of work is done more than once. They will also be able to tell you what is causing the mistakes and errors that make your work more difficult.

• Patient satisfaction

Matching the office and its processes to what patients want and need mitigates a huge amount of waste. Repeat patients generally take less time than new patients. Satisfied patients always take less time than disgruntled ones. The extra cost and effort to provide an amenity, like coffee in the reception area or Wi-Fi, are a waste of practice funds and staff time, if the services are not important to the patients. Physicians are always surprised to learn that receptionists and medical assistants know much more about what patients think and value than professional staff, but the fact is consistently borne out in surveys.

Asking staff what they think

A lunch meeting where employees are asked for ideas to enhance customer satisfaction is much less expensive and quicker than a professional survey, and will yield at least 80 percent of the information you seek.

The exercise of involving your staff in waste mitigation has two ancillary benefits:

• It engages them as partners in continuously improving the practice, which substantially increases their job satisfaction.

• It gives you the opportunity to correct misconceptions and explain why some things need to continue to be done in a particular way.

Caveat: Set ground rules before starting these sessions. Insist on good humor, civility, facts, and suggested solutions. No whining allowed!