Ten Ways to Lower Your Overhead (But Be Careful When It Comes to Your Knowledge Workers)

To stay ahead of today’s unstable financial curve, physicians need to cut costs. Financial advisors recommend the “two-thirds” rule during a down economy: Put two-thirds of your effort into cutting costs and one-third into increasing revenue.

A collection of practice management consultants offers a top-10 list of cost-cutting strategies:

1. Study your phone bill for abuse and overuse, and look for better discounted plans.

2. Identify and reduce optional expenses.

3. Reduce work schedules.

4. Provide lower-cost staff benefits.

5. Cap pay increases.

6. Save money on supplies and equipment.

7. Cut patient communication expenses by auditing the phone and web offerings.

8. Check into lowering your rent.

9. Lay off one employee.

10. Ask for the employees’ help and suggestions.

Four of the ideas suggest aiming your expense-reduction directly at your employees. Moving to cut pay, cut hours, cut benefits, and cut staff may give you quick results in your efforts to counter the effects of a bad economy, but you’ll likely see some adverse consequences in the long run. Employee pay and benefits almost always represent the largest share of your operational expenses. People costs lead the list in most industries because your people are often your most valuable assets. The main product in a service company is people activity. In a medical practice, it’s easy to forget that your staff activity makes up a significant portion of your services because you focus so much on the reimbursable physician activities. No wonder that one of the most common complaints among demoralized medical practice staff workers is, “Those doctors don’t appreciate everything I do for them!” If you take aim at your staff in an effort to preserve your profit margin, don’t be surprised if your workers develop a severe case of bad attitude.

Unhappy workers can threaten customer service, physician productivity, and process efficiency – including revenue cycle management. And as soon as the economy recovers, don’t be surprised if experienced workers leave to find new jobs elsewhere. Savvy employees will eventually figure out that the physician-owners are attempting to preserve their own incomes at the employees’ expense.

That’s a brutal way to put it, but you can bet some employees will see it that way. But that doesn’t mean you can’t review personnel expenses and discover ways to reduce practice costs. If you approach it with empathy toward your staff and a commitment to “doing the right thing,” you can navigate through the rough patch with limited damage. Here are a few (commonsense) suggestions:

• Be a leader—take the first pay cut yourself. Then when it comes time to announce layoffs, benefits cuts, or a pay-raise freeze, let the staff know. Even then, you’ll have to be careful. Don’t act the martyr—if you sound like a whiner, it will backfire. Staffers will come back with, “Oh poor doctor! I’d trade places with him in a heartbeat!”

• Compensate for cuts with low-cost enhancements. Consider perks like a cafeteria plan funded by payroll deductions, flexible work schedules, or job-sharing options. Look into improvements in the staff lounge, new uniforms, or a uniform allowance increase. Poll the staff to see what’s on their “wish lists.”

• Consider offering a profit-based bonus. If your staffers share in the lean times, give them a chance to share in the boom times, too. It doesn’t raise your costs until your profits improve.

It all boils down to doing right by your valuable staff members and making sure they know you care about them. That encourages staff loyalty, and a loyal staff will hang in there with you through thick and thin.