Thursday, June 9, 2011

How NOT to Improve Medical Practice Profitability

Research indicates that real estate is typically the 3rd highest expense on a healthcare provider's P&L statement, right behind labor and supplies, yet many seem to regard it as a fixed cost that can't be adjusted until the next lease expiration.  And yet physicians sometimes look elsewhere to compensate for reimbursement shortfalls...

I recently encountered a revenue enhancement strategy that caught me off guard and accentuated the need for physicians to look at real estate as a way to preserve profitability. 
My son had to visit his pediatrician this week for a pre-sports physical.  At the end of the visit, the office manager told my wife that we would be billed an extra $100 as part of the practice’s annual patient fee to make up for reimbursement shortfalls on immunizations.  My wife was stunned... so much so that she bit her tongue and suggested that they bill her for it rather than paying it then and there (I married well).  When she mentioned it to me that night, "stunned” was one of the softer words I felt!

In a follow-up call, here's what I learned.  This $100 is an annual “membership” fee the practice began assessing when their accountant told them they has crossed into the red operationally.  And it's not just $100 for everyone… kids under 2 and under are charged $100 every 6 months because they incur more visits and more immunizations.  Once they hit 2, it reduces to $100 per year.  Oh, and it’s per child, not per family.

What interested me about this professionally is that I don't doubt that the practice has been squeezed.  These are challenging times for Physicians, and they have to find ways to reduce costs. (earlier today I attended an MGMA conference focused solely on that topic. )  But rather than looking to patients to make up shortfalls out of their own pocket, did this physician engage a various professionals to investigate the possibility of reducing their overhead (real estate costs, for example)? I'll find out soon enough in this specific case, but in the meantime the question has to be raised more generically.

Our Healthcare Properties Group routinely helps medical practices reduce costs through strategic real estate decisions, and these decisions can be tied to a number of factors which my or may not be related to the timing of one's lease expiration.  Landlord events, tenant events, community trends, etc. can all impact what's possible.  The keys are (1) understanding these triggers and having being able to research them, and (2) approaching the landlord in the most effective manner.  Don't forget to consider this large balance sheet item when investigating cost-cutting possibilities.

Finally, for those who are wondering, I did have the pediatrician reverse the $100 charge.  Not because I'm unsympathetic, but because it wasn't disclosed in advance.

Here's to your success!


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