Minimize overhead costs and maximize revenue

Do overhead costs plague your practice?

Overhead costs are expenses that are NOT directly attributed to a patient’s medical care. The bulk of these expenses include staff salary and benefits, medical supplies and facility needs. The Medical Group Management Association (MGMA) found that overhead typically uses up about 60% of practice revenue. 

For example, let’s say a physician makes $50,000 in revenue each month (or about $76,000 before adjustments and write-offs). The monthly overhead should be approximately $30,000, but with overhead steadily increasing, practices are forced to consider how to minimize costs while also increasing revenue.

To find your overhead percentage, use the following equation:

Expenses / Revenue = Overhead percentage

This percentage will give a general idea of what’s happening. Lower overhead doesn’t always equal lower expenses. Sometimes higher revenue may create a lower overhead percentage. It’s all about generating more revenue per dollar spent. 

To manage overhead percentage, it’s important to look at both parts of the equation: expenses AND revenue. 

To minimize costs 

The first agenda item on your list should be understanding what drives your costs and what increases your bills. Learn which costs are variable and which ones are fixed. You may be surprised to find that some costs are more variable than you think. Ask around and research everything that feels fixed to be sure you’re really getting the best value for your money.

Next, measure everything. Measure your actual costs against your steady budget. Don’t have a budget? Make one. You can’t manage what you don’t measure. Look for reasons your budget doesn’t align with your actual costs. 

Finally, get competitive on outsourced services! Review invoices regularly. Be aware of extra charges and charges for services you no longer use. Don’t be afraid to shop around for better prices.

Note that you will not be able to lower costs equally across the board. Some costs increase productivity and help you increase revenue, thus making the cost (or even increased cost!) more effective in the long run.

One piece of advice that gets passed around is that in order to limit costs, you must become more rigid on time off requests, salary increases or employee benefit packages. Though those items should be reviewed to ensure your practice is prosperous, we suggest not starting with all of these items first. Maybe an employee is constantly taking time off and you need to review that policy, but changing everything about employee salary and benefits may not give you the results you’d like. Look for an approach that can cut costs throughout the organization and not just in the employee department. 

Another good piece of advice is that increasing the pay of one extremely useful employee usually costs less than two employees working on fewer tasks. Review what tasks each employee does and see if you actually need to hire more people or if you could give tasks to another employee. (But don’t forget the pay increase!)

To maximize revenue

First, document everything. Anything patient related could be important at any time. Next, hire and train competent coders, as needed. Take the time to understand needed improvements in order to make the most of every claim sent from your office. 

Collect up front when possible! Rivet offers top notch estimates that allow you to collect payment before a scheduled appointment. Collecting payment up front can not only increase revenue, collecting up front can also take away the game of cat and mouse between the clinic and the patient down the road.

What is Rivet?

Rivet is a software solution that integrates with your EHR for up-front patient cost estimates (that comply with the No Surprises Act), as well as denied claim and underpaid claim tools.

Request a Rivet demo


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