Practice management literature often offers advice about cutting expenses – advice that promises cost-cuts improve margins and “directly boost the bottom line.” Many physician owners and practice managers seem to have internalized the idea, so they’re always on the lookout for things to trim. But is this the best way to strengthen your practice business?
Some expenses do nothing to improve your practice. Paying more for identical supplies or credit card processing, for example, won’t serve patients better or boost efficiency. Once you start routinely cutting staff, technology, marketing, or materials, though, the risk of undermining productivity or the patient experience increases. It can creep in so slowly, you might not notice until profitability turns sharply south – when it can be much harder to turn things around.
For example, if you’re busy, it may seem like you can “get by” without marketing. But today’s new patients probably reflect marketing efforts started months or even years ago. Cut marketing and you may see little difference – at first. By the time you notice a slowdown, you may be facing a year or more of significant investing before your volume returns.
Staffing is another common focus of penny-pinching. Even a little bit of staff downtime can seem wasteful. Trying to trim staff so that employees are busy 100% of the time risks bigger problems, however. Without a bit of “excess” capacity, the impact of disruptions like employee resignations, sick time, or unexpected increases in demand can be much more expensive than the cost of a few “extra” employees. What’s more, too little support also undermines physician productivity, which has a much bigger impact on profit.
Global consultants McKinsey & Company published an excellent study showing how continuous efforts to improve margins – rather than build the business – can actually undermine profitability after a few years. Their advice: consider whether expense cuts you’re contemplating will negatively impact customers (patients), your ability to compete with other practices, or both. If you’ve been focusing on expense cuts for a while, you could be in the danger zone. Be sure to give building the business the attention required to improve profitability over the long run.
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