With sequestration in full effect, medical practices find themselves caring for the same number of patients as pre-sequestration but making less profit. Medical practices are asking , “What can we do to help mitigate the effects of sequestration?” While there are many answers to this question, let’s focus on the financial aspects versus the operational. From a financial standpoint, the only answer is to REDUCE COST. Inherently, a majority of medical practice costs are fixed in nature. Examples of fixed costs are rent expense on the building, lease expense on equipment, salaries, malpractice insurance, and maintenance agreements. With so many fixed cost you have to dig deep into the Income Statement of a medical practice to find areas where cost can be reduced. The areas to focus on first are variable cost which can be negotiated with vendors such as drug cost, office supplies, bank fees, credit card fees, and interest expense. MMS continues to work closely with their clients to help mitigate the effects of sequestration, the following are some items MMS has helped clients accomplish in regard to reducing costs:

1. Drug Cost – MMS aided a practice who averages $11 million a year in drug cost reduced their annual cost by approximately $1 million a year by negotiating with suppliers for volume discounts and by switching qualifying drugs to the generic version.
2. Office Supplies – MMS negotiated contract pricing with an office supply vendor which is estimated to save the client approximately $20 thousand a year based on their average purchase volume.
3. Credit Card Fees – MMS aided in the bidding and negotiation process of a medical practice’s merchant processing services to various banks resulting in process improvements (i.e. improved reporting which lends to efficient reconciling) and savings of approximately $12 thousand a year credit card fees.
4. Interest Expense – MMS aided in the bidding and negotiation process of a medical practice’s debt portfolio which totaled approximately $11 million dollars to various banks resulting in an average interest rate reduction of approximately 1%.

How does this apply to your practice? Take a close look at your Income Statement, while the examples above might not apply to your practice there are bound to be area where you can shop around. Get creative and bid out your business to multiple vendors in an effort to get the lowest cost.

Blog written by: 
Laura Sauls, Executive Consultant
Medical Management Services