Cost-Cutting is Critical in Today�s Fragile Economy

May 29, 2009

In a tough economy, finding ways to enable your business to run more efficiently is critical, but not always easy. Working lean, but not necessarily mean, is important for small businesses like physician practices.

Is cost-cutting part of your business plan? If not, maybe it should be. In a tough economy, finding ways to enable your business to run more efficiently is critical, but not always easy. Working lean, but not necessarily mean, is important for small businesses like physician practices.

For example, a recent Wall Street Journal article (January 20, 2009) reported that many small businesses are actively re-examing and renegotiating contracts with suppliers, vendors and landlords. According to the Small Business Research Board, in a survey of more than 1,000 small-business owners and managers, about 15 percent said they had recently renegotiated long-term fixed-cost supply contracts.

“Capital is king,” says Erik Jensen, senior vice president and head of Key Equipment Finance’s Healthcare Division, in an assessment of today’s business environment. “Customers really want to hold on to their cash. And I can sympathize.”

The leasing option

With cost-cutting in mind, Jensen suggests physician practices consider bringing in-house some of the services they currently outsource, such as laboratory diagnostic services. Jensen says that physician practices often draw blood as part of an examination, then send it off to a lab. Lately, however, more physician practices are acquiring in-office laboratory diagnostic products that enable them to do the analysis themselves. “Physicians can lease a piece of laboratory diagnostic equipment, do the procedures in office, begin generating revenue from that, and make the lease payment from the revenue generated,” Jensen explains. “They could be cash-flow positive and making money on a device in the first couple of months.”

Jensen also suggests that physicians who have put off integrating electronic health records into their practice should consider a leasing option. He says that physicians who take the plunge and convert to EHRs, e-prescribing and computer tablets versus paper and dictation can realize an increase in throughput and productivity, a reduction in overhead, and more timely reimbursements from Medicare and Medicaid. “You gain in efficiency, you gain in throughput, and you can save in overhead because you can redeploy staff to do other things.”

He cautions that there are still some upfront hardware costs involved with EHR leasing, but points out that as much as 75% of the cost is for the software. “And even though it’s a software license, you can lease a software license.”

Enlist decision support

Desert Radiologists, Nevada’s largest medical imaging provider, began using Decision Support System software from Zotec Partners about a year ago to manage employees, workflow and billing. Whitney Edmister, MD, PhD, and chairman of the radiology group’s IT committee, says utilizing the Decision Support System has provided the imaging center company with a real competitive advantage.

“We have complete access to all of our billing data online, so we can look at payments of radioisotopes by carrier to see if there are any carriers that are underpaying us,” Edmister says. “We can look at charges, payments, days in accounts receivable, and any specific aspect of our billing in order to improve service.”

Edmister says the software also enables the radiology firm to examine revenue by month for outpatient physicians who refer to its outpatient centers. Doing so provides information on who the top referring physicians are. That information, he says, is useful to the firm’s marketing committee.

“We can also look at a particular procedure, such as thyroid biopsies, and drill down to actual average reimbursement for that procedure across carriers to see if there are any carriers where we are being underpaid for that procedure,” Edmister says. “That allows us to go back to those carriers and renegotiate that payment. As a practice, it’s extremely valuable to have full access to all this data.”

Tax considerations

When thinking about leasing, there are also tax considerations to keep in mind. For example, on a true lease, where the ownership resides with the leasing company, the lease payments are fully tax deductible as a business expense, and the lease does not show up on the practice’s or hospital’s balance sheet as an asset. In a finance contract arrangement, however, the IRS has determined that the title for the equipment resides with the customer—in this case, the physician or hospital. Then, rather than deduct the lease payment as an expense item, physicians would depreciate the item on their books.

One caveat, says Jensen, is that it’s important to consult with your accountant or tax advisor before entering into any leasing arrangement to understand how the lease may impact your bottom line.

Ed Rabinowitz is a veteran healthcare writer and reporter. He welcomes comments at edwardr@frontiernet.net.