AAOS Now

Published 5/1/2011
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Steven E. Fisher, MBA

Don’t take your physical facility for granted

Eleven ideas to consider in 2011 and beyond

Orthopaedic practices vary greatly in how they operate on a day-to-day basis. But they all have the following overhead outlays: staff salaries, occupancy, employee benefits, drugs and medical/surgical supplies, and professional liability insurance. These five expenses account for more than 75 percent of total overhead. Occupancy costs—excluding associated expenses such as insurance and utilities—constitute roughly 6 percent of net medical revenue and account for slightly more than 11 percent of total overhead.

Although many practices focus on employee productivity, the physical facilities, including office layouts, are often overlooked. The following 11 ideas will help you make the most of your facility while holding the line on costs. The ease of implementation, which may not always correlate directly to the return on investment (ROI), is also noted.

Plan the plan
Space planning is a challenge because what works well now will almost certainly not work in the future. As part of your annual strategic planning process, think carefully about both short- and long-term space requirements. To help you plan space needs, a medical office architect—ideally one who specializes in orthopaedic offices—may be helpful. Word of mouth is always the best way to identify a good firm, but many are listed on the Internet. Ease of implementation: Moderate

Manage your records
In some offices, as much as 20 percent of usable floor space is occupied by medical charts and radiographs. At a minimum, inactive charts and radiographs should be stored off-site in less expensive space. An even better idea is to implement an electronic medical record (EMR) system and computed radiology with a picture archive and communication system (PACS). This will free up all on-site chart/radiograph storage space so you can put it to better use or return leased space to the landlord. For more information about EMRs and PACS, see the primers available on the AAOS on-line
Practice Management Center. Ease of implementation: Moderate for PACS; challenging for EMR

Make every square foot count
Space in your office that is not used to generate revenue is effectively wasted. Give some thought to how you can reconfigure that space. Do you have a spare room where you could install a DEXA machine? A closet where you might be able to stock durable medical equipment or prosthetic or orthotic supplies?

If you do not have any spare space, think about what you can do with existing underutilized space. For example, you could convert seldom-used offices into revenue-generating spaces by turning them into patient consultation rooms and encouraging the physicians to use a common, comfortable cubicle. Sometimes you have to balance comfort with the bottom line. Ease of implementation: Moderate to challenging.

Expand your office hours
Most medical practices are open only during standard working hours. But your occupancy costs remain relatively constant no matter how many hours per day the office is open. Several orthopaedic offices are starting to offer early morning, early evening, and weekend hours, staffed by either the physicians themselves (who may elect to not work at another time during the week) or allied health professionals such as physician assistants.

Nonstandard hours may be particularly attractive to physicians who are just getting started and those who are winding down their practices. Extended hours are very popular with patients who find it difficult to leave work in the middle of the day and travel long distances. Ease of implementation: Simple

Deal with the “empty office syndrome”
If you have too much space now, consider subleasing a portion of your facility to another physician or practice. A sublease might be for a segment of the office’s square footage that the sublessor would have access to every day. Alternatively, the sublease might be for the entire office on one or more days when your principal physicians are not present. Under either scenario, services provided by the practice’s staff might or might not be included.

Subleasing can be a win-win situation for all parties, assuming that lease terms, landlord permissions (if space is leased), and Stark/Anti-kickback compliance issues are addressed. Ease of implementation: Moderate

Go green
Depending on the age of the facility and your ownership status, you may want to consider an energy consumption update. See the online version of this article for some questions you should ask.

“Going green” costs money, but some tax credits are available. It could also substantially decrease future utility costs. To learn more about your options in this regard, seek a qualified business energy conservation consultant in your area. Ease of implementation: Moderate to challenging, depending on the changes

Reconfigure your work environment
Maximize efficiency by taking a close look at the floor plan. The online version of this article includes some questions that will help improve patient flow-through.

A medical office architect can also help with this step. It may not be economically feasible to “correct” every operational inefficiency, but each change will either improve the revenue stream or shorten your day. More and more orthopaedic surgeons these days place a great value on their time with family and friends. Ease of implementation: Challenging but with a potentially high ROI

Consider relocating some functions off-site
If you are tight on space and/or want to use existing space for an income-generating activity, it may make sense for some business activities, such as billing and collections, to be at an alternative location. Billing and collection staff, with the exception of collections counselors if you have them, do not need to be on site because most of their work is conducted via computer and phone. If you can give up expensive space in one location and occupy less expensive space in another one, you will be ahead of the game.

Bear in mind, though, that two offices will mean additional expenses, including telecommunication costs. Also, having staff work at two locations (or from home) may pose challenges for your practice executive. Ease of implementation: Challenging but with a potentially high ROI

Rebid your insurance
Oftentimes, medical practices simply renew their property and casualty insurance with the same agent year after year without asking questions. This may not be a wise course of action for several reasons, including changes in the value of your building and equipment, as well as in the company’s rating and rates. Your agent should be guiding you in this regard, but it never hurts to investigate your options. Ease of implementation: Simple

Redecorate to attract and retain patients
Many physicians become accustomed to the look of the office and may not notice dingy walls, worn furniture, or dated décor. But patients do notice. The best way to assess whether your physical facility needs a makeover is to ask an impartial third party (a friend, colleague, or interior designer) to come in and give an opinion. Ease of implementation: Moderate

Negotiate and renegotiate
If you rent, renegotiate the terms of your lease, especially if your termination date is approaching. Many areas of the country have a great deal of empty commercial space. If you own your facility, talk with your bank about refinancing. Interest rates have been decreasing and, while you will need to pay closing costs, in the long run, you may come out ahead financially.

Renters with an option to purchase should regularly calculate whether buying is in their long-term best interests. Although rent is deductible, you acquire an asset when you own. Whether it makes sense depends on factors such as the local real estate market, your long-term plans, and the down payment required. Ease of implementation: Simple to moderate

So there you have it: 11 ideas regarding your physical facility to look into during 2011. Before you start to implement any of these ideas, you should consult not only your attorney but your tax accountant and your financial planner. These individuals can help guide you to make sound business decisions and ensure that you do not run afoul of any federal or state regulations.

For more information…
The on-line
Practice Management Center has more information on operational issues in orthopaedic practices. To learn more about office overhead expenses, visit the Web sites of the American Association of Orthopaedic Executives and the Medical Group Management Association.

Note: The information contained in this article is intended for general information purposes and should not be considered legal or financial advice. Individuals who need legal or financial advice should contact a duly licensed professional.

Steven E. Fisher, MBA, is manager of the practice management group at AAOS. He can be reached at sfisher@aaos.org or (847)384-4331.