Published 12/1/2015
Daniel H. Friend, MBA, PhD, CMPE

A Systematic Approach to Expense Reduction Analysis

In today's healthcare world it is more important than ever to "manage expenses." The typical practice administrator is constantly looking for ways to cut costs. However, these tasks are usually performed on an ad hoc basis without a scientific, analytical approach.

A spreadsheet that can be used to systematically review every area of a practice and to create a game plan to manage potential expense savings would certainly help. Such a spreadsheet would enable the practice administrator to review all areas of the practice for potential savings, note potential psychological issues related to cutting expenses, create an action plan to cut costs where appropriate, and save it as a living document to use to track actual versus expected savings.

Table 1 only includes the categories in this spreadsheet; the full, working spreadsheet can be found in the online version of this article, available at www.aaosnow.org

The expense analysis spreadsheet
The spreadsheet includes instructions at the bottom of the page. It is divided into several self-evident areas, with potential areas of savings classified into the following tiers:

  • Tier 1—quick and dirty actions that can reduce expenses quickly but generate the smallest dollar savings
  • Tier 2—activities that may be harder to implement but have the potential for greater savings over time
  • Tier 3—steps that generate significant savings but have the highest psychological costs (psychological costs include items that will show staff or individuals outside of the practice that times are tough and big cuts are needed, like cutting salaries or benefits)

In addition to tiers, the spreadsheet also segregates dollars by different impact zones (corporate, employee, office, physician). Because it is a tool, practice managers should feel free to add columns or rows to make it more user-friendly or practice-specific. Once completed, the spreadsheet can be used as a presentation document for an administrative review of potential changes.

The following synopsis of the spreadsheet will provide a background for your analysis.

Internal impact
This section of the spreadsheet shows which portion of the practice is being reviewed. It is broken into corporate, employee, office, and physician savings. The corporate and office categories relate to areas of potential savings that affect the larger organization. Employee and physician areas have a direct, paycheck-level impact (salaries, expense reimbursements, and benefits). Making changes in the corporate and office arenas has a lower psychological impact than making cuts to employee and physician areas.

Tactical expense management measures
The spreadsheet lists 63 specific measures that can be reviewed for savings. The first measure alone—Review vendor list for possible renegotiations—represents a large number of potential savings. Additional rows can be inserted as needed to list specific vendors or other tactical targets for a practice.

The decision to bring in a medical records copy service requires another step. The online version of this article links to a return on investment calculator specifically for medical record printing services. Follow the directions in the calculator to perform a quick analysis of this specific expense.

This column can be used to update progress on each tactic. Different scales can be used—percentage complete, in-progress to not-complete, not applicable—whatever works for the practice. This allows for a quick review of tactics when the spreadsheet is opened.

Savings potential
The potential savings for each tactic should be computed and input to the spreadsheet. This will enable tracking of total potential savings. For example, eliminating a uniform allowance of $2,500 for 4 employees results in a $10,000 savings.

The online version of the spreadsheet includes comments to consider for each tactic listed, including the practical and psychological impacts of making changes in the specific area. These comments can be replaced with practice-specific notes, such as vendors, existing costs from profit-and-loss statements, and actions to-date in the area.

Follow-up date
As a living document, the spreadsheet should be updated regularly. Follow-up to specific tactics/initiatives is imperative to the process. Use this column to note follow-up dates of importance to keep the process on time.

The last column notes who on the team is looking at the specific initiatives. Depending on the tactic, both clinical and administrative input may be needed. Consider creating teams to look at various tactics. This enables buy-in by a larger group so that if bigger cuts need to be made, employees will give some credit for being asked their opinions.

An expense reduction spreadsheet represents an opportunity to review expenses across a number of areas. It is a living document that can be adapted to how the practice views each item. By taking the time to go through each area, the practice administrator will be able to demonstrate fiscal responsibility and perform the important but unpopular task of expense management.

This spreadsheet is not copyrighted. It should be shared with colleagues. If you find additional tactics, please share them with me so I can include them in the master spreadsheet.

Daniel H. Friend, MBA, PhD, CMPE, is the principal consultant at Friend Healthcare Consulting in Richmond, Va. He can be reached at 804-296-7963 or DHFriend@gmail.com