A Dollar Saved is Two Dollars Earned but Two Dollars Earned is Twenty Dollars Saved – Here is How – Part 11 of 12

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Practice Financial Management – Insights & Tips From MedCV That You Need to Quickly Maximize Your Income

Financial Improvement

Hospitals and medical groups are finally shaking off the economic fallout of the Covid-19 Pandemic, but now historic inflation and looming economic uncertainties continue to place significant pressure on them to improve their financial performance. That’s why John Rezen (FACHE, MHA) in collaboration with MedCV has brought back this series of 2-3 minute reads on how you can assess and improve your practice financial performance in 12 essential areas. Each installment will help you and your team quickly add cash to your bottom line by allowing your practice to work smarter and harder. The following checklist of performance measures will help physician enterprises identify financial opportunities and accelerate their improvements. Below are the 12 topics, to read a previous segment, click on the name/link. The current segment is in Blue and upcoming segments are in Black.

Even if you are not directly responsible for the management of your practice, knowing this information will help you make sure you are making the income you and your team have earned. So let’s get started!

Tip 11 of 12 – Continued vigilance of supply costs and inventories will add dollars directly to your bottom line.

Supply & Drug Costs:

a. Assessment: The level of supply and drug costs will vary by specialty, so we must conduct the assessment at the specialty level. In addition, we may break the cost of supplies and drugs into two categories: consumables and goods sold. The method of assessing the opportunity cost of these two categories will vary.

For consumable supplies, we may calculate the opportunity value of savings by identifying your current cost-to-revenue for consumables and comparing it to a benchmark or target for this metric. As discussed in the Service Brief, setting a target will typically involve identifying your total cost-to-revenue benchmark and then determining the portion of this benchmark that is attributed to consumable supply costs.

Concerning goods that are sold, we suggest carving out the direct revenues and costs for the goods from other supplies. The opportunity value is determined by setting a target for the margin between direct revenue and direct costs. Setting this target will require research to identify industry benchmarks. Optimizing the margins on goods sold requires a recurring review, as any changes in cost or revenue on these items will result in losses.

b. Improvement Action: We may achieve improvements in both consumables and goods sold by ensuring that the organization is paying the lowest purchase price available for each item. This requires us to first identify the minimum quality needs for each item.

Next, we must evaluate pricing on a recurring basis. Improvements in both consumables and goods sold are best attained through flawless inventory management. Elements of a flawless inventory management system include eliminating losses through shrinkage and product expiration, as well as optimizing the balance between out-of-stock instances and minimizing holding costs. A third improvement opportunity is available for goods sold through increased revenue. To realize this opportunity, reference the previous entries in this series on revenue to learn how to deploy the contract rates and revenue cycle management actions on goods sold.

“Control your expenses better than your competition. This is where you can always find the competitive advantage.”

Sam Walton

As a physician, if this sounds like a lot of work and maybe even has your “business anxiety level” up a few notches, you are not alone. The great news is that your role in this should just be to make sure it gets done and that those who are going to be responsible and accountable for this can explain and report details about what the plan looks like and it’s status to you.

Share this article with your practice manager, group administration, or hospital administration to make sure they are working on this or see what resources they have to get at this work. If they need help getting started, they should consider connecting with John Rezen at Value Health. The key is to be able to have your baseline, you would expect your team to report to you the improvement(s) made and the results.

Stay tuned for the 12th and final Part of our Here is How series, Overhead Costs-to-Revenue next week. If you can’t wait that long, no problem, just contact John for the full 12-part series. Again, it’s in your best financial interest to ensure all of these 12 Key Performance Indicators are optimized. You should understand them and take action, even if that action is to share the series and your newfound business insight with your group or hospital administration.

President & CEO
Value Health, LLC

MedCV Advisory Board Member

John Rezen

Your Career is More Than Your Practice

MedCV is a Private Credentials Vault App built specifically for Physicians and Advanced Practice Providers where you can manage & control your most valuable career and practice documents, remind you of license and certification expirations, track your CME, and of course… even find your next great job! Additionally, MedCV includes important tips, tools, and resources to help you navigate the ever-changing “Business of Healthcare.” Join the MedCV community if you haven’t already!

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