Comprehensive Guide to Managing Medical Practice Operating Expenses

Running a medical practice involves more than providing excellent patient care – it requires managing the expenses that keep daily operations running smoothly.

From staffing and technology to routine costs, understanding where resources are going helps maintain efficiency and stay competitive.

A detailed checklist can simplify the process, offering guidance on handling expenses and improving overall financial management. Whether starting fresh or refining existing workflows, having clear strategies in place can make a measurable difference in how a practice operates.

Consider These Steps to Manage Your Medical Practice Operating Expenses:

1. Evaluate KPIs: Key Performance Indicators

2. Updating Practice Management Tools

3. Efficiency and Workplace Management

4. Hire Thoughtfully

5. Identify What Your Competitive Edge Is

6. Try to Increase Patient Referrals

7. Reconnect with Former Patients

8. Strengthen Patient Communication
   
   

1. Evaluate KPIs: Key Performance Indicators

To truly maximize your revenue, certain indicators display your performance that you should be aware of before you ever see your first patient.

Doing this will allow you to keep a clear vision of the benchmarks you should be hitting so you know where you’ll need to make adjustments.

Here are some of those KPIs that you should always have on your radar:

• Verification of benefits and collection of time of service payments should be 100%.

• Prior authorizations and pre-certifications should be 100%.

• Coding review and claim scrubbing should be 100%.

• Clean claim submission rate should be greater than 95% (best is 98-99%).

• Denial rate should be less than 5%.

• Your Adjusted Collection Rate should be 98%.

• Reimbursement ratio (closed claims vs. overall claims) should be equal.

• Negotiating your fee schedule at 100% optimization.

• Days in Accounts Receivable (AR) should be 30 days or less. 
  
  

2. Updating Practice Management Tools

One of the most common sources of frustration among staff in private medical practices is outdated practice management software.

The days of having to sort through dozens of filing cabinets and folders are over, and going digital is a necessity when it comes to practice management systems.

Here are some indicators that your system could use a refresh:

• ICD-10 Compliance: Since October 1, 2015, ICD-10 compliance has been a standard requirement for medical practices.
  
  If your system cannot process ICD-10 codes, it’s likely outdated and may need to be replaced with a more modern, compliant solution. Ensuring that your practice management tools are equipped to handle current coding standards can reduce errors, improve efficiency, and support smoother operations.

• Billing Staff Workload: If your billing staff is overwhelmed, consider outsourcing assistance that has the resources to handle all your revenue cycle needs. Instead of trying to drive your staff to do more with fewer resources, consider optimizing the resources they currently have.

• Inadequate Reporting: Immediate access to data allows you to make better decisions, improving your practice’s clinical, operational, and financial performance.

  With adequate reporting, you can analyze data about accounts receivable; payer performance; patient charges, payment, and demographics; and quality of care/clinical outcomes.

• Insufficient Customer Support: Customer support is particularly important during the transition to ICD. If your current vendor won’t be able to help you navigate the transition process, it may be time to consider finding a different one.
  
  

3. Efficiency and Workplace Management

Often, when looking to reduce costs in private practice, owners look toward optimizing their operational efficiency. This means refining your staff and operation processes to trim the fat and only incur costs that are necessary to run your practice.

Analyzing your patient volumes compared to the number of staff you have allows you to truly see where you could tighten up when it comes to expenses.

• Hire Based on Patient Volumes: Be sure there are enough providers to handle your patient volume, and that the nurses and support staff have the skill sets and competencies to meet each patient’s needs. Fulfilling a nurse-to-patient ratio isn’t sufficient. To provide adequate care and promote patient satisfaction while containing costs, you should have staff at different skill levels. 

  Using objective, reliable data and sophisticated analytics can help you make staffing decisions based on evidence and desired outcomes.

• Monitor and Cut Back on Overtime Pay: Reducing overtime is the most successful way to save on labor costs.  Be sure to pay attention to incidental—also known as incremental or creeping—overtime, accrued when employees arrive a few minutes early, work through lunch, or stay a few minutes after their shift ends. 

  By using data to analyze incidental overtime patterns, managers can develop policies related to shifting changes and lunch coverage that reduce extra hours.
  
  

  
  
  

4. Hire Thoughtfully

If hiring is on the horizon for your practice, make sure you’re extremely careful and efficient throughout the process, as filling a position on your team will likely cost more than just that person’s salary.

Things to consider at this time are what’s called “soft costs”, which are expenses that won’t show up on invoices but are still affecting your bottom line. These include loss of productivity as the new hire is interviewed, hired, and completes the onboarding process. 

• Outline Requirements: In addition to specifying the necessary credentials and experience, describe the personality type, work ethic, and customer service skills you’re seeking. For example, you may want your front desk staff to be empathetic, cheerful, and detail-oriented.

• Describe the Ideal Candidate: Consider how the ideal candidate would respond to a few hypothetical situations. Think about current and past employees. What type of person has performed well, been happy, and stayed a long time? What type of person hasn’t worked out?

• Offer Perks and Benefits: Your mature, experienced candidate may not be interested in your position or may be dissatisfied with the compensation. Therefore, you may need to offer perks such as a flexible schedule, educational opportunities, or discounts on care and services to entice the right people without significantly increasing your costs.

• Weed Out Weaker Candidates: Contact the applicants and ask them to perform a position-related task. For example, if you’re hiring a coder, have the applicants complete a short coding test. 

  Casual applicants won’t follow through. If you still have too many applicants, ask them to complete another task. According to Physician’s Practice, about 90 percent of your applicants will drop out with each request.

• Verify Application Information: If particular credentials or other job requirements are important to you, verify that the applicant’s statements are true.

• Give New Hires an Easy Out: Your new hire may discover that they have made a mistake. The sooner they acknowledge that and move on, the less time and money you will spend on the onboarding process. Your second choice may still be available.
  
  

5. Identify What Your Competitive Edge Is

The key to running a successful private practice is to know your target market and make sure that you’re operating in a way that not only attracts those individuals but also convinces them to continue coming back to your clinic.

When marketing your practice, consider the following five questions to determine whether or not your customers would be satisfied with your services

1. What is our vision?

2. What is our product?

3. What are our strengths?

4. How do we differentiate ourselves from others?

5. Who composes our market?

To determine the answers to these questions, it is important to collect and analyze data surrounding patient satisfaction.

Patients want a medical practice that they can trust and that provides them with the services they need, so be sure to highlight any aspects of your office that stand out as unique or valuable.

• Does your practice offer extended hours? 

• Do you have a patient portal that makes it easy to schedule appointments and request prescription refills? 

• How long do patients spend in your waiting room after their scheduled appointment time? 

Word of mouth is a powerful tool when it comes to healthcare marketing, so if there are pain points your patients are experiencing, it is extremely valuable to collect feedback and implement changes accordingly.

The other side of that coin is ensuring that once you do make improvements in the name of patient satisfaction, you have patients provide follow-up feedback to gauge the effectiveness of changes made and see your growth.

6. Try to Increase Patient Referrals

As we mentioned in the previous section, word of mouth is a highly impactful factor when speaking in terms of healthcare marketing. So it should come as no surprise that increasing patient referrals should be one of your key goals.

To do so, consider the following tactics:

• Physician Personalities: When choosing a physician, Americans place more importance on doctor-patient interactions and a doctor’s personality than on clinical outcomes. 

  Therefore, marketing materials should make physicians seem approachable and caring. Including short videos on your practice’s website and social media outlets is one good way to do this. 

  Physicians can talk about why they became a doctor, what they love about practicing medicine, or pretty much anything that shows their compassionate nature.

• Prospecting on Social Media: Social media is a tricky, but powerful tool in healthcare marketing because it is widely documented that most patients make decisions surrounding their practitioners based on the opinions of their family or peers, so by nature - social media seems like a genius way to tap into that on a larger scale.

  However, there is still the ever-present concern of abiding by HIPAA laws, so while utilizing social media is a smart idea, making sure you’re using it appropriately is crucial.
  
  

7. Reconnect with Former Patients

While staying in constant contact with every person who has ever visited your practice isn’t exactly feasible, it is important to stay in contact with patients who haven’t visited in a while. That way you can remind them of your services and encourage them to come back!

Annual physical exams and health screenings are not always top of mind. There is no harm in providing a gentle nudge to those patients who are delaying care and reminding them to stop in again.

Additionally, if you have made improvements to your practice, this is the perfect time to share that information with the patient to highlight new strengths and factors that make your practice stand out from your competitors.

8. Strengthen Patient Communication

Physician-patient communication is an important factor in determining patient satisfaction, especially for new patients. 

Instruct your staff to alert you of new patients so you can take that extra time to make a connection, asserting yourself and your practice as the best possible option. 

According to a recent study by The Associated Press‐NORC Center for Public Affairs Research, American patients evaluate provider quality and choose their physicians based on the provider’s bedside manner and perceived ability to listen to concerns with empathy. 

Clinical outcomes and other quantitative data play a smaller role in patient satisfaction than you may have previously thought. 

Essentially, a practice can be one of the best in its class and still struggle to attain (and keep) patients if its practitioners are not perceived as personable - therefore, physicians may need to work on their bedside manner to further develop their people skills. 

Customer Service Matters: Responding to a patient concern by saying, “I’ll find someone who can address your concern” is better than saying “I can’t help you; that’s not my job.” A sour attitude from the staff member at the front desk could be the difference between a repeat patient and a bad online review that prevents new patients from joining.

Reported Issues: Customer service problems are often related to poor use of language and to nonverbal language cues (such as avoiding eye contact). Consider coaching your staff to smile, make eye contact and say “hello” to patients, staff, and visitors alike.

Bringing It All Together for a Successful Practice

Checking off the items on the Medical Practice Operating Expenses Checklist can help you maintain a better idea of how your medical practice’s finances stand. From evaluating KPIs to improving patient communication, this list provides insight into the various areas that will need attention.

Overall, implementing any of these changes will have a positive effect on your operational expenses and likely improve patient volumes as well, so initiating several (or even all of them) could be the boost you need to optimize your practice’s operations.

For a better idea of how this list can apply to your practice, reach out to the experienced staff at 99MGMT today and schedule a free consultation.

Ready to make some changes?

It’s time to take the next step toward optimizing your medical practice’s operations. Whether you’re looking to streamline expenses, improve patient satisfaction, or explore new strategies for growth, we’re here to help.

(Editor's Note: This blog was originally published in November 2020 and was updated in November 2024 to reflect up-to-date concerns and considerations.)