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Ask-A-Consultant: Staffing and overhead

Q:

I recently joined this 7 physician practice as business manager. The senior partner's wife has been running the practice for 10 years (and I quote)"like a small, family business."  The practice is understaffed; staff had been untrained, unsupervised and the group has no leadership (sr. partner holds 51% of the shares and rules the roost), no strategic plans, no protocols or policies.  The wife has used overhead as they sole figure for making business/financial decisions. Overhead. Their overhead is kept at $20-24% and I have been informed it should be kept at 20 as a rule ("we were UP TO 24%").  Can you tell me where a highly efficient cardiology practice,
reasonably,and typically is with regard to overhead?  My background is rheumatology/immunology and orthopaedics.

We have 5 offices (3 are satellites, 1 is a nuclear cardiac center).

I inherited an A/R w. 972,000 in unpaid claims > 180 days old.

A staff of 17, includes a N.T., 7 "nurses" (5-M.A.'s, 2 R.N.s), 3 F.T. front office (reception & check out), 1 P.T. medical records clerk, 4 billing staff and 1 P.T. receptionist for the nuclear center.

When I assessed the problems, it is clear they are grossly understaffed. Patient satisfaction is LOW! Staff morale is LOW!  In my opinion these are symptoms of understaffing!!

Your thoughts?
 

A:

We believe your assessment of understaffing is correct. Your reported staff of 17 actually includes less than 17 full time equivalents (FTEs) because you employ a part time medical records clerk and receptionist. If we assume these employees work 20 hours per week and your other employees 40 hours, you have 16 FTEs for seven physicians or 2.28 FTEs per physician. National survey data for cardiologists indicates average staffing of 4.2 FTEs per physician. Although it is not unreasonable to expect to have some economics of scale with a seven physician practice, your staffing ratio appears to be much lower than needed to get the job done. The impact of the understaffing is evident with regard to your AR problems. This is clearly an area where the practice needs to “spend money to make money”.

As to your overhead, we agree that targeting a 20% overhead rate is not realistic, especially considering that the practice has five locations and a gamma camera. An overhead rate in the low twenties may be appropriate for an interventional cardiologist with a limited office practice and few ancillary services, but rates of 30 to 35% or more are more typical for full service cardiology practices. By way of comparison one national survey reports overhead for cardiology practices of 42%. While we don’t suggest that your practice should have a rate this high, the objective should be to maximize net income as opposed to solely concentrating on minimizing the overhead rate.

By increasing your staffing ratios, the practice will likely see significant improvements in a number of areas. The additional investment in staff will be returned not only in improved patient satisfaction and staff morale, but also in additional net income from improved collections.
 
 

Russell B. Still
Vice President

MMA does not provide legal, accounting, or tax advice.  If you need assistance in these areas, we recommend that you consult a qualified professional.  In addition, please note that a client relationship with MMA is not established by the submission of a question to this forum or by the publishing of MMA's response.



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