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December 17, 2010

Dear doctor - overhead isn't the enemy

A good deal of disagreeable behavior exhibited within medical groups can be traced back to money - and overhead is an easy target because everyone understands it (and it's always "too high"). Fanatical focus on how overhead is divided is usually a harbinger of the inability or unwillingness to address other issues in the Practice according to Randy Bauman at Delta Healthcare (http://www.deltahealthcare.com/bauman.html).

"Last year we did an assessment of a group where the overhead was "too high" and found a majority of the physicians producing below the 30th percentile compared to national surveys. Blaming it on the overhead is a typical way of distracting the discussion.

Groups with higher overhead generally report higher physician incomes. To paraphrase management guru Tom Peters: Your ability to cut costs is limited, but your ability to increase revenue is unlimited.

Almost any practice in financial trouble can trace it's problems back not to overhead, but rather to problems on the revenue side. Focus on negotiating better contracts with payers. Focus on improving collections. Focus on learning to code better. Focus on being more efficient with your time. Don't fret so much about the overhead.

I regularly ask physicians if they would invest in a new ancillary service that would produce a guaranteed $1 million in revenue with 80% overhead and always find several who say no -- the overhead is too high.

Many large, successful enterprises in this country provide a nice return to shareholders by seeking out a pretty modest profit margin. Physicians need to remember this concept. If a service is revenue-positive, it's revenue-positive. Twenty cents on the dollar is better than zero cents on the dollar."

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