ABCs of Efficiency

In past posts I have spent some time talking about improving efficiency by changing little things, common sense things . I have given examples of some things that I have seen in my travels that just wasted money. The problem still remains, if you are stuck in a particular work-flow, you may not be able to see the inefficiencies let alone correct them. So, this post will serve to introduce the reader to a handy-dandy little idea for spotting inefficiencies. It is as easy as ABC.

No, I am not referring to singing a child’s song in the office. I am actually referring to a completely ingenious method called activity based costing (ABC). This method is used by some of the most efficient companies to identify areas of inefficiency by considering indirect costs invested in to various activities. For the novice, I will first explain indirect costs. To do that, we will start with direct costs.

Direct costs directly relate to the activity at hand. For example, in a doctor’s office the cost of a disposable surgical tray, can be ‘directly’ subtracted from the payment for the surgical procedure to have a better understanding of the actual value of the surgery. Look at it this way… the patient will need to have a minor procedure in the office. The insurance will pay $200. In order to perform the surgery, the doctor must use a disposable surgical tray that he bought for $50 from a medical supply company. As there is rarely additional reimbursement for the surgical tray, the surgical tray is an expense the doctor can easily and directly subtracted from the value of the surgery. With that, the surgery is actually only worth $150 ($200-$50).

Now think of the other costs associated with the surgery. First there was a the receptionist who checked in the patient. Next the medical assistant helped the patient undress and the nurse took the vital signs, etc. The salaries of these staff members are cost too. Since these workers each assist multiple patients and do other non-surgery related tasks as well, it is difficult to relate their salary to the surgery. Because we cannot relate it directly to the originally mentioned surgery, it is an indirect cost.

In true activity based costing, each task resulting in indirect costs would be calculated on an ongoing basis and it is a bit more complicated than this. While it is possible, it may not be practical for many healthcare providers to do this all the time like a large manufacturing company might; however, it is practical and beneficial to do an ABC assessment as part of an overall financial health check-up for medical practices.

Since few medical practices have the high-end tracking and accounting systems required to really perform activity based costing. I will give you a little tip on a easy way to do your own variation on ABC. It is best to hire an outside party to do this review as an outsider will not have the same bias staff may have. Plus, you do not want to upset the existing workflow. There is no need to hire someone really expensive – a pre-med student from the local college will be very glad for the internship opportunity to learn about the business aspects of medicine.

To begin, the office manager or doctor should use Excel to make a list of functions in the office. The functions will be listed in the rows of the first column. Functions, for example, might be front desk, billing, nurses, medical assistants, etc. Under each function, itemize tasks completed by these functions in rows beneath each function. The items on the list should be relatively broad while breaking down the major tasks in the office. For example, telephone calls should be an item but don’t break down the list by the type of phone call unless you are assessing billing where it would be helpful to assess the time dedicated to patient calls versus accounts receivable follow up.

At this point, the intern gets to work! The intern should be instructed to watch different functions work and record the approximate time in minutes associated with each task. For the most comprehensive results, the intern should spend a 2-3 full days with each function. Be sure that the time spent with each function is equal so you can compare apples to apples. To avoid disruption and skewed results, the intern should limit their interaction with the staff; however, some questions are inevitable as the intern may not recognize some of the tasks without asking . Don’t worry too much that the times are not perfect. In this assessment we are only trying to get a relative understanding of times as we look for patterns indicating inefficiency. The intern should also be instructed to documenting any additional tasks, missing from your worksheet that seem to be a major part of the function’s job. At the end of each day of the assessment, the intern must record the total time for each task by function.

When the intern is done evaluating with each function (2-3 days data recorded)

• First, average the time associated with each task.

• Next, average the salary (e.g. cost) per minute by function.

• Now, multiply the average cost by the average task time

• Finally, multiply the total from the last step by the number of working days in an average month to come to your monthly cost per task.

Now, you can evaluate your practice to see exactly how you are spending money. If you find that one task is very expensive as compared to others, you can look for ways to streamline that task. Here's a sample:

There is, however, a big caution here! DO NOT assume that an expensive task has no return on investment. DO NOT eliminate tasks because they look expensive in a general assessment like this. The purpose of this assessment is to determine if the costs are effectively accomplishing goals of the practice. You need to use this tool as a guide to begin a search for inefficiencies in processes ONLY. Remember, this is simply the a first step to help you determine if the costs are making effective use of resources.

Don't Pay Full Price!

Once, I called Discover, the credit card company, to cancel a personal card because the interest rate was really high as compared to my Visa. So, I explained this to the rep and asked him to cancel it. Immediately, he decreased my interest rate. I never knew that was an option. I was just calling to cancel the card. Obviously, I got on the phone with my other credit card companies immediately to try the same thing again. Threaten to cancel the card and compare them to their competition, get a rate decrease - WOW, who knew? Now this doesn’t work for everyone because credit scores and debt ratio are a factor; however, this example is the basis for negotiation. And negotiation, is huge in business - even for a small business.

Many people are under the erroneous impression that a business has to be huge to negotiate contracts. While it is admittedly true that big business has an advantage, it does not mean that small businesses have to pay top dollar for everything. Even a small, doctor’s office has negotiating power so long as you pick your battles and arm yourself with legitimate cause.

Rule: Negotiate your vendor contracts to get better rates

Here are some basic tips that can save a fortune in the long run:

1. Call your business credit card and ask them to decrease your interest rate. If you have good credit and an acceptable debt ratio, threaten to go to another company.

2. Shop around for office/medical supplies. Then call all of the same supply companies back again and tell them their competition had better prices. Watch how fast they offer to decrease or match the price. 

3. Call the phone company - ask if they have any good promotions going on. You will often be surprised by the answer. Do the same with your internet service provider. Ask about package deals for phone and internet. Then call the competition armed with the information.

In a similar vein, you should make sure you are getting what you pay for! Here’s another story for you. I worked with a doctor that bought a refurbished ultrasound machine for $40,000. The shipping / delivery was 3 days late. Since it did not arrive on time, the trainer could not come for another week to show the doctor how to use it. I called the company to complain about how we were losing revenue everyday because of this delay. Now, I expected a a refund on the shipping charges and a trainer to be sent sooner... maybe an apology. Instead I got... a trainer in the office the very next day, a full refund on shipping charges, 3 months supply of thermal paper (which was a painfully expensive necessity for the machine), and a 6 month extension on the warranty (worth about a $1,000). I was floored! The company wanted to satisfy their customer - and they did. In the end, my little complaint on behalf of a small doctor’s office saved the practice a lot of money!

There is a strong misconception that small business cannot negotiate things. While it is hard to negotiate with insurance companies for a better payment schedule, unless you are in an under served area, offer uncommon services, or belong to a larger organization, you will find that most suppliers are quick to offer up the discounts - even to a small business.

In short, open your mouth - ask for a better deal. You often get what you ask for!

Technology Improves Efficiency

I thought I would talk a little bit more about efficiency. Just recently,  I decided to buy a new software called Dragon Naturally Speaking. I thought that using Dragon might make me more productive because I could dictate my posts in the car while driving.  This is my first attempt using Dragon in the car, but so far I find this is a really a useful software.

I wanted to give this example of how I’m using the Dragon software in order to improve my own efficiency.  I find in many businesses that efficiency is not a top priority. Perhaps, many businesses don’t realize the importance. As I’ve mentioned in previous posts, efficiency helps to cut costs by cutting down the amount of time that it takes people to complete tasks. And I can’t say that Dragon is necessarily the solution for everyone, this is simply one example of the way technology can improve efficiency.

Rule: The right technology can streamline any business and improve efficiency.

Technology can improve workflow and function in many ways. Before I proceed,  I think it’s important to let the reader know about my personal bias. It should be known that I work for an electronic medical record software company. With that, I like to offer you my assurance that this blog is was designed to offer healthcare business management tips that I’ve learned over the years.  This blog will never attempt to sell anything. This is simply a means of sharing my experience in the trenches in an attempt to give the reader some common sense healthcare business management tips.  In this post I will talk about electronic medical records and other times, I will talk about other types of efficiency-provoking software, but I will keep it relatively general with regard to EMR to avoid seeming bias. To support my promise, I’ll do my very best not to even mention the name company by which I am employed; however you decide to go out and do a Google search on my name - more power to you.  

Now with that said,  I’m going to go ahead and give you my perspective on EMR .  I want to talk about a common misconception that EMR causes practices to lose productivity. It commonly said that when a medical practice implements an electronic medical record productivity decreases because the workflow has to be reinvented. But let me pose this question instead, is it possible that your workflow needs to be reinvented? Just because something seems to be working doesn’t necessarily mean that it is. How many areas in your business could be improved with simple changes.

That’s what I have found every company with which I have worked. It may seem like things are working but there were problems no one bothered to notice. For example, many medical practices have a  problem with lost charges. Lost charges equal lost revenue.  In another office the problem was inefficient project management and working within budget.  What was the solution? The implementation of the appropriate technologies. Technology works like an extra brain outside of your head helping keeping track of the details.

Now the biggest question  of all… Did the new technology reduce productivity? Yes, temporarily! Our productivity definitely went down for a little while. As everyone was getting used to the new technology, productivity decreased and staff complained. But, I didn’t budge. I reinforced the importance of using the new technology. Then, after little while the staff became acclimated and guess what happened. Productivity skyrocketed!  That’s what you’ll find with an electronic medical records.

For a little while, as you get used to using electronic medical record, it’s going to take longer to do things. It is a change to your workflow; however, in the long run you’ll find that the productivity will increase in a way that you would never imagine. Here’s the caveat - you have to use it right! A lot of medical practices have a tendency of implementing partial technology. That’s wrong!  if you don’t use it right, it’s not going to work.  That means that you have to take a little break from your usual routine to get used to the technology and learn how to use all of its capabilities. In the end you’ll find out that by using it fully your workflow will improve. In the long run you will be more profitable because of increased efficiency.

 Unfortunately, people have a tendency of getting comfortable in their workflows. Therefore, any changes to that workflow are perceived as bad. But simply because you’re stuck in a particular workflow above it doesn’t mean that that workflow is right. As a matter of fact, for most medical practices, the workflow is just plain wrong! The best thing you can possibly do is to talk to your technology vendor and ask them what they recommend as the optimal workflow when using that software. You’ll find if you are willing to be flexible you will improve your profitability.

Here’s an example: I was working with a medical practice just the other day. The doctor called me up complaining that he found that the practice lost charges.  The practice uses paper super bills and maintains a secondary paper log book to track charges (the paper log book served as a checks and balances system to make sure they recorded everything). Still, for all this redundant, manual work,  there were charges that were never billed to the insurance company. I asked him why he wouldn’t be using the electronic super bills that are available on the software that he’s currently using and why he is duplicating efforts with the paper log? These checks and balances are available in the software(no double entry required)! The doctor’s response to this was ‘because I like my paper super bills’. But, obviously you like something that doesn’t work – use the technology the right way or stop complaining!

So perhaps you already have an EMR –the general concept can apply are million areas in your business. It just requires simply stepping back and realizing that maybe your current workflow is not as good as you think.  Reassess your work flow and ask yourself these questions: What is getting lost? What is not getting done on time? What is taking too long? What efforts are redundant?

Now for the hard part. Be objective – it may be time to realize that your workflow isn’t right, perhaps it’s very wrong. Just because you’re comfortable in that workflow doesn’t mean that it’s profitable. Simple changes and the implementation of the appropriate technologies can help streamline your workflow, saving you time and money. You will have a little downtime, you will lose revenue in the short term, but the long-term benefits will greatly outweigh those losses and make it very worth it! 

Evaluating Profitability

I think that the last post about office efficiency is such an important topic, that I will be going back to it again in a future post. Honestly, there is so much to say, that an entire blog could be dedicated to efficiency alone. But, for now, we’ll mix things up a bit and talk about evaluating parts of a business that are not profitable.

Rule: Evaluate operations and eliminate anything that's not profitable. 

For this topic, I have a great example. When I was consulting, I assessed a medical practice. It was an urgent care clinic open from 7am to 10pm. The practice was in serious trouble financially and had to improve profitability or it would have to close. The clinic could not meet payroll and even was way behind on rent... it was a really bad situation. Anyway, during my assessment I found some major problems. First their billing was a mess - but that is a big topic for later.

Next, the practice was losing money because of their office hours. As an urgent care clinic the owners felt it was appropriate to have extended hours. However, the costs were not justified. During a two month period, the practice had only 3 patients after 9:00 pm. So that translated to 30 hours per month, paying a full staff, including a nurse, a front desk person, a doctor, and an x-ray tech, to sit around and get paid to do nothing. In addition to staff, the practice was paying 30 extra hours per month for electricity to keep the equipment running and the lights on.

The next major problem was x-ray. Again, the owner wanted a full service urgent care facility. He believed that he could mimic an emergency room but do it better. With x-rays, the practice was renting equipment and had 2 full time x-ray techs. However, they rarely did any x-rays. Maintaining the equipment and the staff was killing the practice.

Often business owners, management, etc. have an image in their mind of the perfect business, as this one did. He wanted the perfect, full service, urgent care facility. A dream is great, but if it is not profitable you have to let it go. Before losing money on a new product that no one wants or will use, research whether it will be valuable to the business’s bottom line. If, like many small businesses, you make a mistake and begin something that is not valuable - stop it. The most important thing is to be aware. It took me only a few hours to find out why the practice was failing. Unfortunately, they had already lost a ton of money by the time I came in to make recommendations. That lost money is gone, spent, not coming back. Such assessments should be an ongoing managerial process to guarantee ongoing profitability.

The assessment is quite simple, compare how much money you are making to how much you are spending. Remember to think about all aspects of cost including staff (don’t forget vacation, benefits, workers comp) and the less obvious expenses like keeping the lights on for an extra hour per day. Such financial assessments can get quite complicated, if you are assessing of the value of previously purchased equipment, you will be spreading the cost over the expected life of the equipment, considering depreciation as well as anticipated maintenance costs. Don’t complicate an initial assessment. Before jumping in to the heavy duty accounting - just look for obvious sources of loss with a simple comparative analysis of costs compared to profit.

Maximize Efficiency, Minimize Loss

Profit and loss is such a fun topic that it deserves several posts. Giving P&L a real world application helps one to understand what it is, but it does not help us to apply in the business of healthcare...And there are a TON of applications in the business of healthcare.

Over the years, I have worked with medical facilities and private physician practices in medical billing, management consulting, and now healthcare information technology. In every aspect of every business, there is an opportunity to apply profit and loss concepts to improve profit and minimize loss.

There are two things to look at with profit and loss - those are profit and loss. Ok, that sounds obvious but people often do not realize the control you have over loss, how loss is incurred, or what loss really is. So to begin, I will focus this post strictly on loss. Since this a big topic, it will span several posts and I hope provide some ideas about minimizing loss in a healthcare setting.

Rule: Minimize Inefficiencies and you WILL maximize profit

This can be a challenge because you have to be able to see inefficiencies and unfortunately, when one is stuck in a routine inefficiencies are not always obvious. Perhaps this post will point out some things you do not see and help improve profitability.

Here is a basic concept to keep in mind while you read this post. Time = Money. If your time is not wisely spent, you ARE losing money. This applies to the most basic concepts and the most complicated. In this post, I will note some obvious inefficiencies that cost a fortune in the long run. Again, using the medical practice as an example.

First lets look at office layout. I once worked for a practice where the front desk was at the front of the office and the fax machine was in the kitchen at the back of the office. Back then, we were heavily dependent on faxes for test results, surgical clearances, and sending reports out. In order for the staff, who worked in the front of the office, to retrieve a fax, we had to walk to the back of the office to get to the kitchen. Go ahead, laugh...’she is complaining about walking 20 feet to retrieve a fax. Ok, I see why you would think this is an foolish complaint; however, there is more to it. First, I had to leave my work, interrupt a project to go check the fax regularly as we never knew when emergent information may come over.That interruption happened upwards of 15 times a day.

Now remember, the fax was in the kitchen... well while I am there, let me just get a cup of coffee, use the bathroom (just next door), oh, and Barbara is on lunch in the kitchen so “let’s chat for a second about the latest office gossip”. So now, the trip to the fax takes 3 minutes. No biggie, right? Let’s do the math: 3 minutes times 15 times per day = 45 minutes per day lost to the fax machine. That’s a lot of time that translates to “I need to stay late tonight (and get paid overtime) because I have so much work to finish”.

Next, lets look at interaction with patients. The practice I mentioned above was a surgical practice. As such patients had questions about surgery including administrative questions. The doctor would answer the questions as best he could, then the patient would ask the front desk staff again because, facing surgery their mind was not clear and what the doctor said didn’t sink in. Later that day, the patent's husband/daughter/grandson/nephew would call with more questions the patient failed to ask.

Now, you are thinking well if you give them a pamphlet about the procedure they are having, you wouldn’t have to answer all these questions. I agree, however, patients asked other questions, unrelated to the procedure. For example: . can I donate my own blood, when will the hospital call to schedule testing, will you tell my primary care doctor, did you know I see a cardiologist,, should I stop my aspirin, do i need to call my insurance, and so on. The biggest problem was the the questions were repeated again and again with the patient and the concerned family members.

This was such an investment of time to a single surgery! So, here’s what we did. We developed a surgery FAQ (frequently asked questions pamphlet) and the surgical coordinators sat down witht the patient for about 5 minutes or so to go over the contents. This served two purposes. First, the coordinator used it as a check list (remember to send the chart for precert, check if the patient is on blood thinners, etc) so that the coordinator didn’t have to do things twice. Also, the patient walked away with a list of FAQ to reread later or to give to the concerned family. Lastly, the meeting with the patient to go over the FAQ made the patient feel safer.That is a huge time savings.

As you can see, it is really little things that make a difference. Now, these examples are only few yet there are millions of possibilities to save time once you really understand that time = money. To improve profitability, you must examine every detail of the work-flow. Even if it is working well - could it be better still? At times this can be very hard. That’s why consultants sometimes play a big role in such improvements, they can be objective in their assessment. Just remember, in profitability every second counts because time is money.

What's Profit and Loss?

Years ago, I interviewed for a job and the interviewer asked me what I knew about P&L. The question blew my mind. Immediately, I feared that I was not qualified for the job. My confidence vanished with two letters P & L. I answered that the accountant was the one who maintained the P&L report using an accounting software (here is where you can laugh till your sides split – I know I laugh at this reply now). The interviewer just looked at me and said –“ahhh… guess that’s ok… I suppose it is something you can learn”. Funny enough, I still got a job offer.

Of course, I was mortified and had to go learn about P&L. I already knew it referred to profit and loss, but how that applied outside of accounting – why would I know it without a CPA, I could not imagine. So, I researched it and not only could I learn about profit and loss, I already knew it very well. We all know it well. It is basic survival!

Profit is how much money you make and loss is how much goes back out. Still, there is a bit more to it. But still it is easy and common sense. It relates to keeping within a budget and working smarter not harder. Further, it refers to opportunities taken and lost. While we all touched on this stuff in finance classes, econ class that wasn’t real - yet we do it really every day.

When you choose to drop the kids off at the field on the way to the supermarket – since it is ‘on the way’ – you just maximized profit and minimized loss. You saved on the gas required to two trips. You made the most of your time (assuming you only slow down to 60 mph and push the kids out the window as you pass the field). But seriously, you just mastered profit and loss in the form of efficiency resulting in savings.

When you have to choose whether to take a new job or remain with the same company, you are deciding on how to maximize profit and loss. Which option will give the best profit which will result in the least loss. Assuming that your current job isn’t terrible - a job change would result in leaving any seniority you may have, you’d leave stability, and change your routine. You may miss an opportunity for advancement with your current company. For what, the new job is paying $1.50 more per hour? But perhaps, the new job also has superior benefits. That choice, is profit and loss. You know there is always a trade off. You cannot pursue two opportunities at the same time. So you choose the option that is likely to bring the most profit and the least loss. With this, you are a master in understanding opportunity cost.

Above, I referred to budget as well. Who doesn’t have a budget? You know what you earn. You know what you need to survive. You know what you can and cannot afford. Smartly, you buy within your means. TA DA budgeting. You budget so that you don’t spend more than you have. You budget so you can keep the maximum amount of money in the bank for other things. You want as much purchasing power as possible so you shop at discount stores where you can buy more things for less money. This too is profit and loss in the form of budgeting and resource maximization.

The basic idea – make the most with what you have, try to get more for less, live within your means. The same applies in business. The difference between business and personal profit and loss – not much except the number of accounts. Business related profit and loss can teach a person a lot about how to handle their personal life and vice versa. You can see that in this basic interpretation of profit and loss: always stay within budget, plan wisely for the future, maximize efficiency, think about getting the most out of your selection between conflicting opportunities, maximize your use of resources, eliminate redundancy, buy supplies that offer the most value toward your ultimate goal – whatever that goal may be.

Now, all this time later I can honestly answer: Yes, Mr. Interviewer, I know all about P&L