Small Business Lessons for Physician Practices – Part 4 of 4 – Operations Management for Physician Practices

Laurie Morgan December 23rd, 2011

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The operations management variables that impact a medical practice’s productivity and patient satisfaction are similar to those that matter to manufacturers

Would it surprise you to know that the operations management variables that impact a medical practice’s productivity and patient satisfaction are similar to those that matter to manufacturers?  Manufacturing managers consider issues like plant layout and structure, equipment replacement, scheduling optimization, inventory management, and quality control.  These terms may sound like management gobbledygook that has nothing to do with a medical practice…but let’s take a closer look.

Plant Layout

In manufacturing, mistakes in plant layout can undermine – even wipe out – a company’s profitability.  For example, if partially fabricated products must move long distances across a plant, that can significantly increase production time, increase the potential for damage to components, even add costs for forklift operators and fuel.  Better workflow would eliminate all those extra costs – and immediately improve the manufacturer’s productivity.

Workflow in a medical practice is also important to efficiency – and profitability.  If your office set-up and procedures require extra footsteps, then those small inefficiencies can add up to a real bite out of your productivity when repeated over thousands of patient visits during the year.

One of our clients inherited a terrible office layout when taking over a colleague’s practice.  This busy doctor’s exam room was down a hall and around a corner from her nurse’s station – so he could never get his nurse’s attention without a trip down the hall.  The doctor quipped that this inefficiency gave him a little extra exercise, but in reality it was adding as much as a minute or two to each appointment. It would be much better to fix this problem and have an extra couple of hours a week to spend at the gym – and save on staffing costs.  (Or see a few more patients!) Reconfiguring the awkward layout wasn’t possible, but we came up with a simple solution: a discreet bell that the doctor could chime to let the nurse know to come back to the exam room.    

In our consulting business, we’ve found that most practices don’t consider the cost of little inefficiencies like these – repeated extra steps.  Some of the most common layout inefficiencies we’ve noticed:

  • Phones not easily answered from anywhere in the office
  • Supplies not readily available in all exam rooms
  • Patient entrance/exit paths not clearly marked
  • Most used areas of practice located furthest from check-in
  • Too much space allocated to lower-productivity uses.

Even when redesigning the office is impossible, small fixes can ameliorate many layout problems. 

For example, adding phone extensions in multiple areas of the office can allow staff located away from the check-in desk to pick up a call in the event of a sudden rush of calls – saving the time of listening to messages and returning calls, better serving callers, and potentially capturing prospective patients who might have hung up and called another doctor.

If repeated trips to a central supply room are adding steps to the daily routine (and causing delays in completing patient services), more storage is likely needed in each exam room. Be sure there’s room to stock a full day’s supplies, so that this is a once-a-day task.

Equipment Replacement

In manufacturing, it’s critical to replace outdated equipment at just the right time to avoid downtime.  Even a few days of downtime can jeopardize a small manufacturer’s profitability.  On the flipside, manufacturers must also be vigilant about investing in equipment upgrades that can improve productivity.  Calculating the payback period of such investments is key.

Too often, medical practices fail to do this sort of analysis of technology investments – instead assuming that delaying technology purchases to save money is always the right way to go. However, upgrading now could be much more profitable than delaying if it can increase practice productivity.

Recently, we worked with a practice that was reluctant to replace either its billing hardware or software because they thought they were saving money by not doing so.  But, the practice had grown, and its slower computers couldn’t process all the bills in a timely fashion – in fact, they had been happy if they managed to bill once a week!  Worse, the software was outdated, lacking a graphical interface, so that there was a steep learning curve for staff who needed to use it for practice management.

For our client with the outmoded, server-based billing system, almost any kind of modernization would have paid for itself quickly – and improved the profits of the practice from that point on.  But we also advised the practice to look closely at cloud-based providers like Kareo.  Working with a product like Kareo that is automatically updated can take some of the burden of deciding when it’s most profitable to upgrade off of doctors and practice managers. 

Inventory Management

Manufacturers care about inventory management because buying supplies and parts ahead of schedule or making finished products before they’re needed means that cash is tied up in those items.  In the worst cases, products are built that become obsolete before they can be sold.

In a medical practice, there are some parallels — for example, medical supplies that you need to have on hand, but that expire.  Rather than ordering these in excess, establish a process for ordering them just in time – and for taking perfect care of highly perishable supplies like vaccines.  Most practices find that it’s very hard to get full reimbursement for vaccines – if supplies are allowed to expire and thereby go to waste, vaccines become a net cost to the practice!

Buying in bulk is often a cost-saving option for non-perishable supplies.  But, those extra supplies need to be stored somewhere.  If stocking up takes up space that could be used for more profitable activities – even handling additional patients – it may be time to reconsider the value of bulk-buying.

Scheduling and Control

For manufacturers, scheduling plant operations optimally is essential for profitability.  Just starting up the plant often means significant costs for payroll, electricity, etc.  If the plant is open but idle, costs can run up dramatically – with no revenue to support them.

A medical practice may not seem much like an assembly line, but opening the doors each day requires outlays for utilities and payroll (typically the largest cost for practices).  Scheduling inefficiencies are one of the most common productivity problems we see in practices; downtime during the day is a direct hit to profitability.  Too often, staff will ask patients, “When would you like to come in?” instead of offering the next available spot to keep the calendar full.  Don’t leave scheduling up to patients – offer them times that make your practice more profitable first.

Quality Control

In the early 90s, an idea took hold in manufacturing that still applies today: Quality is free.  The theory was that quality problems cost businesses customers, and that errors in production were costly to fix – so, avoiding them in the first place was more profitable.

The idea that quality is free is perhaps the most relevant operations management concept for medical practices. In so many ways, practices can’t afford errors – not only can they decrease practice profitability, in the worst case, they can be dangerous to patients.

The chief idea behind manufacturing quality control is that when quality is consistently inadequate, it’s often a problem of the system, not the team.  It’s easier to point fingers and try to eliminate poor performers.  But, over the long run, well-run practices will examine how jobs are structured and the day-to-day processes of the practice to identify ways to reduce opportunities for errors to occur.

Putting It Altogether

Effective operations management ultimately means conducting your business so that all of your investments of time and money – whether physician time, staff time, supplies, even your rent and utilities – are allocated to patient care.  Minimizing your steps through the office, managing your schedule to reduce downtime, keeping equipment up-to-date and timing and optimizing your inventory purchases all allow you to serve each patient with as little associated expense as possible.  And that contributes to making your practice as possible as possible!

Thinking like a businessperson has been the theme of this Small Business Lessons series of articles.  A medical practice is a business with a higher purpose of patient care, but it is nonetheless a business.  Thinking of it as a business and aiming for efficiency and profitability means better compensation and financial stability for physicians and staff.  And, this in turn allows the practice to continue to pursue its higher goals.

Small Business Lessonsis the fourth in a four-part series.  The other articles in the series are Small Business Lessons: Human Resources, Small Business Lessons: Getting Started With Marketing, Small Business Lessons: Financial Basics.

Laurie Morgan is a management consultant with Capko & Company. She specializes in marketing, management and technology for medical practices and blogs about practice management issues at . Laurie has a BA in Economics from Brown University and an MBA from Stanford.

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