How Well Is Your Practice Controlling Costs for Vendor Services?

By Jeffry Finkel The following article was published in the Atlanta Hospital News in December, 2008. In recent columns, I presented tips for reducing practice costs for vendor services including telecommunications services and equipment, merchant processing, and check verification and guarantee.  I also provided tips for increasing staff productivity and decreasing costs through employee training.  This column presents scenarios showing how practices saved significant amounts of money for these services. Reducing Telecommunication Service Costs: Problem:  An audit of an OB/GYN practice uncovered 11 months of overcharges for T-1 service at one location and excessive spending at a second location due to extra lines, unnecessary features, and non-discounted pricing. Solution:  Negotiations resulted in the vendor issuing a $1,650 credit and correcting the bill, thus saving the practice $5,500 more over the remaining contract period.  Eliminating excess lines and features, and enrolling the practice in a term agreement, saved the practice another $3,000 annually. Reducing Cellular Service Costs: Problem:  A dermatology practice purchased cellular service for its physicians.  The practice also paid for cellular service, data usage, and text messaging for several spouses and children.  An audit revealed significant over spending due to use of individual rather than shared plans, excessive monthly minute allowances, absence of text messaging packages… especially for the children… and expensive per-minute charges for international calls. Solution:  By combining several accounts into a shared plan, down-sizing the monthly minute allowances for the other accounts, implementing text messaging and data packages, eliminating unnecessary phone insurance, and implementing international discount plans, the practice saved $2,275 annually. Reducing Merchant Processing Costs: Problem:  An ophthalmology practice and an optical center owned by the practice were co-located.  Each business had its own checking account.  Credit card charges from both businesses were run through a single merchant account and deposited into the practice’s checking account.  At the end of each month, the practice’s accountant analyzed the merchant processing statement, determined the amount of revenue generated by the optical shop, and then transferred that amount from the practice’s checking account to the optical center’s checking account.  Further analysis of the merchant processing costs revealed that the two businesses were significantly overpaying for processing services and were wasting money by renting rather than owning the credit card terminal. Solution:  By creating a separate merchant processing account for each business, the practice was able to eliminate $3,600 annually in accounting service costs.  Negotiating a rate reduction in merchant processing fees yielded another $2,450 annually in savings.  Purchasing a single credit card terminal that handled both merchant accounts and eliminated rental expenses saved the businesses $225 the first year (cost of terminal factored in) and $1,300 over three years.  Lastly, implementing a pin pad to use with debit cards yielded another $600 in annual savings. Reducing Check Verification and Guarantee Costs: Problem:  An internal medicine practice was paying approximately $9,000 annually for a check guarantee service – an arrangement under which the practice paid the vendor 2.35% of each patient payment in exchange for a guarantee that the vendor would ensure payment for any “bad” checks.  When questioned about the severity of the “bad” check problem, the practice advised that it had received only two “bad” checks in the last couple of years and that the practice had been able to collect the funds from the patients. Solution:  The practice switched from check guarantee to check verification service – an arrangement which, for $50 monthly, allowed the practice to screen a patient’s checking account number against a database of “bad” check writers and avoid accepting risky checks. Annual savings was $8,300. Reducing Costs for Temporary Employees: Problem:  A dental practice was hiring temporary employees at significant expense whenever back office employees (e.g., billing, collections) were ill or on vacation.  The other employees had not been cross trained to perform these tasks, so they were unable to assist during busy times or when employees normally handling these duties were out of the office.  The practice manager was forced to set aside other responsibilities to spend time familiarizing the temporary employees with the practice’s procedures and policies. Solution:  The practice implemented comprehensive cross training for administrative functions (e.g., classes, “job shadowing”, and job aids), thus saving the practice approximately $2,340 annually.  Cross training also spared the practice manager from having to hire and “train” the temporary employees. What steps can you take now to achieve similar savings for your practice? Jeffry Finkel is the President and owner of Overhead Reduction Services, LLC. Contact him at Jeff@OverheadReductionServices.com or 404 995-9112