The Management of Expenses In Radiology

A Special Thank You to:

Dr. David M. Yousem, M.D., M.B.A.Professor, Department of RadiologyVice Chairman of Program DevelopmentDirector of NeuroradiologyJohns

Hopkins Hospital

for allowing the use of his material/content in this presentation

Dr. Yousem’s online lecture series can be viewed at:http://webcast.jhu.edu/mediasite/Catalog/pages/catalog.aspx?

catalogId=7e18b7d5-9c63-487e-aaf1-77a86f83b011

Dr. Yousem’s project was funded through an RSNA Educational Grant

Challenges of Controlling Expenses

• In today’s constantly changing economic climate, the management of expenses is more important than ever

• There is a ongoing need to reduce expenses

• The cost and amount of care required continues to increase and the amount of money available for reimbursement is constantly under scrutiny and may decrease in the future– Healthcare reform- instability of the SGR– Capitated payments

Where does it go?

Finances (Assets)

• Accounts receivable (paid)

• Equipment owned• Real Estate owned• Supply inventory

Finances (Expenses)

• Salaries– Doctors– Adminstration/Billing– Tachnicians and Nurses

• Employee benefits• Bonuses• Pension/IRAs• Real estate: rent, property

taxes• New equipment purchases or

leases• Equipment maintenance• Supplies: contrast, catheters,

wires, etc.

• Insurance• Marketing• Accounts Payable: payments

owed • Accrued Expenses: social

security tax, pensions, medicare

• Expenses are more numerous and more complex than assets

• Types of expenses:– Fixed – Variable

Fixed Costs

• Typically stable and not associated with practice volume• Examples:

– Property and equipment rent/leases– Standard equipment maintenance– Malpractice and employee insurance– Physician and supportive staff salaries– Utility costs

Variable Costs

• May increase/decrease with volume and change from year to year

• Examples:– Supplies: contrast, catheters, wires, etc.– Additional staff: extra radiology technicians, nurses,

etc.– New equipment– Rent (may be fixed or variable)– Accounts Payable: payments owed

The Relationship between Volume and Cost

• When volume rises, the cost per scan/case decreases and vice versa for volume decrease– This idea is also the basis for the utilization assumption

concept used by medicare in imaging reimbursement

• Profit margin is the revenue from the study minus the cost of performing that study

Accounts Payable

• Employee salaries and benefits owed– In any business, the largest expense is payroll– Employees are also your most valuable asset

• Money owed to creditors– Equipment and related service contracts and suppliers– Insurance/Taxes

• Payments owed for services rendered but not yet paid or billed

How to Control Costs

• Payroll– Physicians and supportive staff (nurses, technologists, transcriptionists, IT,

administrations)– Be careful– remember that this is also your most valuable asset

• Make your money work for you as long as possible– Pay vendors, suppliers, and taxes as late as possible

• Economies of scale – Consolidate contracts/vendors for discounts– Buy in bulk to lower supply costs

• Economies of scope– Increase number of services offered

Controlling Costs

• Manage inventory wisely– Minimizes “carrying costs” such as product storage, maintenance, insurance– Donate expired inventory-- tax deductible

• Electronic Payments– Reduce costs of checks, postage, personel– Last minute payments

• Get a handle on malpractice expenses– Group consoildation– Quality control and improvement (minimize errors)– Stable faculty and staff

Other Important Ways to Reduce Costs

• PACS system • Voice Recognition software• Consider outsourcing some less critical• Reduce upper level administration• Consider the cost-benefit of pursuing unpaid claims• Consider business consultants