Healthcare Finance: To Minimize Cost or Maximize Revenue?

healthcare finance

The age-old question for practice managers has become more relevant than ever given the current shakeup in the healthcare industry within the past month or so. With a potential ACA repeal on the horizon, reform will inevitably happen, and practice managers (as well as owners) must take a good look at practice operations. 

This would be an excellent time to do a practice audit. 

To Minimize Cost or Maximize Revenue. That is the Question.

The Medical Group Management Association (MGMA) recently took a look at medical practices operations focusing on profit maximization, cost minimization, and a strategy that involves a combination of the two. The findings may be surprising. 

Maximizing Revenue

While it may seem counterintuitive, it was found that as costs increase there is also an increase in total medical revenue per physician. The practices with the greatest costs also have the greatest revenue.

This suggests that investment — whether in personnel, resources or technology for example —  can pay off in the long run. 

Minimizing Costs

The practices that focused on minimizing costs found that this negatively impacted growth and operational efficiency. This resulted in a low level of revenue, despite having a lower cost level. These practices also had a low bottom line. 

Balancing Revenue Maximization and Cost Cutting

The  practices whose strategy focused on balancing the pursuit of revenue maximization and cost cutting, were the most efficient in balancing costs and revenue to obtain the lowest overhead percentage. Interestingly, however, these practices did not achieve as high revenue or profit margins as those that focused solely on maximizing profits. 

Chasing Opportunity

The results of this survey show the power of "powering through" in pursuit of profit maximization. While concerns about revenue stream and reimbursement may prompt financial planners and practice managers to make cut backs, strategy should focus on the future growth and opportunity. Investments pay off — still in the face of uncertainty.

 

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