Many independent physicians feel they have no choice but to respond to declining reimbursements by seeing more patients. Yet hyper-productivity--measured in the number of patients seen--is not the way to improve the outlook for beleaguered medical practices. In fact, the hyper-productive approach could set in motion a negative cycle that may cause further financial deterioration and damage quality of care.

There's a better way to respond to the current situation. More positive results for practices and their patients can be achieved by adopting a two-fold strategy of:

1. Applying fundamental business school principles to improve profit margins.

2. Expanding into services that both fulfill unmet patient needs and bring profitable income into the practice.

In fact, practices that get a handle on their finances will be able to invest in new services, which, in turn, will contribute to financial well-being--a virtuous circle to replace the current downward spiral of rising workloads and sinking take-home pay.

You're Productive, But Are You Profitable?
Let's say you've just spent the past 12 hours running from patient to patient, and you finally take a breather and assess the day. You know you were productive, but do you know whether this high-energy day was profitable?

Usually we assume that productive days are profitable ones, and sometimes that's true. Quite often, however, there is no causal relationship between productivity and profit.

How can you determine whether your practice is both productive and profitable? Here is a quick, easy method for roughly calculating your profit margin and applying the technique to your practice in various ways.

Profit Margin Calculation: You can calculate your approximate profit margin by dividing the bottom line (net income) of your monthly income statement by the top line (revenue). Note that for this quick method, your top line number can be straight gross revenue. This is the amount you charge patients and insurers for your services.

Profit Margin for Common Procedures: Are you making money on the procedures  you do most often? Find out with the following quick calculation on your five most commonly performed procedures. For each procedure, write down what you charge for it--that's the revenue. Then roughly figure out what it costs you to perform the procedure. (You can add the cost of practitioner time for the procedure with any cost of goods used, an allocation of daily overhead multiplied by the percentage of the day required to perform the procedure, and an allocation of the lease or capital amortized cost of any special equipment used in the procedure.) Subtract that cost from the revenue. What's left is net income for the procedure. Then, following the formula above, divide the net income by the revenue.

Profit Margin for Busy Days: Are you getting a decent return on investment for days of concentrated effort? To get a quick idea, take one of your busiest days during the past month and list the procedures performed that day. Calculate your revenue by adding up what you charged for those services. Determine your net income by adding up the cost of performing those procedures using the method described above. Divide net income by revenue to obtain your profit margin for the day.

Profit Margin for Patient Segments: While at first glance this idea might seem incompatible with your values as a physician, let me make clear that I am not suggesting restricting services or diminishing care to less profitable patients. I am suggesting you know which patient groups contribute most of your net income. This will lead you to some very legitimate considerations about who these patients are, what their unmet healthcare needs might be and how you can become more valuable to them by responding to these needs. Rest assured, in this era of customer relationship management, every successful business is asking these kinds of questions--and medical practices have every right to do the same.

When you better understand your profitability, you can make informed decisions to balance patient and business needs and to evolve your practice:

- Practice advancement. Make the right investments in new equipment and techniques to stay at the forefront of your field in the most profitable procedures.

- Staffing. Allow a qualified registered nurse or nurse practitioner to perform negative or narrow profit margin procedures.

- Scheduling. Rethink how you schedule elective procedures and train your staff to create a balance that helps make every day profitable.

- Collections. Flag low-margin procedures to prompt staff to make sure they collect the correct co-pays and submit timely, accurate and complete claims to insurers.

Finding Profitable Opportunities
Sometimes the opportunities for adding profitable new services are fairly obvious. For instance, an internal medicine practice serving predominantly patients 50 and older might benefit from offering in-office treadmill tests, a procedure that usually has a substantial profit margin. Other profitable procedures needed by this age group include lesion removal and skin biopsies. By performing straightforward procedures of this type within your practice instead of referring to specialists, you can increase your earnings.

In other cases, focusing on your most valuable patients and their unmet needs may lead you to profitable new services you might not have considered. Why would an OB/GYN practice want to incorporate cosmetic laser procedures into its service offering? Actually, this type of service expansion is a natural fit, since those practices see the perfect candidates for these treatments all day long. Today, women of all ages are interested in taking better care of their skin.

Another way you can respond to today's more health-conscious and proactive population is to make yourself available on a fee basis to answer questions by e-mail--or even set up a Web site where patients can obtain information and interact in a structured, manageable way with you. Many of the services offer another advantage: They can be cash-based, bringing your practice additional revenue without reimbursement overhead.

You needn't exhaust yourself and your staff trying to offset reimbursement cuts. In fact, one of the best first steps you can take toward improved profitability is to forget the notion that being super busy equates with being profitable. Instead, consider the many avenues you can take to improve your profit margins, provide greater service to patients and increase the value of your practice for everyone involved.

Daniel J. Rich, MBA, is founder and president of Laser Perfection Inc., a Southern California-based mobile cosmetic laser rental and service company. Rich can be reached at 858/204-9802 or drich@laserperfectioninc.com.