Episode 46: Cost vs. Value – Understanding the Difference in Making Business Decisions Within a Medical Practice
Today, we’re digging into a topic that’s close to my heart and incredibly relevant for the financial well-being of your medical practice: understanding Cost vs. Value in Business Decisions. Understanding this concept can be a game-changer in your decision-making process, and it can open you up to huge financial opportunities.
The Cost Trap
When it comes to making business decisions, the allure of cost-savings is magnetic. I get it; we all want to save money. However, an obsession with cost can be dangerous. You might end up making poor business choices just because you’re focused solely on minimizing expenses, and you might miss an opportunity to make a better long-term decision.
Case Study: In-house Billing vs. Outsourcing
Consider the age-old dilemma of in-house medical billing vs. outsourcing. When it comes to the initial investment, in-house billing seems like the less costly option – no third-party fees and seemingly more control. But let’s peel the onion a little.
First, let’s consider efficiency: How streamlined is your in-house process? Are there any bottlenecks that could be eliminated by outsourcing? Is your team missing out on revenue due to a lack of experience? Or is there some secret internal policy that you’re not aware of that has your billers writing off everything that’s really hard to collect, because they don’t want to work that hard? We’ve seen this happening in many groups and the doctors are none the wiser.
Next, we’ll think about expertise: Is your team equipped to handle the complexities of medical billing, especially given the ever-changing landscape of healthcare regulations? Does someone on the team fully understand the Resource Based Relative Value System, and do they get the big picture? Can they explain it to you? Are they able to track changes in the revenue cycle landscape at a micro and macro level? Can they administer your fee schedules and make appropriate updates? Do they know how to track and analyze denials?
Finally, we’ll consider scalability: Can your in-house department handle growth in patient numbers or service offerings? Are you able to hire and retain good people with the experience you really need? Does your group have the right level of sophistication in your revenue cycle leader?
We need to ask these and other questions because the apparent “low-cost” might actually be the tip of the iceberg, hiding additional costs that would reveal themselves over time. And, going with the “low-cost” option might actually cost you quite a bit in lost revenue due to inexperience, or unmotivated people who are not supervised.
We have gone into clinics where there are hundreds of thousands or millions of dollars that have been lost, all because the group thought it would be wise to save a few dollars an hour on the billing staff. Please consider everything we’ve just mentioned rather than making the “low cost” decision, which is usually VERY costly.
And, Shifting to Value-Based Thinking: Now, let’s pivot and think about value. How do you define value in your practice? Is it just financial gains, or do you include metrics like patient satisfaction, team morale, and long-term growth?
One of the big factors you need to consider is the quality of service. Suppose you decide to outsource billing to a specialized company that brings in state-of-the-art software, high-end security measures, and efficient and friendly customer service. In that case, you are essentially investing in a value proposition that extends beyond mere dollars and cents.
I always like to think about leveraging time. Your time is valuable. What tasks could you and your team undertake if you had more time? Outsourcing can free up your time and allow you to focus on what really matters, whether it’s patient care, business development, or even leadership training. Or perhaps finding some of that elusive work-life balance!
So, in thinking about a framework for decision making, when faced with a business decision, don’t just look at the price tag. Here’s a straightforward framework to help you choose between cost and value:
Define your objectives: What are you hoping to achieve? More patients? Higher revenue? Better service quality? Better revenue cycle performance?
Analyze your costs: This goes beyond the initial outlay. Factor in hidden costs like manpower, training, and system upgrades.
Quantify Value: Measure the potential Return on Investment, taking into account both tangible and intangible benefits.
Next, it’s important to conduct a Risk Assessment: What are the potential pitfalls of each option? How easy or hard would it be to reverse the decision? Sometimes when I’m struggling with this one, I ask myself which mistake I’d rather make. I don’t love that construct, but in some cases, that’s an easier way to distinguish between two choices.
So, how should we measure Value? There’s no one-size-fits-all answer here, but we know that making financial decisions based solely on cost can set you up for failure. Or keep you from the level of success you could enjoy if you took a broader view and did a bit more analysis. This additional analysis can seem daunting, but it is critical in taking your business and your business decision making to the next level. Key Performance Indicators (KPIs) can also be useful. For instance, if you’re contemplating whether to invest in a new EHR system, metrics like “Time Saved Per Patient” or “Increase in Patient Satisfaction Scores” can help quantify the value generated.
You may be feeling like it’s easy for me to advocate for outsourcing… after all, I own a revenue cycle and consulting company! Many well-known healthcare professionals advocate for an outcomes-based approach that measures value in multiple dimensions, from cost-effectiveness to the quality of care provided. Bringing in these perspectives can offer a more holistic view of your decision-making process.
Remember, as we like to say, the practice of medicine can and should be both financially viable and joyful. By shifting our focus from cost to value, we’re not just talking about dollars. We’re talking about building a practice that is efficient, scalable, and, above all, fulfilling for both physicians and patients.
That wraps up this episode of Medical Money Matters! Thank you for joining me today. I hope you found it both informative and fun. Join me for our next episode where I’ll be looking at scope and why you don’t care about $500.
If you have any questions or would like to suggest future topics, feel free to reach out.
Thank you for tuning in, and don’t forget to hit that subscribe button for more insights into the fascinating world of medical practice finance.