When faced with falling reimbursement and soaring overhead costs, many practices reflexively look at their costs. But cutting costs without adding revenue can compound the problem.

Managing partner Rohit Goyal, MD of Pulmonary Associates of Fredericksburg learned that lesson the hard way during COVID. He and his partners were grappling with the stress of being on the front lines of clinical care while trying to keep from having to close or sell their practice. Was cutting costs was the best way to navigate the financial challenges?

“One view was that the way to stabilize profits is to cut costs,” explained Dr. Goyal. “Pay less salary to our employees, hold bonuses that are probably due to our nurses and our front desk staff, downsize and even look for ways to save money from our providers and our own partners.”

But this approach to generating short-term savings can lead to long-term problems. A practice that tries to save money on staffing might ultimately lose patients and revenue – what Dr. Goyal calls a “race to the bottom”.

• Cutting staff leads to poor patient experiences, declines in patient satisfaction, and lost revenue.
• Reducing salaries or benefits leads to lower morale, lower productivity, and increased turnover – which comes with hidden costs.

“Cost cutting sounds great but leads to a vicious cycle leading to poor patient care and eventually revenue loss,” explains Dr. Goyal.

Most practice leaders focus on playing defense: saving and surviving. But they need a strong offensive game too, where they seek out opportunities to build and grow their practice.

Practices that only play defense get sucked into a vicious cycle. Cutting services can mean losing patients and revenue, which means cutting additional services, which means losing more patients and more revenue—and can ultimately lead to practice collapse.

Over-aggressive cost cutting can make a practice vulnerable to closure or necessitate its sale to a health system or private equity firm. Pulmonary Associates of Fredericksburg faced this challenge during COVD.

“We had choices,” explained Dr. Goyal. “We could sell the practice to the hospital system, to private equity, or we could just close up shop. Or for me personally, I could just leave and find another position. Those were all easier options, but instead we decided to rebuild the practice and attempt to grow and flourish the practice. It was a really, really tough time. But looking back today, it was worth it.”

Physicians who value autonomy, flexibility, and independence deserve the choice to practice medicine in an independent, physician-led practice. But that means they need to play offense as well as defense. Smart cost control still makes sense. But physician leaders also need to seek out revenue growth opportunities.

“Today private practices can still survive and actually do pretty well,” explains Dr. Goyal. “But we must adopt and adapt and not manage practices like we did 20 years ago.”