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Deciding On Office Staff Size

by Patrick C. Alguire, MD, FACP
Director, Education and Career Development

Increased competition and the influence of managed care have made it increasingly difficult to improve a practice's revenue. As a result, most savvy physicians attempt to reduce operational costs and improve operational efficiency as their dominant strategy to improve the bottom line. A major determinant of operational costs is office staff since staff costs represent a high proportion of the overhead. But how does an inexperienced physician know how many staff are needed, and when to increase or decreases staff size? This article will address methods of determining the correct number of office staff for your practice.

Practice management consultants are not in total agreement on how to calculate the optimal staff size for a medical practice. One method is to determine the ratio of staff members to gross office revenue. A general rule of thumb is one staff person for each $100,000 of gross revenue. The validity of this approach is supported by data from practice surveys. Of course, this data defines office-staffing requirements for the average practice. The trouble is knowing if you are average, or something other than average.

There are data that looks at office staffing for "high performance" practices, that is, practices with a net income greater than 33% of gross income. Importantly, these data suggest that high performance practices are staffed differently than "average practices." For example, in high performing small practices, the staff to gross revenue ratio was 1 to $118,000, whereas in medium size practices the ratio was 1 to $121,000, and in large practices it was 1 to $129,000. Not surprisingly, comparing the staffing for average office practices to that of high performance practices reveals that practices with the highest profit margins tend to have fewer, possibly more efficient. Does this mean the best option is to hire the minimum number of staff that you can get by with? The answer, unfortunately, is not that simple.

While it makes sense carefully control the number of staff in the office, other considerations must be taken into account. Medicine is moving into an era where patient satisfaction is an important factor in the success of a practice. Too few staff may result in diminished patient services and a drop in patient satisfaction. In this light, extra-staff could be cost-effective, since patient satisfaction and patient services may result in gaining new patients and retaining those already in the practice. One good way to maintain a handle on patient satisfaction is to measure it. The College's Center for Practice Improvement and Innovation offers several tools that have been successfully used to measure patient satisfaction, as well as personalized advice on practice management.

Another simple measure of staff size is the ratio of staff costs to gross revenues. As with the previous measure, this methodology is more sensitive to over-staffing than it is to adequate staffing. Most experts believe that staff costs (salaries, benefits, bonuses, and taxes) should be around 18% of gross revenues. You might think that a ratio of less than 18% is better, but that is only if the work is getting done and patient needs are being met. It is a safe bet that a ratio of staff costs to gross income of greater than 18% identifies a practice that is "staff heavy." Provided that the practice will not be expanding in the near future, staffing reductions should be considered in that situation. In so doing, you will be better able to manage your operational expenses.

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