Cost of Doing Business

Cost of Doing Business—A Broken Record? How can we challenge the way the cost of doing business is defined?

Cost of Doing Business—A Broken Record?

Is the “cost of doing business” starting to sound like a broken record? It will continue to sound that way if we keep viewing it through the same outdated lens every time.

In this edition of the Human Capitalist Newsletter, we will:

Break down the cost of doing business into distinct segments, moving beyond the usual discussions.
Dive deep into the specific expenses businesses face, focusing on: Medical Practices Pharmacies Home Medical Equipment (HME) businesses.

Human Capital: The True Cost of Goods

We will also emphasize the role of human capital—the true cost often hidden behind balance sheets.
Human capital is not just a line item; it’s the core of business operations. We’ll explore how it’s measured, valued, and how businesses can reduce this cost while maintaining efficiency.
By rethinking the way we manage and invest in our workforce, we will explore strategies that improve both performance and cost-effectiveness.

Analyze the “standards” in these industries—how they are perceived and what can be done to escape these so-called benchmarks.
Challenge the status quo by exploring the cost of doing business with fewer restrictions and a more open, innovative mindset.
Take a global perspective, aiming to bring together ideas and solutions from around the world.

While doing all of the above, we will discover how firms such as CPCGcan change the playing field in favor of small to medium-sized businesses, where those businesses will not only survive, but they will thrive.

The P&L

I am not an accountant. I am not a business analyst. Nor am I claiming to be a consultant. So why am I talking about these highly concentrated financial metrics? Well, I’ve owned several healthcare businesses and completed a few exits. Like most owners, I don’t have an accounting degree. These highly functioning, skilled individuals are masters of their domain, but their domain is rarely accounting, taxation, or business analysis. So, my perspective is most relevant to owners of Pharmacies, Medical Practices, HME/DMEs, and similar businesses. Profit and loss statements, financial statements, balance sheets—these words are spoken millions of times a day (I imagine). There are countless books on how to read these statements, and many consultants teach business owners how to decipher the numbers presented on them. But I want to take a step back. Let’s assume we already understand how to read a P&L and understand what it’s telling us. The problem is, the numbers on the P&L always show us what has already happened. To design our future path, we rely once again on historical data—this time looking at metrics called “benchmarks.” But benchmarks are also based on after-the-fact data. Essentially, one statement tells us how we did, while the other tells us what we should do.

“What if we challenge the benchmarks altogether? What if we decide to create our own benchmarks?”

Example:

A sandwich shop owner is reviewing the P&L of their business. The basic evaluation formula based on benchmarks would be as follows:

Gross Revenue

Minus Cost of goods sold (about 25%)
Minus Payroll (another 25%)
Minus franchise fee (around 12-15% of gross revenue, if it’s a franchise)
Minus Rent and Utilities

Assume the gross revenue for this sub-sandwich shop is $450,000 per year. The P&L will look like this:

$450,000 – 25% = $112,500 (COGS)
$450,000 – 25% = $112,500 (Payroll)
$450,000 – 12% = $54,000 (Franchise Fee, if any)
Rent = $48,000
Utilities = $36,000

Total Expenses = $363,000 EBIDTA = $450,000 – $363,000 = $87,000 (no debt service)

This sandwich shop operates within the benchmarks of the industry, but what if we challenged that benchmark?

Reducing Labor Costs

The first thing that typically comes to mind when reducing business costs is cutting the cost of goods sold, followed by reducing rent and utilities. Then we might discuss labor—but often, labor isn’t touched because it’s assumed nothing can be done about it. I’d like to begin with labor: how do we reduce the cost of labor? This is a tough argument to win if we evaluate labor costs using the same parameters practiced and repeated in the local industry for years.

The Fragmentation Rule

We can win this argument if we think outside the confines of brick-and-mortar and even cross international borders. Enter the Fragmentation Rule. What if we break down job positions into fragments, apply global value to each fragment, and see if that part of the role can be offshored? For example, let’s say 10% of a sandwich maker’s time is spent answering phone calls, 10% is spent on basic accounting at the end of the day, and 10% is spent on scheduling and payroll. If this employee earns $25 an hour, with taxes and benefits accounting for $7.50 more, the true cost of this employee is $32.50 per hour. If we can offshore 30% of that $32.50 per hour function and replace it with a $9.50 per hour function, the onshore labor will focus on more specialized tasks. We can then use that time to upsell, promote the business, and train other employees. In an 8-hour shift, 2.5 hours of tasks can be offshored, saving roughly $55 per day per employee. Over a year, that adds up to $12,000 per employee. CPCG has this rule down to a true science, using regression methods and differential equations to fragment labor roles.

Dollar is a Dollar, is it?

When we look at a number, currency, or data set, we consider these mathematical digits universally understood. But is a dollar always a dollar? Not necessarily. The perception of that number is deeply personal and owned by whoever perceives it. Imagine sitting in a restaurant, torn between a dish you really want and a cheaper option. We’re talking about a $10 to $15 difference, and it’s enough to make you think twice. Now, imagine this same person owns a sandwich shop. They could be sitting on a potential savings of $12,000 per year per employee, as we saw earlier. Yet, they probably spend more time deciding on a restaurant bill than thinking about labor costs! If a dollar was truly understood as a dollar, the sandwich shop owner would think just as hard about labor costs as they do about the menu prices. This expense reduction brings a long-term impact, raising the EBIDTA and positioning the business as scalable and robust. It would also push the EBIDTA multiple to new benchmarks, making the business attractive to larger corporations. So, in my opinion, a dollar is not always a dollar—it depends on who is perceiving it.

Cost of Goods Sold

Cost of goods sold is typically thought of as the material cost of goods. Labor is usually categorized under employee or labor expenses separately. However, if we start thinking of labor expenses as part of the true cost of goods, our perspective shifts.

If we treat labor as part of the cost of goods, we’ll realize that while we were negotiating with wholesalers to save a few dollars on a box of gloves (an important function, no doubt), several employees likely didn’t have their job functions optimized, potentially costing us hundreds or even thousands of dollars that day. In this case, the dollar was still a dollar—but due to a lack of vigilance, its impact wasn’t felt.

Pharmacy

Running a pharmacy business is tough, and lately, turning a profit—let alone surviving—has become even tougher. In today’s business environment, it is essential to scrutinize every cost and seek every opportunity to reduce it.

Case #1:

A retail pharmacy dispenses a drug costing $350. It’s not a common drug, and the patient never picks it up. Eventually, a pharmacy technician performing routine maintenance discovers the unclaimed prescription and reverses the transaction. The drug is returned to the shelf, but assume it was purchased from a secondary wholesaler and has a short expiration date. The return window is also narrow. If the pharmacist misses this, the pharmacy takes a loss of 20% or more. This loss could have been prevented.

A pharmacy should have a policy, supported by easy-to-read reporting and driven by technology, stating:

If a drug costs XX and is dispensed less frequently than XX days, the drug must be returned to the wholesaler within XX days.
A return request must be generated.
The drug must be packed and returned.
After XX days from the return, the confirmation of the credit must be verified and recorded.

Let’s break this process down. There are many stages and different expertise involved:

A technology platform is needed to make the data easily accessible to the employee.
The return process may require verbal communication with the wholesaler or processing a request on their website.
A return label must be generated.
The drug must be packed.
A shipment must be made.
Confirmation of shipment must be posted for records.
A refund verification must be done to ensure the credit is received.

All of the above is required to make sure that the pharmacy does not take a loss; the process requires many experts working in their confinements delivery results

CPCG’s Role in the Process

Now, let’s see how this process would look with CPCG involved:

A technology platform is required to make the data easily accessible to the employee—handled by CPCG.
The return process may require verbal communication with the wholesaler or online processing—CPCG.
Return label generation—CPCG.
Packing the drug—Pharmacy Tech.
Making the shipment—Pharmacy Tech.
Posting the shipment confirmation for records—CPCG.
Verifying the refund to ensure the credit is received—CPCG.

In this case, CPCG reduces labor costs by offshoring most, if not all, functions, leaving only the strictly necessary local tasks to the on-site staff.

Case #2:

A pharmacy wants to increase revenue by expanding into adjacent markets. One viable option is entering the lucrative DME industry. The pharmacy has already tried the DME route, but it hasn’t achieved much success. In fact, the credentialing has lapsed due to inactivity.

What needs to be done? To grow their DME department, the pharmacy may follow the following path:

Credentialing:

Credentialing attained.
PTAN number is filed.
PTAN number is acquired.
State and private insurance plans are credentialed.

Data Analytics Function:

Pharmacy data is reviewed for potential DME patients.
Potential DME patients are identified from the pharmacy’s existing data.

Communication Function:

Potential DME patients are contacted to offer new DME services.
If the patient agrees, the prescriber is contacted.

Data Entry Function:

Once an order is received, it is analyzed for supporting documents.
If supporting documents are missing, the prescriber is contacted.
Once all documents are received, data entry is performed.

Inventory and Shipping Function:

After data entry, the item is either: Drop shipped, or Hand-delivered.
The patient is informed about delivery status and any copayments.

Revenue Cycle Function:

After the item is delivered, the delivery confirmation is posted.
The claim is submitted.
Claim status is checked.
Payments are posted, and remittance advice is reconciled.
If there’s a denial, denial management is performed.

Communication Function:

A patient satisfaction survey is conducted.
At the time of resupply, the patient is contacted for consent.

CPCG’s Role in the Process

Without CPCG, the pharmacy would need to handle all the steps on its own, which could put the success of the model at risk. Here’s how CPCG can help: by offshoring tasks in a highly cost-effective way.

Credentialing:

Credentialing attained—CPCG.
PTAN number filed—CPCG.
PTAN number acquired—CPCG.
State and private insurance plans—CPCG.

Data Analytics Function:

Pharmacy data is reviewed for potential DME patients—CPCG.
Potential DME patients are identified—CPCG.

Communication Function:

Potential DME patients are approached—CPCG.
Prescribers are contacted—CPCG.

Data Entry Function:

Order analysis for supporting documents—CPCG.
Contacting prescribers for missing documents—CPCG.
Data entry—CPCG.

Patient Fitting Function:

Patient fitting performed—Pharmacy.
Some remote fittings—CPCG.

Inventory and Shipping Function:

Drop shipping—CPCG.
Hand delivery—Pharmacy.
Patient informed of delivery status and copayments—CPCG.

Revenue Cycle Function:

Delivery confirmation—CPCG.
Claim submission—CPCG.
Claim status checked—CPCG.
Payments posted and remittance reconciled—CPCG.
Denial management—CPCG.

Communication Function:

Patient satisfaction survey—CPCG.
Consent for resupply—CPCG.

This example shows how CPCG increases revenue and brings the pharmacy into a new market without adding to the onshore payroll. Pharmacies do not necessarily need new patients, but more importantly, they need to increase the dollar value of their existing patient base.

Healthcare Practice

A healthcare practice is no different than any other business. It operates on the same basic principle: gross revenue minus the cost of goods sold and operating expenses, which eventually shows up as EBIDTA (i.e., profit). A healthcare practice can be a medical practice, dental practice, nursing practice, or any ancillary health service. To increase a healthcare practice’s profit, regardless of its nature, every line item on the financial statement must be systematically tackled.

Increasing Profitability

In the U.S. healthcare system, to increase top-line revenue (gross revenue), the most obvious—and sometimes the only—thing a healthcare practice thinks of is increasing the number of patients. More patients will naturally increase revenue, but it also proportionally increases expenses. While this strategy does increase net profit, it doesn’t change the percentage difference between gross revenue and net profit.

Patient volume doesn’t always correlate to proportional profit growth. Consider a provider who comfortably sees 25 patients per day. After efforts to grow the practice, patient volume increases to 35 patients a day. The provider pushes to handle the increase, but soon, the practice has to hire another provider to meet the growing demand.

Now, the second provider is seeing 10 patients per day, but it takes time—sometimes six months or more—for them to build up to a full patient load of 25 per day. In this scenario, the financial statement for the year will show some profit during the time the first provider was stretched to handle 35 patients, but once the second provider comes on board, profits drop below the usual levels until they can take on a full load. Over the 12 months, the practice did not operate optimally, and while gross revenue increased, profits didn’t rise in the same way.

“Adding gross revenue is necessary and always exciting!”

But if certain strategies are put in place alongside growing the patient base, the practice can achieve a multi-sided impact. Gross revenue will increase naturally, but net profit will grow disproportionately. Let’s explore how collaboration with a firm like CPCG could have changed the game:

Increasing Patient Volume:

Promotion via referral sources: Use a professional third party to introduce the practice to other referral sources—CPCG.
Promotion via digital channels: Consistent, professional digital promotion to attract new patients—CPCG.

Adding Services to Increase Per-Patient Revenue:

Additional services can boost revenue: These services must be systematically offered, provided, and billed through a professional, process-oriented firm—CPCG.

Services could include:

In-house drug dispensing: Requires audits, vigilance, and operational accountability—CPCG.
Laboratory testing: Supported by CPCG processes.
Out-of-pocket products for sale: Front-line Onscreen Customer Service Representatives (OCSRs) can handle front-end tasks at a fraction of the cost.
Aesthetic services: CPCG can opt patients in and even perform point-of-sale upselling through its OCSR model.

Reducing Labor Costs:

Reducing labor costs can have a powerful impact on the bottom line.
To reduce labor costs, less specialized and repetitive tasks should be handled by more economical labor.
Reducing labor outside of benchmarks requires unprecedented approaches.
Real cost reduction happens when affordable offshore labor is integrated into the process.
Processes need to be quantified and technology-analyzed for potential improvements.
Offshore employee onboarding must be done professionally, with a proper transition plan for local staff.
Only a firm well-versed in offshore human capital can reduce costs without adding management burdens—CPCG excels in this area.

Improving Process Flow:

If a practice’s process flow is evaluated using ISO standards and lean principles, there are many unnecessary expenses that can be identified and reduced.
ISO and lean principles should only be designed and applied by qualified experts.
Since practice leaders are typically too busy running day-to-day operations, they rarely have the human capital to design and execute these processes.
CPCG specializes in designing and implementing process flows based on international standards.

Reducing Fixed Expenses:

Fixed expenses are just that—fixed. However, opportunities to reduce them may still exist depending on the situation.
Real, impactful reductions in fixed expenses are possible with careful analysis.

HME/DME Business

HME/DME businesses, in terms of process and revenue collection, are not so different from medical, dental, and other healthcare services. However, HME/DME businesses are heavily driven by human capital. From order intake to processing, assembly, delivery, and revenue cycle management (RCM), humans are involved every step of the way. This reliance on labor isn’t a flaw—it’s the nature of the business. In fact, this human element is often a valuable asset.

Unlike Pharmacy and Medical Practices, the barrier to entry for an HME/DME business is lower. As a result, a wide variety of ownership structures exist. Despite being smaller in revenue compared to other healthcare sectors, the HME/DME industry is burdened with stringent regulations. I’ll explore the evolution and history of HME/DME businesses in another article.

“Benchmarks are based on facts, but some can be questioned—not to dispute their validity, but to explore alternative approaches.”

The HME/DME industry has its benchmarks, derived from historical data. These numbers tell you how others are doing, but like any benchmark, they are based on after-the-fact data. Extraordinary results require unique approaches. Some benchmarks, such as the average cost of real estate or COGS for mobility and incontinence products, are hard to alter. But other benchmarks can and should be challenged.

So, how can HME/DME businesses increase their bottom line?

To improve profitability, HME/DME businesses should focus on these key areas:

Process Design + Technology
Labor Cost

Process Design: Why is process design more critical in the HME/DME industry than in other healthcare businesses? Let me walk you through a comparative analysis:

How is a prescription filled in a pharmacy?

A patient walks in and presents a prescription.
A technician at the drop-off station checks if the patient is already in the system and verifies insurance details.
The technician enters the prescription (usually within 180 seconds) and submits the claim to the payor.
The response comes back in 3 to 5 seconds, a label is printed, the drug is counted and verified by the pharmacist, and the patient checks out.
The entire process, from start to finish, takes between 5 and 15 minutes.

Now, compare that to the HME/DME process:

A prescription is only the start of the order.
Clinical progress notes are required.
Insurance eligibility is checked, and copayments are assessed.
Product availability is verified.
And that’s just the beginning!

The HME/DME business requires a more complex process flow than a pharmacy, and many of these processes need to be professionally designed. There are certifications in process flow and design for a reason—HME/DME businesses are crying out for ISO and lean-driven process improvements.

Process design is where significant savings can be made. But it must be done by people with expertise in ISO and lean principles. CPCG starts process development right at the discovery call. Our onboarding resources are trained to read ISO process flows, and our proprietary AI technology checks for process errors. With CPCG, HME/DME businesses see their own processes in action, often for the first time, and the results are immediate—reduced errors, increased efficiency, and improved profitability.

Technology Development: At CPCG, we believe in building technology solutions that are custom-tailored to each business, not a one-size-fits-all approach. HME/DME businesses are unique, and the technology must reflect that uniqueness—it needs to be affordable, scalable, and robust. We build bolt-on solutions to fit each client’s specific needs. While AI is a fantastic tool, its cost can sometimes be prohibitive for HME/DME businesses. It’s essential to evaluate both the expense and the return on investment before diving into new technologies.

Labor Costs: Labor in the HME/DME business should be viewed as part of the cost of goods sold. This shift in mentality is critical. HME/DME owners may spend hours negotiating for small savings on products like compression socks, but do they invest the same effort into reducing labor costs? Often, the answer is no.

CPCGhas helped clients reduce operating costs by up to 70%. Some clients with revenue in the $12-15 million range have no six-figure onshore positions. How? By combining process design, technology development, and offshore trained human capital—three ingredients in the right proportions can bring incredible results.

Too Busy to Make Money?

Many business owners are so busy running their day-to-day operations that they don’t have time to focus on growing their business. I often see this with the owners I meet, who seem to suffer from what I call “business owner ADHD.” They’re always juggling a million things, switching numerous hats a day, listening to potential opportunities half-heartedly, but their focus is short-lived.

These owners frequently talk about rising expenses and shrinking reimbursements but fail to take the focused, strategic actions necessary to address these challenges. They don’t realize that a few concentrated hours of critical thinking could multiply their profits many times over. But they’re simply too busy running the business.

When a business owner is too involved in daily tasks, they can’t pull themselves out to work on their business. But the irony is, they’re often “too busy to make money.” They need a trusted partner—someone to not only advise them but also to execute those plans.

Inflate Your Tires

Most businesses are running with deflated tires. They’re moving forward but not at their full potential. Just like a bicycle with low air in its tires, the business could be moving much faster with a bit of attention and care.

To inflate your tires, you need to stop pedaling for a moment, assess your business, and make the necessary adjustments. Unfortunately, many business owners feel they can’t afford to stop, and they are right. Whether it’s a medical practice or a pharmacy, the owner is often stuck in a more hands on role, they just cannot afford to pull back to see the bigger picture.

“Work on your business, not in your business.” I have heard this too many times, and while it’s easy to say, it’s hard to do. Business owners need more than just good advice—they need support from professionals who can implement those strategies for them.

That’s where CPCGexcels. We don’t just offer advice; we help execute and scale your business so you can take a step back, inflate those tires, and speed toward your goals.

The Great Exit

The world is more dynamic and global than ever before. Business climates can change overnight, sometimes quite literally. Whether it’s shifting in governmental policies, insurance coverage changes, service and item reimbursement updates, or evolving tax laws, the business environment is nothing, if not unpredictable. This makes it essential for every business to plan for its exit.

When running a business, run it as though it will last for 200 years. But, at the same time, always have a selling mentality in mind. It’s crucial to put yourself in a buyer’s shoes: think like a buyer when you’re a seller.

What does a buyer want? They need assurance that the business will operate smoothly post-sale without the previous owner’s involvement. They’re looking for reliable systems they can count on, a clear path for the business’s future, and processes supported by solid technology and trained human capital.

This means that every effort you make to optimize and reduce expenses isn’t just a win for your bottom line today; it could significantly increase the value of your business when it comes time to sell. That’s why process design, cost-saving measures, and operational efficiency are not just important for growth but for your eventual exit as well.

“Remember, every dollar you save in expenses will multiply by four to eight times—or more—and will be reflected in your selling price.”

Scaling with CPCG

If your business is running like a well-oiled machine—equipped with efficient processes, affordable labor, and scalable systems—then it’s positioned for long-term success and potential acquisition at a premium price. A business like this isn’t bound by traditional industry benchmarks. It’s set up to exceed them, and all the hard work you’ve put in will pay off multiple times over.

CPCG practices what it preaches. We’ve successfully helped businesses reduce expenses, build robust processes, develop tailor-made technology solutions, and scale operations—all while maintaining a high degree of professionalism and efficiency. Whether you’re looking to grow your business or prepare for a great exit, CPCG is here to help you achieve your goals.

Too Busy to Make Money: A Final Thought

It’s easy to get caught up in the hustle and grind of running a business, but sometimes the best way to make money is to step back and think critically about where your business is headed. If you’re constantly in the weeds, you’re missing out on valuable opportunities for growth. That’s where CPCG comes in—to take on the operational tasks, streamline processes, and give you the freedom to focus on the big picture. Whether it’s improving your bottom line, reducing costs, or preparing your business for an exit, CPCG can help you every step of the way.

So, inflate those tires, focus on where you want to go, treat Human Capital expense as a true cost of goods, reduce that expense while increase the productivity and let CPCG help you get there.

Saleem Shah is the Founder of Collaborative Patient Care Group (CPCG), a visionary organization that empowers businesses to optimize their operations and achieve global competitiveness through strategic offshoring, technology development and workforce evolution. With a background as a pharmacist turned entrepreneur, Saleem brings a unique perspective and unwavering commitment to transforming human capital management. His innovative ‘Fragmentation Rule’ approach has helped countless businesses unlock their full potential by leveraging the power of global talent while simultaneously elevating their onshore workforce.