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MANAGING THE OFFICE

A dozen metrics for increasing your medical practice profitability

If someone asked you how many new patients visited your medical office last month, would you know? How about how much your office spent on marketing to acquire each patient?

Would your staff know these numbers?

“Bottom line, if you and your staff aren’t on top of the numbers game, you simply are not going to be as successful in your practice as you could be,” says Nick Hernandez, CEO and founder of ABISA LLC, a Valrico, FL-based consulting firm specializing in healthcare strategic growth initiatives. “Keeping track of numbers in your business is like checking the numbers on your car’s dashboard to see if you need to slow down, get gas, or change the oil,”

Why pay attention to metrics?

Numbers matter, says Hernandez, because they help a medical practice determine which steps need to be taken to be successful.

“Your numbers will go up precisely because you’re paying attention to them. In fact, if your employees know their work is being monitored, it will improve. It’s a known fact. It’s actually called the Hawthorne Effect.”

A metric is a verifiable measure stated in either quantitative terms, such as budgetary numbers or accounts receivable billing collections, or qualitative terms, such as employee appraisal systems or patient satisfaction surveys.

Metrics can drive behavior in a number of ways, including:

  • Helping track performance,
  • Helping increase accountability,
  • Helping define your business model,
  • Helping communicate strategy, and
  • Helping align objectives.

“How do you know that the overall business of your medical practice is healthy? How would other people know? How do you know that the business processes that you perform are working properly? How would other people know—your staff that report to you, or the physicians that you report to?” he asks.

Without using metrics to measure how well you are doing, it’s difficult to know what to keep doing and what needs changing.

“If you’re doing something very poorly and you’re not tracking it, you may just be continuing to dig yourself deeper into that particular hole,” he warns.

If you are going to your physician owners or physician partners to make an argument or to make a case about something you’re trying to change or do in the practice, if you don’t have verifiable numbers to back it up, the physicians oftentimes see that as being your opinion, according to Hernandez.

Metrics provide control over processes, equipment and employee performance; reporting of actual performance relative to expectations; communication of what constitutes value and key success factors; opportunities for improvement by showing gaps in performance; and expectations to staff, patients and referring physicians.

Hernandez says good measurements are objective and quantifiable and are non-conflicting and relevant to what it is that is important toward doing a good job.

They are also achievable and verifiable and therefore, motivational in nature.

Monitored frequently, good measurements provide timely feedback on recent actions. They are also visible to all who can make an impact, comprehensible and actionable, according to Hernandez.

12 key financial metrics to assess the current health of your practice

Here are a dozen metrics you can use in your medical office:

  1. Overhead ratio: Total operating expenses, minus provider salaries and benefits, divided by total collections.

  1. Staff ratio: Total fulltime-equivalent (FTE) employees divided by total FTE providers (doctors).

  1. Individual category expense ratio: Individual expenses by category divided by total collections.

  1. Laboratory expense ratio: Total monthly laboratory expenses divided by monthly net charges for lab-related current procedural terminology (CPT) codes.

  1. Average cost per patient: Total expenses per month divided by total monthly patient visits.

  1. Payor mix ratio: Individual payor receipts divided by total receipts.

  1. Average revenue per patient: Total monthly collections divided by total monthly patient visits.

  1. Average revenue per day: Average charges for the last three months divided by the number of business days in the last three months.

  1. Accounts receivable per FTE physician: Outstanding accounts receivable divided by the number of FTE physicians in the practice. This metric calculates an average amount owed for each physician’s work.

  1. First-pass resolution rate: Total number of claims paid divided by the total number of claims submitted. This is the share of the practice’s claims that get paid on first submission. This number should be above 90 percent, according to Hernandez.

  1. Percentage of accounts receivable greater than 120 days: The dollar value of accounts receivable past 120 days divided by the dollar value of total accounts receivable. Another useful related metric is days in accounts receivable: This is outstanding accounts receivable divided by average adjusted charges per day. Hernandez says this number should stay below 50 days.

  1. Gross collections ratio: Total collections divided by total gross charges. This number shows how much of what you bill for you actually receive. Another related metric is net collections ratio: Total collections divided by total gross charges after write-offs or adjustments.

Conclusion

“In a nutshell, as you are thinking about your metrics, find out what the key essentials are for your practice,” says Hernandez. “Keep it simple—simple to operate, simple to understand and simple to action.”


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