3/18/2019 0 Comments Practice Benchmarks - Part 1(One quick note: A good thing to keep in mind as we walk through these industry standard financial benchmarks is that they can be both helpful and harmful. The intent here is not to overwhelm you by showing you how far below the standard you are, but instead to encourage and help you improve your practice's financial situation if it is needed. And if your practice is in excellent financial shape, congratulations! We would love to hear any tips or tricks you might have!) On the popular CNBC show The Profit, multi-millionaire and business expert Marcus Lemonis travels all over the United States to help struggling businesses. Every episode starts the same way: Lemonis shows up and spends time with the owners and their team and then asks for their financials. If you have ever watched the show, you know the quickest way to get on Lemonis' bad side is to not know your numbers. Why? Because your numbers are the lifeblood of your business and the age-old saying, "If you don't measure it, you can't improve it," certainly applies to your financials. If you don't measure your numbers, you will not know whether or not your practice is truly profitable. (And if it isn't profitable, it isn't healthy.)
Managing the financials in any business can be overwhelming, but medical practices have the additional challenge of wading through the tricky waters of insurance coverages. Which financial metrics should you monitor? How do you calculate them correctly? How often should you monitor them? These are all great questions and this piece would be 20,000 words if we tried to answer them all at once. But over the next few months, we are going to take a deep dive into a few of the most meaningful financial benchmarks to a practice and give you a step-by-step guide to calculate and track them. Today, we want to get started with a few financial pillars of every practice: Gross Revenue per Patient, New Patient Growth per Year, and Accounts Receivable. Gross Revenue per Patient It would be difficult to come up with an industry average for gross revenue per patient due to the differences in practice size, location, and revenue per exam across practices. The Management & Business Academy (MBA) estimates the median gross revenue per patient to be $306.00, but admits that this number can be skewed since the "most productive 10 percent of practices see revenue per exam nearly two-thirds higher than the median." But the importance of knowing this number for your practice and working diligently to improve it cannot be understated. While there are different ways to calculate revenue per patient, a simple formula for any practice would be the following: Gross Annual Revenue/ Number of Annual Exams Performed = Revenue per Patient To get to MBA's median of $306.00 referenced above, an optometry practice's gross revenue (total before expenses are taken out) would need to be $600,000 after seeing 1,960 patients. That would leave the revenue per patient at $306.12. (Assumes 1.1 complete exams per hour for ODs working 1,960 hours annually (49 weeks at 40 hours per week).) Again, understanding industry averages are important, but the focus here should be on improvement. An OD's revenue per patient can be comprised of exams, medical eye care, contact lenses, prescription eyewear, etc. If you calculate your revenue per patient and see a need for improvement, a few areas you can focus on are:
Defining goals in these areas and deciding which team members can help you achieve them is key, but perhaps one of the more neglected areas of medical practices as a whole is new patient growth. New Patient Growth per Year The Field of Dreams approach of "If you build it, they will come" doesn't always work out. Just like any other business, medical practices have the ability to dictate both retention and new patient growth. Dr. Gary Gerber is considered to be one of the foremost experts in the world of optometry and he notes that the industry benchmark for new patient growth per year is 8-10%. Here is the formula to calculate your new patient growth: (Number of patients this year - Number of patients in the previous year) _______________________________________________ X 100 Number of patients previous year As an example, if you had 500 patients in 2018 and 450 patients in 2017, your new patient growth per year would be 11%. This would exceed the industry standard, but Gerber believes this number could be higher if practices availed themselves of all of the current marketing tools available. If you are looking to boost your new patient numbers, you could consider:
No, these things aren't necessarily easy to do, but the opportunities for every practice to grow are there for the taking. And new patients are new money! But what about those old outstanding receivables? Accounts Receivable Doctors aren't the only professionals that struggle with accounts receivable (AR). In many businesses, AR is the dirty secret no one wants to talk about. Why? Because it can get out of control quickly and getting customers to pay their invoice is zero fun and often exhausting. If you bill properly through your practice management system, it is likely that you have an accurate picture as to what your AR currently looks like. (We won't dive into formulas on this one.) Generally speaking, keeping 70-90% of your AR within 0-60 days is considered healthy. But if your AR falls outside of the healthy range, here are a few things you can do to get it under control:
Every area of your practice's finances requires planning and proper execution. AR is different because it requires a commitment to the mundane process of following up on outstanding invoices, but it is necessary for a financially healthy practice. Conclusion Personal trainers like to tell their clients that one bad meal doesn't make you overweight, just like one good meal doesn't get you in shape. This is also how medical practice financials work. Improvements for any practice struggling financially are not only necessary, they are also possible. They just don't take place overnight. The goal should be making and maintaining incremental progress over time. The results will compound and will be huge for your practice! If you look at these three financial benchmarks for your practice and have questions, please let us know! We would love to help in any way possible!
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AuthorThe staff and doctors at VisionAmerica are committed to providing relevant information for you, your patients and your practice. We hope you find the information in our blog post helpful. Archives
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