4/10/2019 0 Comments Practice Benchmarks - Part 2(This is part two of our series on practice benchmarks. In part one, we covered gross revenue per patient, new patient growth per year, and accounts receivable. If you missed it and would like to check it out, click here. Also, if you have any questions regarding parts one and two or the financials of your own practice, please don't hesitate to contact us. We would love to help in any way possible!) We understand that reading a piece on practice benchmarks might not be the most exciting thing on a Thursday. Nevertheless, it is an important topic. As we mentioned in the first piece on this subject, your practice might range slightly above or below the benchmarks discussed here. The important thing is that these numbers are being actively (and accurately) tracked and measured. In this final piece on financials, we are going to discuss three more key benchmarks. They are: Gross Revenue Per Staff Hour Spending Rate to Revenue Chair Cost Gross Revenue Per Staff Hour
Gross revenue per staff hour is really a measurement of efficiency. This benchmark will help you determine how much waste exists in your practice. It is generally agreed upon that a goal for this benchmark is $80 gross revenue per hour. Any employee in a practice can wear multiple hats, but moving patients through the exam rooms is ultimately what pays the bills. If your gross revenue per staff hour is too low, it is likely that you are either understaffed or that your staff isn't focusing enough of their attention on the patient. Here is the formula to calculate your monthly gross revenue per staff hour (excluding ODs): Number of staff x 160 (4x40 hrs/week) = Combined total hours worked for the month Gross revenue from last month / Combined total hours worked for the month = Gross revenue per staff hour So if your practice has 6 full-time employees and grossed $85,000 last month, the gross revenue per staff hour would be $88.54. This would be above the industry standard and a good indicator that your practice is in decent shape financially. If your gross revenue per staff hour falls below this mark, here are a few things you can consider to improve it:
Spending Rate to Revenue You probably know how much your practice spends each month. (Or we are hoping you do!) The questions any practice owner should be asking are:
If your practice uses a program like Quickbooks, it should be pretty easy to produce a profit and loss statement. The challenging part can be knowing if you are overspending in a particular area. Gary Gerber of Power Practice provides some helpful insight here as to what the general industry standards are for spending: Cost of Goods: 28% Payroll: 28% (May fall between 18%-35% depending on location.) Marketing and Promotion: 4% Rent: 8% Excluding any additional costs, the numbers above would leave a practice with a healthy net of 32%. According to Gerber, falling somewhere between 15-30% net income is healthy, but keep in mind that the 15%-20% range should be reserved for larger practices. If you are operating in a rural area, your practice needs to be getting closer to that 30% net income mark. If your practice isn't anywhere close to that number, check out the next section on chair cost to see how you can improve. Chair Cost How much does it cost you to provide care to each patient? That is your chair cost. This is one benchmark where the math can get a little messy due to the fact that you have to make sure your chair cost is low enough when compared to your insurance reimbursement. If it isn't, you will be breaking even or operating at a loss. To come up with your chair cost, you first have to figure up your fixed costs. Every business has fixed and variable costs. The fixed costs are your expenses that do not change month over month such as rent, utilities, salaries, etc. Your variable costs are what goes into actually processing a patient such as the cost of hourly workers, supplies, etc. To calculate your fixed costs, subtract your variable costs from your gross revenue. (Gross revenue - variable costs = fixed costs) Now you can calculate your chair cost by dividing your fixed costs by the number of revenue-generating visits. (This could be monthly or annually.) Chair cost per patient = Fixed Costs / Revenue Generating Visits The industry standard for chair cost is considered to be between $130.00-$150.00. But as we stated above, the most important thing is you are making a healthy margin per patient based on your insurance reimbursement. If your chair cost is too low, here are a few things you might consider to improve it:
Conclusion Few industries deal with as many moving parts as medical. Making sure your practice is financially healthy isn't easy and it can't be done by simply looking at a report in Quickbooks. Instead, there are many variables and formulas to consider. The financial health of your practice is important to so many people and we hope this discussion continues in the future. If you have looked over these two pieces on practice benchmarks and are concerned about the financial stability of your practice, the time to act is now! Please reply to this email if you have any questions on this topic!
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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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