Numbers You Should Know: The Minimum Metrics to Understand the Business of Your Practice

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AUTHOR:
Neil Baum, MD
Clinical Associate Professor of Urology, Tulane Medical School, New Orleans, LA

Author, Marketing Your Clinical Practice-Ethically, Effectively, and Economically, Jones Bartlett Publishers

An article appeared in the Washington Post on May 10, 2010, had a title, “Doctors Need To Work On Their Business Skills.” The take-home message of the article was that if doctors don’t understand basic business practices, they can’t survive in today’s market, doctors will no longer be practicing medicine and providing the care to the patient that they went to medical school to treat. Every physician, regardless of the size of his or her practice (ie, solo, small group practice, large group practice, multi-specialty group practice) needs to review the minimum metrics that provides doctors with an understanding of the success of the practice or helps doctors to identify problems which provides doctors with an opportunity to find solutions for any problems that are discovered.
 
The minimal metrics include:

• Total accounts receivables (AR) should be no more than 2 months of gross billing. Example, your practice bills $500,000 a month. You need to be sure that the ARs are less than $1 million.
• Total accounts aging: Those accounts greater than 90 days should be less than 15% of the total ARs.
• Days in receivables: this is equal to the average monthly AR\gross annual charges X 360. This should be less than 45 days.
• Clean claims rate should be greater than 97%.
• Payroll ratio should be 22% to 26%. This should include the staff’s benefits but exclude the physicians’ salaries.
• Per visit value should be more than $100. This is calculated by dividing the total gross monthly collections by the number of patients seen per month.
• New patients per month: This should be greater than 15% of total patient visits. (This metric probably applies more for specialty practices.)
• No-show percentage: This should be less than 3% of total patients visits.
   

Example 1:
Suppose you are monitoring the number of new patients that enter your practice on a monthly basis. Your practice enjoys a 12% to 15% new patient a month\total existing patients seen in the practice each month. You monitor this metric and find that for 3 consecutive months your new patient to existing patient ratio dips below 10%.
 
You dissect into your new patients numbers and you find that the new patients entering your practice from the Internet, self-referred patients, and patients referred by existing satisfied patients are stable, but physician referrals have sharply decreased. You contact a few of your colleagues who relate that they have tried to refer new patients to your practice but the patients report that your practice can’t accommodate them for 4 to 6 weeks. Now you can fix the problem by leaving 2 openings a day in your schedule for adding new patients.

Example 2:
Your clean claim rate has gone south from 98% to 88%. This means your biller is going to be resubmitting claims which delays reimbursements, increases your accounts receivables, and ends up as an erosion of your bottom line. After a review of a few dozen rejected claims, you find that the coding was incorrect. Now both the biller\coder and the doctor go to a coding course to correct the problem.
 
Bottom line: Looking at the metrics describe in this blog will take you less than one hour a month and will be a great return on your time investment. Failure to do so is to be at the mercy of your office manager and biller. You will also have to rely on your accountant to identify problems in your practice and very few accountants have in depth medical experience to trouble shoot financial problems that are unique to a medical practice. Therefore, become involved in the business of your practice. Your financial success depends on it.