Owning or running a medical practice can be quite the task. After a full day achieving positive clinical outcomes for your patients, you might not have enough spare time to apply the same level of detail in understanding how the rest of the practice is performing. If left unchecked, this may have an impact on your practice profitability over the longer term, which could potentially affect staff.
This is where key performance indicators (“KPIs”) can come in handy. They provide you the power to identify and interpret issues within a business at a glance, making the ability to address these pain points as they arise a much more straightforward task.
As mentioned in Part 1 of this blog series, the KPIs you plan to use should be tailored to ensure the practice’s goals are achieved and maintained. These are the essential items of your practice, not just what others in the industry are measuring.
In this final part of the series, we outline two KPIs that impact the costs and revenue of your practice. By spending a little time calculating and analysing these metrics each month, they can assist immeasurably in understanding and guiding areas to improve your practices back office functions.
Expenses as a % of Gross Income
All practice owners want to know how much revenue it takes to keep their doors open. Calculating the percentage of expenses to gross income may assist management to see the financial health of a practice at a glance.
To calculate and receive the output as a whole number, use the following formula:
Total Expenses % = Sum of practice expenses / gross income x 100
The use of this KPI however does have the potential to cause some confusion as to where exactly the issue lies. To counteract this, a secondary interrogation of the financials can be undertaken by splitting expenses in to categories, for examples rental expenses, staffing, advertising and marketing. Using this approach, you will be able to define key areas for review and understand the specific drivers of expenditure for your practice.
Percentage of Bulk Billing vs Private Billing
When setting the price of private patient fees, it is important to consider both the costs and the value of services provided. Costs of patient services need to be fully recovered, which may mean the subsidisation of one service by another to continue the provision of both. If costs are unable to be effectively recovered, the practice will become financially unsustainable.
To better help understand part of the story around the pricing of services, the practice needs to understand what percentage of services provided are bulk billed versus paid for privately.
Using the metric to view the % of bulk billed services versus privately billed is a good way to understand certain attributes of the practice, including:
- The demographics of the area surrounding the practice. For example a less well-off demographic may not want to present as often to a practice that only provides a more expensive private billing option, unless those patients have little alternative. The ability to pay can be a serious detractor to patient numbers.
- Other practices in the area may force your hand to target the fixed price bulk billing market to maintain practice profitability and market share.
- The pressure of lower fees may negatively impact upon the practice. For example, the need to work longer or faster could potentially increase the chances of making mistakes. This is not something any practice wants to happen and would adjust their fees to reflect a balance between adequate competitiveness, compassion for patients in tight financial situations and ensuring the practice is adequately funded.
It is important to note that just running a bunch of KPIs at the end of a period may not be enough. You need to view and analyse the results of a KPI within the correct context, prior to deciding whether any corrective action is required.
Once you have started tracking these metrics, you will want to use them to figure out how you’re performing in comparison to similar practices. This is known as benchmarking and referred to in the previous post in this blog series, this lets you view your practice in a competitive setting against industry or local benchmark figures, which provide useful comparison to practices working around you. This does however come with the caveat of comparing apples with apples, as defining a goal based solely on an industry benchmark may neglect key patient demographics that cause the KPI to differ.
From there, you can continue using these KPIs to monitor your progress, design and implement strategies to further improve these metrics.
We have now reached the end of our blog series on KPIs for medical practices. While not all of the KPIs mentioned will be useful to your specific circumstances, we hope the knowledge and application of them can provide useful insights in to the inner workings of your practice.
If you have any questions or would like to learn other tactics to gain a deeper understanding of your business, please contact us today.