Best Practices: A Benchmark Practice Review Can Help You Evaluate Your Practice’s Health

Laurie Morgan February 6th, 2012

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In a tough economy, with rising costs and increasing patient responsibility for payments, you might find your practice is less profitable than it was even a few years ago.  The reversal might merely be the effects of all of these uncontrollable external variables – or, your practice may have inefficiencies lurking.  Perhaps your practice has always underperformed similar practices on key business measures – but until the economy went south, your revenues were strong enough to mask the problems. 

If you’re seeing a decline in practice income, you’re likely already hearing alarm bells.  But, even if profits are holding steady, it’s a good idea to compare your practice against top performers to identify any weak spots.  Benchmarks are the tool that helps you do it.

External benchmarks

When managers and consultants talk about benchmarks to evaluate your practice against, they’re generally referring to external, third-party practice management benchmarks.  These are statistics gathered from practices of all types and sizes from all over the country, usually by a healthcare industry group like MGMA or NSCHBC.  These organizations conduct detailed surveys of practices, collecting extensive operational data.  (The surveys take several hours for practices to complete, but participants are usually compensated with a customized, somewhat “lite” version of the final report.)

Using these data, you can compare your practice against averages for your practice type.  Let’s say you’re concerned that your patient volume might have room for growth – does your practice need to invest more in marketing and networking?  A quick scan of charges per physician and patients per physician for your practice type can give you a rough idea of your physicians’ productivity compared against similar practices.  If the number of patients seems in line, but charges per physician seems low, check the gross charges per patient.  If that benchmark seems low, are you attracting the right kind of patients?  Or could under-coding be suppressing charges (and revenue)?  If your practice has multiple physicians, checking these data on a per-physician basis can help spotlight differences in coding behavior, for example, that might be affecting overall practice revenue.

Digging deeper

As you can see, the process rarely begins and ends with one benchmark: if one metric seems disparate, the next step is to consider related metrics, to try to isolate the source of the variance and determine how best to address it.

But, in some cases, the numbers can be even trickier to diagnose.   Accounts receivable, for example, is one of the most important metrics for a practice to regularly track and analyze.  But comparing against benchmarks doesn’t tell the entire story.

We worked with a pediatrics practice recently that was convinced that its third party billing company was not collecting diligently or quickly enough.  Yet the benchmark analysis showed that most of their receivables were in the 0-30 day range – seemingly very acceptable (and actually towards the top-performing side of the spectrum).   However, digging a little deeper into the practice’s processes, we found that there were long delays in initiating the billing process – sometimes bills weren’t processed for more than a week.  Worse, the billing team was only sending patient statements once a month – so some patients were receiving their first bill more than five weeks after their time of service.  This meant that “new” receivables were actually quite a bit older than they appeared.  We learned that comparing the billing system’s receivables figures alone wouldn’t give us an accurate comparison against the benchmarks – we had to dig deeper to get an apples-to-apples timeline for the practice’s actual collections.

In another instance, we worked with a practice that was quite focused on containing expenses.  They were quite proud that their staffing ratios looked leaner than other practices. However, the drive to do more with less had gradually resulted in a lower patient load: With fewer hands available, small marketing gestures like thank you notes for referrals were the first thing the practice did without, and soon after that, “niceties” like personal reminder calls for appointments disappeared.  The revenue lost in fewer bookings and significantly greater no-shows more than offset the “gains” from keeping staff headcount so lean. Sometimes, great comparative results are not exactly what they seem!

Aim for continuous improvement

Taking on a full benchmark practice review is a hefty project – worthwhile for virtually every practice, but not something that can be done every day.  But the benefits of analyzing practice performance numerically against standards can be gained in lots of smaller ways on a regular basis.

For example, one of the best ways a practice can improve profitability is by focusing on collecting patient payments at the time of service.  Small improvements in this area go directly to the bottom line!  We like to see practices set a goal of collecting 95% of their co-pays.  For many practices, this is unfortunately quite a stretch, but of course it’s never too late to improve. Initiate a weekly audit of co-pay collection results – knowing this is being tracked will get everyone thinking about it more seriously.  Even if you’re starting out far from the 95% goal, compare your results month over month, and find a way celebrate the accomplishment when an improvement of five points or more “sticks” for at least a month. 

No-show rate is another metric that’s easy to regularly track and highly profitable to improve.  Because all the expenses related to running the practice are incurred whether the patient arrives or not, every no-show avoided is like money in the bank.  Determine your current no-show percentage – if it’s higher than 10%, aim to trim at least two no-shows a week off your total. Begin tracking reminder times and methods to look for trends – are there times of day or methods of contact that work better for your population?  Even if you’re already doing well on this measure, it’s worthwhile to monitor it and look for ways to incrementally improve.

Laurie Morgan is a management consultant with Capko & Company. She specializes in marketing, management and technology for medical practices and blogs about practice management issues at www.capko.com/blog. Laurie has a BA in Economics from Brown University and an MBA from Stanford. Her last article for Getting Paid was Lending Money to Patients: Poor Time of Service Collections Hurts Your Practice in a Surprising Way.

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