Medical practitioners have experienced tremendous disruption in 2020. The rhythmic routine of patient visitations, procedures, surgeries, and medical conferences has been interrupted by the health crisis, and there does not seem to be a future indication of when “normal” activity will resume.
The health crisis has likely driven you and your team to closely review metrics to gauge the health of the practice during the disruption. And, for practitioners that fall into the category of providing elective or non-essential services, you have likely experienced tremendous stress finding ways to bridge the financial gap as patients cancel or reschedule appointments.
This situation points to the need to periodically review medical practice performance metrics during the health crisis. This approach will help you achieve an understanding of the health of the practice and then use these metrics to make forward-thinking decisions in anticipation of the “new normal” for your practice.
The Most Important Medical Practice Performance Metrics
The comparability of metrics in 2020 against previous years will be skewed because of the disruption to your practice’s appointments, billings, and revenue cycle. That’s why it’s important to understand what these metrics indicate to help you find the true health of the practice during the disruption.
1. Overall Gross Charges
When we work with medical practices, we start with the metric of overall gross charges. This is the total amount that would be charged for all services provided if there were no discounts or negotiated prices for services. In other words, if you were to charge the full price for your services, what would be the total amount?
This metric captures the amount of activity for your practice and the financial value of your practice’s activity. This helps capture which activities are the most lucrative for your practice, whether based on the volume of activity or the full amount you would charge for special services.
- COVID-19 application: If you experienced a significant hit in the volume of services or the ability to provide certain services, you should capture the difference in 2020 versus a “normal” previous period to evaluate the true impact.
2. Procedure Count and Charges for Key Procedures
Similar to overall gross charges, the metric of procedure count and charges for key procedures is a great indicator of financial health. We understand that key procedures vary by specialty, so your practice should focus on the largest contributors to total revenue. These need to be protected and focused on.
If you do not already have a spreadsheet or document to track which procedures contribute the most to financial performance, now is a great time to start. Start with a normal period of activity. Measure the number of procedures, the charge for each procedure, and the percentage that each procedure contributed to the overall financial pie.
- COVID-19 application: The calculation during a “normal period” will help you determine which services need to be optimized during COVID-19 to support the overall viability of the practice. You can also see the difference between a normal period and the COVID-19 period to capture the impact of the disruption on revenue.
3. Patient Encounters Per Month
During the pre-coronavirus rhythm of your medical practice, you likely experienced a regular flow of new patient interactions and regular patient encounters. There may have been ups and downs in this rhythm due to seasonality for your practice, but you likely could predict these changes from your experience.
Now, though, it’s very important to track and evaluate the data, not just go by a feeling or sense about patient activity. You should be keeping track of new patient visitations, sources of these new patients, and the number of regular patients visited per day and per month.
- COVID-19 application: Take your spreadsheet back several periods to gauge the regular flow of new and recurring patient activity before the coronavirus. Then, look at the past few months during the health crisis to see where there has been a significant change. Have you lost regular patients, not had as many new patients, or both? Use the data to help you decide next steps to re-engage regular patients and to find new patients.
4. Gross and Net Collection Ratios
We know that a medical practitioner rarely receives the full amount of revenue for a service provided due to discounts or negotiated prices. However, it is still important to calculate the gross collection ratio to give you an idea of how much you are actually collecting against the value of the service.
The more valuable ratio from a financial perspective is the net collection ratio, which helps you understand how much revenue you are collecting against the negotiated rate.
For example, if the full charge for a particular service is $1,000, you negotiate a rate of $800, and you end up collecting $780 of that revenue, then your gross ratio is 80% and your net ratio is 97.5%. The industry standard for net collection ratio is 96%, so you are favorable in this example.
Gross collection ratio can help you identify whether you are discounting too much of your service and need to re-negotiate certain rates. Meanwhile, net collection ratio helps you capture whether you are collecting the amount of money you are owed after discounting services.
- COVID-19 application: It is critical to monitor the net collection ratio during this period. If you are owed a certain amount for services provided, but you are not collecting more than 96% due to coding errors, late payments, or failures to pay, then you need to proactively evaluate what is causing the discrepancy and take steps to collect the full amount owed.
5. Accounts Receivable
Accounts Receivable is an important metric to help you understand how much revenue is out there waiting to be collected. There’s two ways to evaluate the A/R metric.
One evaluation is the total revenue that you are waiting to collect. This number may seem abstract on its own, which is why you need to perform a second evaluation of placing the A/R into aging buckets.
Aging your Accounts Receivable will help you identify which revenue will be collected in the next 30 days, 30-60 days, or beyond 60 days. This way, you can calculate the percentage of short-term, medium-term, and long-term revenue that is waiting to be collected.
- COVID-19 application: Your team should be proactively pursuing near-term revenue to support cash flow and the revenue collection cycle. Instead of waiting for this revenue to arrive, make sure you send reminders or notices to accelerate the pace of receiving owed payments.
6. Accounts Payable
Accounts Payable goes hand-in-hand with Accounts Receivable. Your practice needs to ensure that you have enough revenue coming in to pay for expenditures going out of your practice.
Taking a close look at A/P will help you determine whether you have enough inflows to cover critical costs such as practice operating expenses, clinical supplies, maintenance, and other necessary costs to keep the practice running.
- COVID-19 application: Reviewing A/P and comparing against A/R will help you determine whether you need to make certain cutbacks or reductions in expenses to maintain the practice. While difficult decisions might need to be paid, you can at least be confident in the decision using this metric as your source.
7. Revenue Per Patient Per Day
Finally, we recommend drilling down to the nitty-gritty of how much revenue you are collecting per patient per operating day. Understanding how much revenue you are generating from each patient each day will help you determine the efficiency of your practice.
If this metric is low or below-average for your specialty, then your practice may be suffering from inefficiencies that are impacting your ability to see as many patients as possible during a normal operating day. Patients are either sitting around for too long or your team is bogged down with non-essential tasks that are impacting your ability to process each patient.
If this metric is high or above-average for your specialty, then this indicates you have an efficient process. Now, you may be able to schedule more patients to generate additional revenue without over-burdening your practice and staff.
- COVID-19 application: The disruption is a great opportunity to utilize the revenue per patient per day metric to evaluate whether you need to optimize processes (low metric) or consider adding new rooms (high metric) in anticipation of a return to normal. Be careful about adding to your practice during the disruption, though, if other metrics indicate that you need to be conservative with expenditures to ensure that you have enough revenue inflows to support the viability of the practice.
Find Support Reviewing Medical Practice Performance Metrics
Each metric is part of a larger story about the performance and financial health of your medical practice. One exceptionally positive metric could be misleading when compared against other metrics. That’s why it’s important to look at the metrics holistically to look at the big picture.
Then, once you have a clear view of the big picture, you can evaluate how COVID-19 has impacted your practice to see how much slack you need to provide your practice to navigate this unprecedented challenge.
Now you’re informed about “normal” state and the impact of the disruption to make strategic decisions about your practice moving forward. These decisions may include:
- Changes to operating hours
- Changes to staffing levels
- Outsourcing certain functions
- Whether to add new rooms and equipment
- Whether to expand operations and add other specialties
- Whether to add new physicians or locations
- Whether to take away certain non-essential and low-revenue services
These decisions should not be taken lightly. It’s important to have another set of eyes on your medical practice to help support performance and financial decisions.
Our CPA firm specializes in supporting medical practices. We will dive into your practice to review strategy, administration, personnel, collection ratios, and financial benchmarks. We’ll help with comparable analysis and periodic evaluations to continuously review the health of the practice as you strive for profitability.
To find out more about how we can help your practice during the disruption as you move toward the “new normal,” contact us today. We can help.