The Vital Signs of Profitability for Your Healthcare Practice

Kaufman Rossin | South Florida Hospital News & Healthcare Report | April 6, 2016

Every physician practice has two distinct components: clinical and business. Most providers spend the majority of their time focusing on the clinical side. However, the business side is just as important if you want your practice to grow and thrive.

By following these three steps, you can improve your practice management:

1. Identify the vital signs or key performance indicators (KPIs) for your healthcare practice. This is equivalent of knowing which primary indicators to check when you see your patients (e.g., body temperature, heart rate, blood pressure, etc.). There may be just a few top-level “vitals” for your business, but several more KPIs that you’ll want to include in your tracking.

2. Select or build the right reporting tools to make it easy to monitor those critical signs. Just as you would encourage your patients to schedule periodic checkups to keep an eye on their health, you should schedule regular reporting to monitor the health of your business.

3. Establish a disciplined process to review that data, share it with your physician partners as appropriate, and implement any changes necessary. At the end of a checkup, you would make recommendations to help your patients reach their health goals, and you would hold them accountable for taking action on your recommendations (i.e., start exercising, take medication). You should do the same for your business goals.

Key performance indicators

While there are endless metrics you can measure in your business, you should start by deciding on a reasonable number of specific measures that can have the most impact on profitability. If your practice has multiple locations or physicians, collect and measure this data at the lowest possible levels: per provider, office location or specialty.

The following are some of the key performance indicators you should consider tracking at your practice.

  • Number of patient encounters
  • Number of procedures
  • Gross charges
  • Receipts
  • Outstanding A/R – This is an important indicator of cash flow. The majority of your accounts receivable should be under 30 days, but may be as high as 60 days. (You may wish to break this down by A/R owed by patients and A/R owed by insurance companies.)
  • Unpaid claims
  • Low-paid claims
  • Denied claims – How many claims are being rejected
  • Clean claim rate –This measures the percentage of claims that are being sent out that have been scrubbed and cleaned; ideally this should be 95% or greater
  • Overhead expenses expressed as percentages of revenues
  • Timely submission of charges
  • Patient volume per provider
  • Ratio of claims collected to fees incurred
    – Shows percentage of physician time that is actually billed and collected
  • Operating and total margins

Reporting

Keeping watch on the vital signs of your business and taking action when issues or opportunities arise can improve the profitability of your practice. Reviewing KPIs regularly allows you to see fluctuations from month to month and over time. When you start to identify trends and exceptions in the data, you can understand what is changing and why.

Reporting and reviewing data requires time and commitment, but it doesn’t have to be a painful process. Using technology to gather and report information on a regular basis can make the process easier.

There are several types of reports that you may want to consider, including financial statements, management reports, FLASH reports, real-time dashboards, exception reports and email alerts.

At a minimum, you should review KPI data monthly. In addition, you may want to set up daily or weekly flash reports that show you a one-page snapshot of top-line metrics in three categories: liquidity, productivity and profitability. Most electronic medical record (EMR) systems and practice management software – if configured properly – will allow you to generate reports and view these KPIs from your dashboard.

Using the data to take action

Harnessing the power of data is critical to maximizing opportunities. For example, with the right data, you can make more informed decisions when negotiating alternative payment arrangements and vendor contracts; you will have the information you need to properly manage staffing and cash flow; and you will be able to identify the most profitable ways to grow your practice.

To get the most value from your data, establish a disciplined process to collect, report, review, and act on the information, and create a culture of accountability that holds physicians and staff accountable for behaviors that affect the KPIs that drive profitability.

And keep an eye on upcoming developments that could affect revenue and profitability in the future. For example, beginning in 2019, the new Merit-based Incentive Payment System could affect Medicare payments to most physicians by as much as 9%. Those who score exceptionally high could receive a 27% payment bonus.

To learn more about measuring the vital signs of profitability for your practice, contact an accounting and consulting firm with healthcare industry expertise.

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Kevin N. Fine, MHA, is a director of healthcare advisory services in the Miami office of Kaufman Rossin, one of the Top 50 CPA and advisory firms in the U.S.  He can be reached at kfine@kaufmanrossin.com.