By the Numbers

The Goldilocks problem: Too much, too little or just enough practice business data?

Practices need to only gather and review data that are going to be useful in making a business decision.

There were three bowls of porridge she tasted. Papa Bear’s was too hot, Mama Bear’s was too cold, but Baby Bear’s was just right.
– Goldilocks and the Three Bears

“You can use all the quantitative data you can get, but you still have to distrust it and use your own intelligence and judgment.”
– Alvin Toffler

A dear old client wrote recently. “I’d like my staff to give me a daily scorecard. How many patients did we see? How many surgeries were booked? How much money was deposited? What’s the balance in our working accounts? That kind of thing.”

Ah, the Goldilocks problem. How much practice business data, at what review frequency, is appropriate?

I responded with a medical answer. “If you were my intern, Mike, and I was healthy, you would see me yearly and get a few vitals and basic tests, right? If I was a controlled diabetic, you might see me quarterly and bulk up the test panel. If I was not well controlled, you would see me monthly and more tests. And if I was crashing, you would admit me to the hospital and I would be examined and tested several times a day.”

Mike agreed.

“And of course,” I said, “the same increased diligence would apply at the other end of the patient health spectrum. If I was a trim NASA astronaut with a lot riding on my health, you might be checking on me much more frequently, not because I’m sick, but because we’re trying to push my performance and you want to make sure all systems are ‘Go,’ right?”

Mike agreed.

Then I brought the conversation back around to Mike’s business, a thriving $5 million practice, and how tracking patient health and practice health are really one in the same.

Very small, healthy, high profit margin and unchanging practices can examine their key performance indicators (KPIs) about quarterly.

For the average practice, like Mike’s, a monthly KPI review will suffice.

Troubled practices (and the same goes for troubled departments such as billing, which can get the wobbles from time to time, even if they are embedded within an otherwise healthy practice) might deserve weekly review.

Practices on the verge of bankruptcy should be tracking some core KPIs daily.

But so should some of the most “athletic” practices today, including the current bloom of consolidating practices. Fast-growing, hard-driving regional “super-groups” — whether under the banner of private equity or independent entrepreneurism — need to track their key numbers at least weekly. Why? Because when you are running a $50 million clinic and performance slips sideways, it slips fast and expensively.

What KPIs to track?

Medical doctors have lipid panels, PET scans, stethoscopes and a few thousand other tools at their disposal to assess health. As the owner of a mid-sized healthy practice — or its administrator — your tool kit is comparatively simple. Here are a few business equivalents of a CBC, an EKG and a basic metabolic panel.

Monthly financial statements: A single month of data is actually not that useful. Look at the current year-to-date figures side by side with the same period from the prior year. For example, the 9 months ending Sept. 30, 2019, with the same period in 2018. Compare revenue figures (collections.) Is the practice growing? The growth in demand for eye health care is approaching 5% (higher in some communities). If your practice revenue is growing slower than 5%, you are probably losing market share (which is fine if you are nearing retirement, not so great if you are mid-career). How about expenses? You will be keenly aware of some cost escalations, such as when your lease is renewed. But other expenses can creep up silently, such as staffing costs. If your practice revenue is only growing 5% but your labor costs are growing 10%, you have a problem.

CPT report: This is typically a 5- to 10-page report easily generated from your practice management system. For every CPT code, it shows the number of units furnished to patients. These reports have a wealth of information and, just like your practice’s financial statements, are most interesting when looked at over longer time periods than just the current month. Look at the number of visual fields performed as a percent of total visits. Is it about 5%? You are in good shape if you have a general practice. OCTs will typically be north of 10%. YAG capsulotomies as a percent of cataract surgeries about 35%, and so on.

Quick ratio: From your balance sheet, find your “current assets” (omitting inventory); add to this the portion of your open accounts receivable that you are likely to recover (in many settings, this will be about the same as your monthly collections). Divide the resulting figure by your “current liabilities” found on your balance sheet. The answer should be 1.0 or higher in a healthy practice; a stable middle-of-the-road practice will be closer to 3.0 and above.

Aging report: Ask your billing staff to pull up the current aging report in your practice management system. Scroll down to the last summary page, which will show what percentage of your total open accounts are in each aging “bucket.” Add up the percentage figures for the 90-day and older accounts, and you should get a figure that is at or under 12%. If your billing team is superior, the figure may be closer to 6%. Is the figure only 1% to 3%? Check to make sure accounts are not being unduly written off. If you have extra time, dive back into the body of the report, which may go to hundreds of pages in a very large practice. Pick a couple of larger/older balances and ask a billing clerk, “What’s the status of these open accounts?” You should get a confident answer back: “Mrs. Smith is paying us $50 per month.” You don’t want an answer like, “Hmm, hard to tell, can I get back to you?”

Average collections per visit: Divide monthly collections by monthly visits, including postop visits. In a strong general practice, the figure will be $200 or higher and should be fairly consistent from month to month. If average collections per visit are falling, your billing department may be falling behind. Or your surgical density may be declining. Or you may be getting so busy in clinic that you are pushing off special testing.

Too much or too little review

If your practice is troubled, you need to dig deeper, just like your personal physician might order additional tests if something troublesome comes up on a basic blood test. If your lay staff team are ineffective, examine your staff turnover ratio, the percent of staff who leave every year — it should be under 25%. If your labor costs seem high, add up the total lay staff hours you employ each month and divide by the number of patient visits in the same month; the resulting figure in a general practice should be about 2.5 hours per patient visit. Higher, and you may be overstaffed.

Too little KPI reviewing is a fast-track to practice failure. But too much data review is a waste. We have certainly had some clients, owners of very healthy practices, who insist that staff turn in a daily scorecard showing the number of visits, collections, bank balances and the like. Doing so is harmless (except for wasted staff time) and in some settings may even soothe an owner’s nerves. But remember the prime directive, applicable in both medicine and business: We need only gather and review data that are going to be useful in making a patient care or business decision.

Think about this and the frequency and depth of your own KPI reviews. Too hot, too cold or just right?

There were three bowls of porridge she tasted. Papa Bear’s was too hot, Mama Bear’s was too cold, but Baby Bear’s was just right.
– Goldilocks and the Three Bears

“You can use all the quantitative data you can get, but you still have to distrust it and use your own intelligence and judgment.”
– Alvin Toffler

A dear old client wrote recently. “I’d like my staff to give me a daily scorecard. How many patients did we see? How many surgeries were booked? How much money was deposited? What’s the balance in our working accounts? That kind of thing.”

Ah, the Goldilocks problem. How much practice business data, at what review frequency, is appropriate?

I responded with a medical answer. “If you were my intern, Mike, and I was healthy, you would see me yearly and get a few vitals and basic tests, right? If I was a controlled diabetic, you might see me quarterly and bulk up the test panel. If I was not well controlled, you would see me monthly and more tests. And if I was crashing, you would admit me to the hospital and I would be examined and tested several times a day.”

Mike agreed.

“And of course,” I said, “the same increased diligence would apply at the other end of the patient health spectrum. If I was a trim NASA astronaut with a lot riding on my health, you might be checking on me much more frequently, not because I’m sick, but because we’re trying to push my performance and you want to make sure all systems are ‘Go,’ right?”

Mike agreed.

Then I brought the conversation back around to Mike’s business, a thriving $5 million practice, and how tracking patient health and practice health are really one in the same.

Very small, healthy, high profit margin and unchanging practices can examine their key performance indicators (KPIs) about quarterly.

For the average practice, like Mike’s, a monthly KPI review will suffice.

Troubled practices (and the same goes for troubled departments such as billing, which can get the wobbles from time to time, even if they are embedded within an otherwise healthy practice) might deserve weekly review.

Practices on the verge of bankruptcy should be tracking some core KPIs daily.

But so should some of the most “athletic” practices today, including the current bloom of consolidating practices. Fast-growing, hard-driving regional “super-groups” — whether under the banner of private equity or independent entrepreneurism — need to track their key numbers at least weekly. Why? Because when you are running a $50 million clinic and performance slips sideways, it slips fast and expensively.

PAGE BREAK

What KPIs to track?

Medical doctors have lipid panels, PET scans, stethoscopes and a few thousand other tools at their disposal to assess health. As the owner of a mid-sized healthy practice — or its administrator — your tool kit is comparatively simple. Here are a few business equivalents of a CBC, an EKG and a basic metabolic panel.

Monthly financial statements: A single month of data is actually not that useful. Look at the current year-to-date figures side by side with the same period from the prior year. For example, the 9 months ending Sept. 30, 2019, with the same period in 2018. Compare revenue figures (collections.) Is the practice growing? The growth in demand for eye health care is approaching 5% (higher in some communities). If your practice revenue is growing slower than 5%, you are probably losing market share (which is fine if you are nearing retirement, not so great if you are mid-career). How about expenses? You will be keenly aware of some cost escalations, such as when your lease is renewed. But other expenses can creep up silently, such as staffing costs. If your practice revenue is only growing 5% but your labor costs are growing 10%, you have a problem.

CPT report: This is typically a 5- to 10-page report easily generated from your practice management system. For every CPT code, it shows the number of units furnished to patients. These reports have a wealth of information and, just like your practice’s financial statements, are most interesting when looked at over longer time periods than just the current month. Look at the number of visual fields performed as a percent of total visits. Is it about 5%? You are in good shape if you have a general practice. OCTs will typically be north of 10%. YAG capsulotomies as a percent of cataract surgeries about 35%, and so on.

Quick ratio: From your balance sheet, find your “current assets” (omitting inventory); add to this the portion of your open accounts receivable that you are likely to recover (in many settings, this will be about the same as your monthly collections). Divide the resulting figure by your “current liabilities” found on your balance sheet. The answer should be 1.0 or higher in a healthy practice; a stable middle-of-the-road practice will be closer to 3.0 and above.

Aging report: Ask your billing staff to pull up the current aging report in your practice management system. Scroll down to the last summary page, which will show what percentage of your total open accounts are in each aging “bucket.” Add up the percentage figures for the 90-day and older accounts, and you should get a figure that is at or under 12%. If your billing team is superior, the figure may be closer to 6%. Is the figure only 1% to 3%? Check to make sure accounts are not being unduly written off. If you have extra time, dive back into the body of the report, which may go to hundreds of pages in a very large practice. Pick a couple of larger/older balances and ask a billing clerk, “What’s the status of these open accounts?” You should get a confident answer back: “Mrs. Smith is paying us $50 per month.” You don’t want an answer like, “Hmm, hard to tell, can I get back to you?”

PAGE BREAK

Average collections per visit: Divide monthly collections by monthly visits, including postop visits. In a strong general practice, the figure will be $200 or higher and should be fairly consistent from month to month. If average collections per visit are falling, your billing department may be falling behind. Or your surgical density may be declining. Or you may be getting so busy in clinic that you are pushing off special testing.

Too much or too little review

If your practice is troubled, you need to dig deeper, just like your personal physician might order additional tests if something troublesome comes up on a basic blood test. If your lay staff team are ineffective, examine your staff turnover ratio, the percent of staff who leave every year — it should be under 25%. If your labor costs seem high, add up the total lay staff hours you employ each month and divide by the number of patient visits in the same month; the resulting figure in a general practice should be about 2.5 hours per patient visit. Higher, and you may be overstaffed.

Too little KPI reviewing is a fast-track to practice failure. But too much data review is a waste. We have certainly had some clients, owners of very healthy practices, who insist that staff turn in a daily scorecard showing the number of visits, collections, bank balances and the like. Doing so is harmless (except for wasted staff time) and in some settings may even soothe an owner’s nerves. But remember the prime directive, applicable in both medicine and business: We need only gather and review data that are going to be useful in making a patient care or business decision.

Think about this and the frequency and depth of your own KPI reviews. Too hot, too cold or just right?