Essential KPIs to Achieve Medical Practice Profitability
A guide to using Key Performance Indicators to unlock the profitability trapped in your medical practice
In today's rapidly changing healthcare environment, it is more important than ever for physicians to be aware of the key performance indicators (KPIs) that are crucial to their profitability.
The typical goals of any medical practice include providing care for its patients and being profitable enough to pay the physician(s) and staff, and to continue to invest in what the practice needs to keep up with patient care and business growth.
However, there are many things that can get in the way of these objectives. For example, it's important to have enough cash flow to cover expenses like payroll, utilities, taxes and insurance premiums. You also need a sound marketing plan in place so you'll be able to acquire new patients on a regular basis. If your staff is not satisfied with their benefits or they're not feeling appreciated in their roles, then productivity will decline and turnover rates will increase.
Achieving profitability requires more than just a list of goals and good luck – it takes strategic planning, tracking measurable KPIs, and taking action to adjust when needed.
In this article, I’ll walk through how to select, use, and analyze KPIs to help measure your progress and focus on improving the three main aspects that contribute to healthy profit for your medical practice:
1. Financials, 2. Office Operations, 3. Patient Satisfaction.
Routinely measuring your work against KPIs is not only the key to improving profitability, it can also improve patient care and experience and enhance staff performance and satisfaction.
Let's look at some essential KPIs to consider in your strategic planning for each of these three areas:
FINANCIAL KPIs: MEASURE THE MONEY IN YOUR MEDICAL PRACTICE
1. Total Revenue/Gross Collections has to do with how much money your practice brings in. It's important because it measures what happens when patients come through the door — and whether they are coming back or not.
The revenue metric represents the total value generated by all patient care services rendered in the measured timeframe. It also includes any other sources, such as contributions from third parties to support clinical programs and research activities, insurance contracts with related fees attached to them. But it excludes any subsidies or payments from third party payers (e.g., Medicare). This metric does not directly correlate with profitability as it doesn't take into account other factors such as overhead costs and staffing requirements. (more on that in the next section)
Consistently low or declining total revenue can signal one or more issues to address, ranging from your patient billing and collections routines to improving patient engagement and attracting new patients.
A low revenue rate may also be an indication that your practice needs more patients. If you have stopped taking new patients, you may want to employ marketing strategies and outreach to generate awareness and interest in your medical practice and encourage referrals.
Alternatively, if you have maintained consistent levels of service but find you don't have corresponding revenue growth, it could be because your specialty has reached a shortage of potential new patients in the typical demographic. It can be worth re-assessing the competitive situation in your marketplace to understand the level of saturation and options in your speciality.
2. Gross Profit/Net income is the difference between gross revenues and direct patient care costs. This metric, which reflects the proceeds that are available for reinvestment in your practice or to share with other stakeholders, can be used as an indicator of financial health. Maximizing this number generally indicates good overall performance of your medical practice, while low numbers may signal areas in need of improvement and/or investment before it's too late.
In short, this is how much money is left over after all expenses have been taken out. Profit margin is the percentage of revenue that's left over after paying for the costs of running your practice. It's important to note that this number does not reflect the physician's personal income but rather only what remains after you pay staff salaries, rent/mortgage payments, utilities, supplies—basically any expenditure associated with providing healthcare services at the practice level.
Tracking your gross profit can help you determine whether your practice has enough cash to reinvest in new technologies and attract talent.
3. Average Revenue Per Visit measures how much money on average each patient visit generates. This is calculated by dividing your total revenue for the last 12 months, or an average of four weeks, by how many visits there were during that period. (Rev ➗ Visits)
While Total Revenue measures the practice's overall performance for generating income, the Average Income Per Visit tells you what you can expect in income as the number of patient visits increases or decreases, or as your capacity to serve patients changes.
4. Cost Per Visit helps you calculate the net revenue per visit by determining how overhead expenses, like rent/mortgage payments or salaries, average out across the number of patients. This metric provides more insight into your profits by adjusting for other costs besides just wages and supplies.
OFFICE OPERATIONS KPIs: TRACK HOW YOUR MEDICAL PRACTICE WORKS
5. Labor Productivity most accurately reflects physician productivity because it takes into account all staff time by examining how often patients are seen within a specified amount of time. A high level of labor productivity can help lower costs by reducing overheads and staffing requirements while improving patient outcomes.
There are many factors that influence your own labor productivity rate, including your specialty, the layout of your practice, in-house or out-of-office billing, etc.
You may also want to consider other staffing factors, such as staffing ratio and turnover, to more completely assess efficiency.
6. Staffing Ratio looks at staffing levels and whether there is enough coverage in your practice to provide adequate, high quality care for patients. The optimal ratio of staff to physicians varies by specialty and group size, but a good benchmark can be one full-time physician per two providers (or one FTE provider). Tracking this KPI helps you identify when to consider adjusting the staffing ratios depending on new recruitment or retirements, as well as changes in patient volume.
Staffing ratio is calculated by dividing the number of non-physician healthcare professionals employed by the total number of active physicians within a given service line. For example, if you have three primary care doctors working out of your office with four nurses then your staffing level will be calculated as follows:
(4 nurses) ÷ (3 primary care physicians)= 0.75 FTE per physician
Your target staffing rate depends on the practice and specialty, and the set up and processes in your office.
When making changes to your staffing, look first at opportunities to fix the process before you add a person.
PATIENT SATISFACTION KPIs KEEPING YOUR PATIENTS HAPPY & HEALTHY
7. Patient Satisfaction Index: Understanding how satisfied patients are at a given time point will help identify areas to improve their experience and, in turn, improve your medical practice profitability. Remember, a satisfied patient is more likely to return and to refer.
Data about patient satisfaction — based on their perceptions, opinions, and experiences with the care they've received — is often measured across five dimensions:
Communication
Efficiency and effectiveness (making appointments, timely visits)
Courtesy from staff members
Courtesy from physicians
Care quality including responsiveness to needs, empathy, explanations of treatments and procedures; continuity of care, etc.
A low score in any one dimension can deter even established patients from returning and discourage them from recommending your practice to others. If patients are not happy with their experience at your practice, they will leave, especially if they have other options where they feel more welcomed and cared for when they call or walk through the door.
Low patient satisfaction can quickly drain revenue and profitability from your medical practice. Routinely tracking this score can give you insight into problems before they become costly and help you take action to prevent them from being detrimental to your practice.
8. Length of Stay (LOS) is a metric that measures the number of visits it takes for an average patient to be released from your care. It's essentially a measure of how quickly you're able to see patients in order, but also how efficiently they get treated once they come to you.
How you measure this will vary depending on your practice specialty. For example, a practice involved in treating and monitoring chronic conditions may have a different target number for LOS than a practice focused on elective surgeries.
9. Days to New Patient Acquisition
The number of new patients a practice acquires is an important metric to watch because it tells you how many people are coming to your office who don't know about you and haven't been there before. Your marketing efforts, the strength of your referral network, the quality of care that's offered - all these factors can influence how successful your acquisition campaign is.
Consider the cost of new patient acquisition compared to retaining and maintaining an established patient. A large portion of any medical practice revenue comes from repeat patients or referrals from satisfied clients. Your new patient numbers may be tied closely to your area of specialty and the length and type of services your practice provides.
Your schedule should always include time for new patients, ideally seeing a number of new patients every day or every week.
Start using KPIs in Your Medical Practice
That's an overview of just nine of the KPIs that can help you improve the profitability of your medical practice.
Taking time to make KPIs part of your practice business strategy every month will pay off. Consider making it an active profitability challenge and involve your staff, both office and practitioners, and be transparent in engaging them in monitoring, measuring, and reviewing KPI results each month.
In my experience consulting medical practices on profitability, many discover — and fix — basic issues within the first three months, and begin to reap the benefits of improving profitability within six months.
Even simply capturing and tracking some KPIs, for example capturing and measuring accurate data on patients, will help you see where you are losing money and how you can fix the leaks. WIth good patient data, you can understand rejected claims and adjust your office processes. For a small primary care practice of three physicians, adopting this patient KPI alone over the course of one year could help bring in more than one million dollars.
Not sure where to start? Contact me to schedule a 20-minute introduction consult and an initial assessment.
How does H&N Help?
Our services include working with your medical practice to develop and implement a strategic growth plan, achieve operational efficiencies, and provide staff development, as well as making connections and negotiating the details to bring on an investor or sell your practice.
We will be happy to have a conversation and provide you with specialized insight into medical practice profitability.