Making the Case: How Benchmarking Helps with Business Decisions
Wednesday, February 27, 2019 9:00 AM
In today’s competitive health care market, practices must maintain a proactive approach to remain successful. To achieve this, key financial indicators should be tracked, measured, and compared using a process known as financial benchmarking. This assessment allows practices to identify year-over-year trends and compare these results to those of similar practices. In addition, the benchmarking report may be used to validate your subjective observations within the practice culture.
Generally, a good financial benchmarking assessment calculates several key performance ratios by examining various components of a practice’s profit and loss statement, provider revenue reports, and payroll data over a period of years. These ratios are then used to monitor and evaluate practice performance in terms of efficiency, productivity, and competitiveness.
Performing annual benchmarking can help your practice spend more wisely, pinpoint areas of revenue growth, and identify new business opportunities. To illustrate how financial benchmarking reports (FBRs) can provide valuable business insights, please view the following case studies.
- Does performance align with practice vision/goals?
Case study: The practice vision is to provide exceptional patient care in a timely manner. In reviewing the FBR, the doctor notices that his production ratios exceed the 90th percentile of the benchmark range, confirming his feeling that he has no additional capacity. The practice manager has also stated that the practice is unable to schedule patients in a reasonable amount of time and senses that patients are going elsewhere.In this scenario, the FBR supports the perception that the practice needs additional physician capacity in order to meet its vision of providing timely and exceptional patient care.
- How does practice performance compare to previous years and other like-kind practices?
Case study: You notice your marketing expense ratio of 7 percent is up from last year’s 4 percent, along with being well over the 75th percentile of the benchmark range of 5 percent. Your data tells you that much of this increase was related to advertising a new doctor, which positively affected the doctor’s patient load.Initially, this higher-than-industry benchmark ratio may seem natural given the situation (i.e., promoting a new doctor). However, it could also signal a need to evaluate your overall marketing spend against overall incremental practice revenue. In addition, this analysis could indicate a need to evaluate individual marketing channels to determine whether resources are being utilized effectively.
- Are any new service offerings available to grow practice revenue?
Case study: While a physician assistant may perform injectable procedures, currently, only doctors offer these procedures within your practice. Looking at your benchmark results, you see that other like-kind practices generate significant revenue by employing physician assistants. The FBR data, coupled with the practice manager mentioning an increase in the demand for injectable procedures, suggests that an opportunity is available.If this practice has a desire to increase its injectable business, industry benchmarks support the assumption that hiring a physician assistant may contribute to growth.
- Are any correlations indicative of a problem area?
Case study: Looking at your staff-related benchmarks this year, you see that your payroll expense ratio is trending downward, while your staff-to-provider ratio is low compared to benchmark ranges. While this initially leads you to believe your practice is operating more efficiently, you later find that the net collections per full-time employee (FTE) is significantly higher than the benchmark range — an indication that staff members are working extremely hard to support the practice.This scenario illustrates the benefits of comparing results among interrelated areas to identify meaningful correlations. In this case, the correlation among the low payroll expense ratio, the low staff-to-provider ratio, and the high net collections ratio of FTE support staff indicates there could be a need for additional support personnel. It is important to marry this data to what you are hearing from staff in relation to staff morale.
Make Informed Choices
Many times, practices base decisions on an idea that sounds great at the time. However, through the process of financial benchmarking, practices will become better adept at making impactful decisions based on objective data and relating this data to the subjective indicators observed in the practice. If used regularly, benchmark reports can pave the way for more effective goal setting and planning, and ultimately, greater practice success.
WE CAN HELP. BSM provides financial benchmarking services to help you make informed business decisions. To learn more, visit our benchmarking page.