Five Key Benchmarks That Could Make or Break Your Practice

Introduction

Many doctors don't know why their practices aren't doing well and are forced to guess what's wrong. They are so busy with day-to-day responsibilities that they do not have time to monitor all aspects of their business, yet they need to be confident that they are on track for success.

Instead of working in the dark, you can ensure your success by tracking 5 critical benchmarks that will give you peace of mind that your practice is on target. They can be implemented easily amid the time constraints of your busy practice. Two of these performance metrics give a balanced assessment of the business health of your medical practice: its financial performance and productivity.

Equally important is the clinical health of your practice, with 3 benchmarks that measure quality and service. Taken together, the 5 benchmarks will let you know whether your practice is firing on all cylinders and will give you the vital information you need to make changes that can improve your practice profitability and efficiency, if necessary.

Checking Your Practice's Financial Pulse

The financial health of your practice determines how well you're doing. Assessing the financial health of your practice involves keeping 2 measures on your radar screen: how well your practice collects revenue and how well it controls costs.

Assessing Revenue

Assess the success of your collections process (or "revenue cycle") by calculating a net collection rate. When your practice enters into a contract with a payer, you agree to take a contractual adjustment off your gross charges. The net collection rate tells you whether you are collecting the remainder of your gross charge once the contractual adjustment has been subtracted from your charges.

For example, let's assume that your gross charge is $100 for a particular service and you agree to discount your charges by $25. In this example, $25 is the contractual adjustment. The net collection rate tells you how well you are collecting the remaining $75 you are owed. This rate essentially answers the question, "Of the money we can collect, how much did we collect?" The net collection rate helps you to see if you have left money on the table.

Benchmark 1: Net Collection Rate

Calculation: You can calculate net collection by dividing by the sum of gross charges, minus contractual adjustments. Continuing with our example, let's say your practice only collected $50, not the $75 it is owed. Your net collection rate would be calculated as 50 divided by (100 minus 25), or 67%.

How to Benchmark: Calculate your net collection rate. It should be 97% or greater to ensure a healthy bottom line.^[1]

Action Plan: Find out where the problem lies. If your net collection rate is lower than 97%, calculate the net collection rate by payer to identify whether a particular payer is the culprit. If the net collection rate is generally consistent among all of your payers, investigate your front-end billing processes to determine whether you are submitting clean claims.

Investigate account follow-up efforts to be sure that each account is worked in a timely and accurate fashion. If you still cannot determine the root cause, consult a practice management expert to conduct an audit or help you determine where the problem lies.

Scrutinize Your Expenses

The second benchmark of financial health is the cost of practice, as measured by your practice's overhead rate. The inverse of this ratio is the amount of money available for provider compensation and practice investment. This benchmark signals whether you are outspending your peers.

Benchmark 2: Overhead

Calculation: Divide total operating expenses (including staff and general operating expense) by total medical revenue.

How to Benchmark: Once you have calculated your overhead rate, compare it with the median levels reported by peer practices in your specialty. For example, the Medical Group Management Association (MGMA) Cost Surveys report the specialty-specific overhead rates that can be used for benchmark comparison. For pediatric practices, the typical overhead rate approximates 60%; for orthopedic surgery practices, the overhead rate is lower, at 45%.

Action Plan: If your overhead rate is higher than the benchmark for your specialty, review detailed cost categories to learn where you may have opportunities for expense reduction.

How Productive Is Your Practice?

Most medical practices continue to work in a discounted fee-for-service environment. As a consequence, high levels of productivity are still expected of physicians and nonphysician providers. Benchmark your practice's productivity using work relative value units (WRVUs). This shows how your physician productivity stands up to other similar practices.

Benchmark 3: Work Relative Value Units

Calculation: For each service you perform, a Current Procedural Terminology (CPT) code is billed to the payer. Each CPT code maps to a specific WRVU level. For example, a CPT code of 99213 (a level-3 office visit for an established patient) has a WRVU of 0.97. Calculate the annual WRVUs for each provider in your practice.

How to Benchmark: Once you have captured the WRVUs, compare this data with survey benchmark levels of similar practices. Benchmark sources are available through the MGMA and the American Medical Group Association, as well as specialty societies. For example, the typical WRVUs for a full-time general pediatrician are 4700 per year, whereas a full-time general orthopedic surgeon is almost double that level, at approximately 8200.

Action Plan: Take action on the basis your findings. For example, if you find yourself below benchmark median WRVU levels, you may be able to accept new patients or schedule more patient visits, thereby expanding patient access. As another example, if all providers in your practice are performing above the 75th percentile of WRVUs, it may be time to recruit a new provider.

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Cite this: Five Key Benchmarks That Could Make or Break Your Practice - Medscape - Jun 15, 2012.