WE RUN a business. Like every business, our longevity depends largely on our ability to do one thing — create a profit. Granted, as eye care physicians, we have taken an oath to provide care and protect our patients, but nowhere in the oath does it say we should not be compensated for the services we provide.
In a world of increasing healthcare competition, we must treat our “practices” more like businesses. To do this, we should look at the financial side of our businesses not only as a gauge of our success, but also as a gauge for progress and the things we need to work on.
The challenge is to both increase revenue and profitability, while maintaining a great consumer experience, so the consumer returns at some point in the future. This article will lay out how to improve practice revenue, while enhancing the consumer experience.
Though there are dozens of Key Performance Indicators (KPIs), I will focus on the nine most important because they are great indicators of the health of our businesses.
We will break this down into three steps:
- Know where you are now by looking at each KPI. (Current calculation.) (Please note that I did not include an “industry norm” because it only matters what you are doing and if you are getting better, not what somebody else is doing.)
- Set a goal of where you want to bring this number. (Target.)
- Make a plan to get there. (Plan/strategy.)
ENCOUNTERS PER HOUR
Calculation: Total encounters in a given time period divided by total hours of clinic time in that same period.
Note: I did not say exams. Every time a provider or staff member encounters a consumer, costs are involved. Every encounter needs to be counted.
Plan/Strategy. Fixing this benchmark has two related parts:
- Evaluate what steps are in the “encounter process.” What order are they being done? What steps could be reduced, eliminated or reorganized to save time? Four minutes per encounter, at 15 encounters per day, is 60 minutes. To put this another way, that is two more appointment slots, which equates to more revenue in the same time period.
- Rearrange the schedule to maximize resources. An example of this would be grouping all short encounters, such as medical and post-op visits, together. As it relates to the customer experience, the person spending more time that isn’t associated with patient care, such as readying diagnostic equipment, is not a better experience in the eyes of most consumers. Be efficient with their time, they will return, don’t, and they won’t!
REVENUE PER ENCOUNTER
Calculation: Total revenue in given time period divided by total encounters in that same time period.Plan/Strategy. This may be the most important revenue benchmark in the business. It should be constantly monitored. Fixing this benchmark has two related parts:
- Improve efficiency as discussed in the prior benchmark.
- Maximize total revenue, which is a function of many of the items discussed in the remainder of this article.
REVENUE PER HOUR
Calculation: Total revenue in given time period divided by total hours of clinic time in that same time period.
Plan/Strategy. Integrally related to the first two benchmarks, revenue per hour is a combined look at revenue and efficiency. It is an important benchmark to monitor profitability and is compared against cost per hour to determine the profitability of “being open” for any given hour. There are two ways to increase revenue per hour. (1) Increase encounters per hour, and (2) increase revenue per encounter (see above).
TARGET REVENUE PER DAY
Calculation: (Total expenses last year plus profitability goal for this year) divided by possible number of clinic days.
Plan/Strategy. Each business has an “average” number that it must meet every day for the business to stay profitable and open (AKA keep people employed). Therefore, this number is great for all members of the staff to track and discuss daily. A daily review of how the target number compares with that day’s actual number can help to identify trends that can negatively affect the business’s long-term goals. (It is easier to fix a small problem now than dig out of a big hole later.) For example, missing the target by $100 a day doesn’t seem like a big deal today, but at the end of the year that is a $25,000 shortfall that could be avoided by taking steps on a daily basis to prevent the $100 loss.
REVENUE PER STAFF HOUR
Calculation: Total revenue in a given time period divided by total staff hours in that same time period. (Staff hours can often be found by looking at the month’s end payroll numbers.)
Plan/Strategy. This number, also known as the staffing ratio, is critical in analyzing whether a business is under- or overstaffed. The normal range should be somewhere between $75 and $95/hour, ideally between $80 to $85.
- If total revenue per encounter is high and revenue per staff hour is low, it is time to reassign team members.
- If the total revenue per encounter is low but revenue per staff hour is high or in the normal range, then the doctor is the problem. The provider needs to take a look at what he or she is prescribing and how the transfer from clinic to optical or contact lenses is happening.
- If the number is on the low side of the range (≤$70), it means that either there is a collection problem (low revenue per encounter) or the office is overstaffed for its current level of production. The solution is either to dedicate some of a staff member’s time to tasks related to increasing volume or revenue or to dismiss a staff member to bring the ratio down. However, a ratio consistently above $90 can indicate understaffing, which could lead to staff burnout or problems with customer service.
AR>60 DAYS PERCENTAGE
Calculation: Total Accounts Receivable (AR) (consumer and insurance) value greater than 60 days divided by total AR.
This number should ideally be less than 10%.
Plan/Strategy. If the AR greater than 60 days is high in a practice, it’s usually due to one of three primary reasons.
- Failure to collect co-pays at time of service
- Failure to collect appropriate deductibles at time of service
- Improper coding procedures.
Co-pays and deductibles are a legal issue. Most managed care contracts state that it is a provider’s legal responsibility to collect copays and deductibles at time of service. Most other health care professions collect prior to seeing the patient. Sounds like that might be a great policy to put in place for our industry as well.
REVENUE PER OPTICAL SALE
Calculation: Total retail optical revenue divided by (total lens pairs plus total nonprescription frames sold).
Plan/Strategy. This number can be altered by increasing retail frame fees, retail lens fees, including performance coatings or increasing multiple pair sales.
(The March article, “Which is better? One or two…or more?,” from Dr. Oliver Lou, provides tips on increasing multiple pair sales. http://bit.ly/2AukFna .)
ANNUAL CONTACT LENS SUPPLY PERCENTAGE
Calculation: Total annual supplies sold divided by total contact lens patients.
Ideally, this would be more than 75% of contact lens sales
Plan/Strategy. It takes the same amount of time to order an annual supply as it does any other quantity, so why not advocate for the patient? We know compliance rates for appropriate lens wear and care are much better when people have a supply of contact lenses and are not “stretching” them. We also know that manufactures have rebates for annual supply orders. Everyone wins!
This begins with the provider scripting out exactly what he or she wants to say and then practicing it. Through practice, patience and persistence, the provider can meet goals and do what is best for his or her consumers. (OM’s January 2017 Contact Lens column, by Dr. Jason R. Miller, provides more related tips http://bit.ly/2Av5ydh .)
EXPENSE PER HOUR
Calculation: Total expenses in a given time period divided by total clinic hours in that same period.
Plan/Strategy. This one is simple. If this number is higher than the provider’s revenue per hour, there’s a profitability issue. Review expenses, identify those that are fixed vs. flexible. For each, see what can be done to remove, reduce or, perhaps, renegotiate to lower expenses.
PLAN TO IMPROVE THE HEALTH OF OUR BUSINESS
As a result of these strategic changes, the practice will be leaner and more efficient with the consumer’s time, while providing excellent service and creating repeat customers, all of which enhances the consumer experience.
Schedule an hour per week to evaluate and brainstorm the nine key benchmarks listed above. Begin by evaluating where you are now and following the trends through a few months. Then, determine what you want your goal or target to be. Finally, develop and execute a plan to get there using the tips above. OM