As we all know, there are sea changes occurring in health care. In the face of reduced payments, capitation, accountable care organizations, rising operating costs, and the need for investment in electronic health records (EHRs), providers have little room for error. For a physician practice to be financially successful in this difficult environment, its owners and managers require information systems that can provide them with key information to "drive" the practice and make timely changes to ensure its continued success.
To manage and provide direction, you must measure. A "dashboard" offers focused information critical to the success of a business through a series of "flash reports" that are created and analyzed routinely. Flash reports are customized to fit the exact needs of a practice. Flash reports go well beyond traditional financial statements, digging deeper into practice metrics to provide a quantifiable foundation for making business decisions. Substandard owners' salaries, loss of top performers, and chronic cash flow issues are just a few of the likely consequences of a failure to measure and manage key practice metrics.
The first step in creating effective flash reports is to identify the key statistics and practice metrics that make the practice successful. This exercise is, in itself, useful for helping practice leaders understand what is driving the practice's bottom line. It is not one single factor but many factors, and all must be measured and managed. Using the practice’s balance sheet and income statement as a starting point, consider what drives significant balances for various accounts and the effect of these drivers on the profitability of the practice. Possible accounts include patient fees, salaries, accounts receivable, and medical supplies.
Take patient fees for instance. There are many factors affecting "sales" in a healthcare practice, including patient volume, payment rates, effective billing, and collections. Many of these factors can be influenced in a number of ways. Patient volume is affected by a strong referral network, a good call-back program, participation in the appropriate insurance panels, and effective marketing, among other things. To methodically identify the factors and metrics to be tracked, it’s best to develop a basic outline, or chart, of possible metrics associated with key accounts. Consider, for example, the following basic outline for patient fees and staff costs:
This example is by no means complete, but is intended simply to provide an idea of how to begin.
Keep in mind, of course, that certain items, such as effective collections, affect not only patient receipts, but also cash and patient receivables. There also may be metrics to be tracked that apply only to certain specialty practices. For instance, cosmetic surgeons should track how many cosmetic consults result in a cosmetic procedure or surgery.
Further, some key indicators may not neatly fit into a simple outline but are, nevertheless, important barometers of a practice's efficiency and productivity. Examples include work relative value units (RVUs) by physician, collections per work RVUs, and staff-to-FTE physician ratios.
In addition to comparative data (e.g., prior year, prior month), consider also using benchmarking data in the flash reports, when available.
At a minimum, you should review dashboard and flash reports monthly to chart changes and track trends—and possibly more frequently if the practice is facing financial issues. Once the reports are established and the systems are in place to generate the data, it does not necessarily matter whether the practice is generating $10 million or $20 million in patient fees—you will still want to use the same profitability drivers. A higher revenue level will affect how you manage the practice, but you will want to use the same drivers that led to growth in the first place.
In sum, consider the following five key points regarding dashboards:
- Identify the key measurements and performance indicators that are essential to your practice.
- Have an active system that collects the data and allows you to track the indicators.
- Try your best to keep things simple. Don’t clutter your reports with data that are not essential to increasing the profitability of the practice.
- Be consistent in ensuring that the information is generated and reviewed regularly.
- Use the dashboard to watch for trends. Let it help you identify problem areas and get your practice managers to address the problems.
Flash reports and dashboards are excellent analytical tools for helping to maximize a practice's profits. Just like the dashboard on your car, they provide critical, concise information.
John P. Bryan, CPA, is a partner at the accounting and consulting firm Citrin Cooperman. He is based in White Plains, N.Y.
Publication Date: Wednesday, September 25, 2013