When You Have the Right Numbers

William R. Pupkis, CMPE, Healthcare Consultant

benchmarkThe basic premise I assert is, “when you have the right numbers to analyze, most decisions are easy.” Too often practices merely identify costs rather than analyze each one thoroughly to determine its necessity and appropriateness. Here is where cost containment begins.

Today, managing an orthopaedic practice is more than caring for your patients. Although that care will always be important, to be successful you must also make informed business decisions. However, without a method to gauge pertinent statistics, you have little on which to base opinion. Fortunately, there is an alternative to educated guesses: benchmarking. According to Merriam-Webster, “benchmarking is a standardized problem or test that serves as a basis for evaluation or comparison."

Rising costs, reduced reimbursements, and increased competition push orthopaedic practice managers to improve their practice’s performance through criteria that contribute to profitability, i.e., productivity, capacity, staffing, accounts receivable and collections. All of these factors are far more easily analyzed through the use of benchmarking.

Begin by comparing your own numbers: this month to last, this year to last. What has changed? Try to focus on those areas that could reap the most value first. An example is the overtime costs within your human resources budget. Although overtime is sometimes needed, it can also be a major driver in labor costs for practices, if left unmanaged. Scheduling issues often are the main reason given for the need for overtime. If you find that is the case, then using shared personnel to relieve the overtime full-time equivalents might help. When overtime becomes the norm, you should consider hiring additional staff. Rather than pushing labor costs up, the addition of one more employee can reduce variable expenses, such as overtime, and allow the physician to see more patients. The new employee can be brought on at a lower hourly wage, compared with time and a half for overtime.

Next, look outside your practice. Try to find practices of similar size and/or from the same region. The American Association of Orthopaedic Executives (AAOE) provides tools such as the results from their annual survey. This information gives you the capability to benchmark your operational and financial statistics to other medical practices across the country. If you see that your practice’s cost-to-volume ratio is appreciably different than the national average, it should give you cause to look further.

For benchmarking to be effective, it can’t just be about measuring; it should also involve active goal-setting. To set realistic goals, you must evaluate how efficient your practice is currently, how much you have to improve over time as compared to your own past data, and how far you still have to go.

There is no shortage of data within a medical practice and benchmarking provides structure to the analysis. It is the foundation on which you can build your internal research and help to outline future controls. It should allow you to use a vast amount of data in new ways that can help you to understand where to focus your time and energy to improve the profitability of the practice. The outcomes should only be limited by the willingness of the staff and leaders in your practice to use this information as feedback in an ongoing improvement process.

Although benchmarking can facilitate accountability, it should not be used to assign blame. Its strength is in finding answers to under performance. Also, benchmarks are not absolute. Instead, they serve to identify both problems and solutions. Each practice has its own culture, to include geography, service mix, patient demographics and the physicians’ practice style, that may require modification of industry or national benchmarks. However, differences should not be used to rationalize variances from benchmarks inappropriately.

Given the complexity and interdependence of key indicators, it is unlikely that one benchmark will measure everything. It is likely that multiple benchmarks will be required to reflect the need of the interwoven practice processes. Positive variances allow the practice to celebrate successes. Negative variance help the practice focus on performance improvement.

Benchmarking adds considerable value to practices as they evaluate current performance and work toward major improvement. It creates the context, which help to identify issues, set targets, and take action to improve performance.

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This entry was posted on Tuesday, October 8th, 2013 at 6:53 pm and is filed under Practice Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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