As the business of ophthalmology becomes more and more difficult due to rising expenses and declining reimbursements, it will become more critical to understand and manage practice finances and patient flow. Benchmarks can help us do that — if used appropriately.
Benchmarking is defined as comparing a specific measure to a standard or average. Payroll ratios, overhead percentages and collections per full-time equivalent employee are examples of benchmarks that can be used to judge how well a practice is doing and where improvement may be needed.
However, appropriate use of benchmarks should include:
- Comparing apples to apples. If, for example, a practice calculates its payroll ratio by including employed physicians in the payroll expense, but the benchmark figure excludes their compensation, any comparison the practice does to that benchmark will be seriously flawed and any management decisions based on the result will likely be faulty. In addition, a retina practice shouldn’t compare its results to the benchmarks of a pediatric practice.
- Understanding why variances from benchmarks might exist in a particular practice. For example, if the owners of a practice are also its landlords, they may pay a higher rent than usual and therefore their occupancy expense ratio may be higher than the benchmark. In a recent E-Expert discussion on benchmarking, those who paid themselves rent had an occupancy expense ratio almost 1 percent higher than those who rented from outside landlords.
- Focusing on developing individual practice benchmarks. While comparing your practice’s results to national figures can be helpful in finding areas of strength or weakness, it can also lead to unrealistic expectations when your situation is different than a typical practice. More useful is the process of establishing and tracking your own practice benchmarks and working to improve those results.
Most practices will do best by carefully monitoring just a few benchmarks that reflect their goals, rather than trying to track and affect every benchmark offered here.
The following benchmarks are listed in categories based on the information needed to derive the measures. If your practice’s results fall outside of the indicated ranges, don’t panic! Rather, take a look at why your practice may be different and what you can do to change the figures if needed.
Revenue ratios: Derived from a practice’s Income (Profit and Loss) Statement. The last two also require figuring full-time equivalent staff members and physicians.
Patient flow figures: These benchmarks require reports that are available from most practice management software; the last measure also requires an additional figure as indicated.
Relative value ratios: These benchmarks use practice management reports and income statements to generate ratios based on the Resource Based Relative Value Units as published by HCFA. These require that a practice management report be generated listing all CPT codes billed in a given time period, and that those codes then be converted to RVUs by multiplying the RVU value for each code by the number of times that code was billed and then summing all of the RVUs to yield a total number of RVUs generated for the time period. That figure “Total RVUs” is then used in these calculations.
Billing ratios: These ratios will require A/R reports from your practice management software.
The proper use of benchmarks can help practices evaluate how well they are doing in accomplishing their goals. The ranges indicated above can be helpful in giving perspective to individual practice results.
Academy/AAOE Benchmarking Survey
Compare your practice with other like practices by participating in the Academy/AAOE Benchmarking Survey. Participating practices will soon be able to generate on-demand reports. This valuable service is available to you free as a member benefit. Visit www.aao.org/benchmarking to learn more.
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This article was previously published by the American Academy of Ophthalmic Executives.
About the author: Derek A. Preece, MBA, is a member of the Academy’s Consultant’s Directory and a senior consultant with BSM Consulting Group, a nationwide medical practice management company. He provides physicians with consulting assistance in nearly all facets of medical practice management. Mr. Preece can be reached at 801.227.0527 or dpreece@bsmconsulting.com.