How to track your medical practice’s goals
Monitoring key metrics in the healthcare industry may help you understand and optimize your practice’s operations.
Every healthcare practitioner understands vital signs, the core numbers that speak to a patient’s wellbeing. But there’s a different set of vital signs medical professionals can use to gauge the financial health of their practice: Key performance indicators (KPIs).
KPIs can serve as a dashboard of where your practice is performing well and which areas could use improvement. Plus, comparing your practice’s metrics with industry-accepted benchmarks may help you set realistic goals.
Consider these five KPIs to help you understand your practice’s financial wellbeing.
1. Net collection rate
The net collection rate is the ratio of your billings to receipts after subtracting any payer-related write offs. This number measures the amount of money actually collected on the agreed-upon fees charged. To calculate this number, divide payments (net of all payments) by charges (net after contractual adjustments) over a certain time period. Then, multiply that number by 100 to find your percentage. You want this number to be higher than 90%, and ideally, approaching 100%.
2. Days in accounts receivable
The days in accounts receivable metric reveals how long it’s taking you to receive payment for your services. This includes all of your billing and revenue streams from both patients and third-party payers. To calculate this metric, first, determine your average daily billing amount. To do this, divide your total gross charges from the past year by 365. Then, divide your current outstanding receivables (everything you’re owed) by your average daily billing amount.
Ideally, practices should aim between 30 and 40 days in accounts receivable, according to the American Academy of Family Physicians (AAFP). Dig deeper into this metric to find out which specific payers are driving down your average.
3. Operating margin
Your operating margin reveals how much money you have to spend after paying your expenses. This metric provides an opportunity to compare your expenses against industry standards. At an average dental practice, for example, staff salaries typically account for 20 to 25% of revenues, while clinical supplies and lab fees together consume 13 to 18%, according to Dental Economics data.
4. Production per provider
When running a practice, it’s important to understand the production levels for you and your staff. The production per provider metric may help. Over a period of time, calculate the average amount of charges per day and compare that figure to industry benchmarks. For example, dentists average about $3,500 in charges per day, according to Dental Economics.
5. Claim Denial Rate
When a claim is rejected by an insurer, government agency, or other third-party payer, it can cause problems for your practice. Correcting a claim requires additional staff time and ties up money, which affects your cash flow cycle. For this reason, a claim denial rate is an important metric to track. According to the AAFP, practices should aim to keep their denial rate under 5%.
How often to track KPIs
Practice owners should continuously track current KPIs against past numbers. What are your numbers today looking like compared to three months, six months, or even a year ago? By comparing these figures as your practice progresses, you may find a better opportunity to spot trends and troubleshoot any potential issues.
In addition to these five metrics, other KPIs practices can track include the average age of overdue accounts, the number of new patients, office visits per month, and more. By focusing on the metrics that are most relevant to your practice, you and your team can keep an eye on your practice’s greater financial health.
One of the most challenging KPIs to master is claims processing. Learn ways to help streamline this aspect of billing.