This post is password protected. To view it please enter your password below:

Password:

For those of you who attended, you’ll know we discussed business imperatives and benchmarking as it applies to help you manage the Business of your Practice.

Please add your comments, ask any questions an we will endeavour to respond with 24 hours.

Other business blogs.

What is a Business Process?

A business process can be deconstructed into several sub-processes, which have their own attributes, but also contribute to achieving the goal of the super-process. The analysis of business processes typically includes the mapping of processes and sub-processes down to activity level.

Business Processes are designed to add value for the customer and should not include unnecessary activities. The outcome of a well-designed business process is increased effectiveness (value for the customer) and increased efficiency (less costs for the company).

The structure of a business process is that it:
1. Has a Goal
2. Has specific inputs
3. Has specific outputs
4. Uses resources
5. Has a number of activities that are performed in some order
6. May affect more than one organizational unit. Horizontal organizational impact
7. Creates value of some kind for the customer. The customer may be internal or external.

A business process is often visualised in the written form with the use of flowchart diagrams.
Many practice managers may be familiar with the Plan Do Study Act model. This model can be used for the ongoing improvement of almost anything and it contains the following four continuous steps: Plan, Do, Study and Act.

Plan Develop a plan for improving quality at a process
Do Execute the plan, first on a small scale
Study Evaluate feedback to confirm or to adjust the plan
Act Make the plan permanent or study the adjustments

Process in the business of General Practice

Accreditation standards aligned with Royal Australian College of General Practitioners provides a foundation to develop processes within the medical practice. While they are important they are only aligned with the RACGP standards and the ‘business’ of your practice is up to you. These business process include healthcare marketing processes, customer/ patient services processes, emergency processes as an example.

We have worked with practices that plan each of their business activities framed around the 7 steps (above) in conjunction with the PDSA model. Working with these structures allows the practice to collaborate among the reception, nurses and doctors to ensure each person understand their role in the process and the impact each individual role has on the overall success of the process.

The staff get down to detail of specific wording in mail outs or communications to patients that are likely to illicit the practice’s preferred outcome to specific telephone scripts and the timing of particular actions or tasks to be carried out. The outcome is there is a marked improvement towards the expected goal of the process that the practice team first discussed. In cases where there may not be an improvement the model allows for measurement and adjustments to move towards continuous improvement.

Applying process to the business of general practice enables a certain level of predictability in what is happening in your business while the doctor is busy with patients. We have had examples where unexpected events such as extended power failures creating disruption to the business have been managed smoothly by junior staff because they know the process and didn’t panic. This helps owner / principals develop a strong level of trust and reliability of the practice staff and an understanding that a successful practice requires a team of valued and respected individuals.

Do you know your revenue break-even for the practice?

Do you know how to apply this information to make your practice successful?

If you don’t know how to answer any of these questions you need to discover the business fundamentals of a successful medical practice…
Practice management has progressed from advanced reception management to business management encompassing all the elements of business including Financial Business Planning, Business Operations, Human Resource Management and Marketing. Recent articles in national publications talk more about the focus of business management issues than practice management. The article below covers Part 1 in a series discussing the 4 pillars of practice management – Analysis, Decision Support, Process and Organisational Alignment.

What is Break-even?

The breakeven analysis is an important management tool and control device. Break-even analysis shows the point at which a business has covered its expenses and begins to post a profit.

Break-even in the business of General Practice

Understanding what it takes to break even is critical to making any business profitable. Incorporating break-even analysis in your financial and business planning will help you manage the business of your medical practice is really faring. The analysis can help determine how many patients are needed to keep the door open and may help improve your cash-flow management and your bottom line. Breakeven along with profit & loss analysis through benchmarking comparisons provide a base to analyse and make informed business decisions about your practice.

Break even becomes a powerful tool for further planning, management and scenario building. For example, the practice can calculate effects of a fee increase or estimate the effect of an increase or decrease in patient numbers.

To calculate the break-even point you will need your profit & loss statement to work out the fixed costs and variable costs along with the average fee per patient. The accountant or bookkeeper should be able to help with this calculation. Key terms in the establishing break even are:
Fixed Costs (FC) include rent, equipment leases, insurance, interest on borrowed funds, and administrative salaries; costs that do not tend to vary based on sales/fee volume.
Variable Costs, (VC) on the other hand, include direct labor, raw materials, and delivery expenses; costs that tend to fluctuate with the level of sales.
Contribution Margin, which can be defined as a service price (P) minus variable costs (VC) per unit sold. The contribution margin is the extra revenue and costs that will be incurred with the next additional unit.

For example, a General Practice with FC of $150,000 and a contribution margin of $20 would need to have 7,500 patient encounters (appointments) to break even, (total annual fixed costs by the contribution margin). This represents breakeven target revenue of $375,000 with an average patient fee of $50.

If the same practice had a contribution margin of $10 they would need to have 15,000 patient encounters (appointments) to break even, representing a break-even revenue of $750,000.

Applying to a real Practice Scenario

Assumptions:
• Practice has 2 Full Time equivalent Doctors each working 40 consulting hours per week
• Patients per hour average = 4, representing 320 patients per week or 16,640 per year.
• With an average fee of $50, Fixed Costs of $150,000 and Variable Costs of $620,000
The breakeven is calculated at 11,765 patients at an average fee of $50 per visit
Per week = 226 patients per week to break even
Per day = 45.25 Therefore each Doctor would need to bill at least 23 patients per day to keep the Practice open.

Once you have an understanding of the practice breakeven, you can use this information as a business guide for a variety of business planning scenarios such as appointment management, operational resourcing and marketing.
Break-even analysis is one of the key business-planning tools. It can help managers assess changes to business elements such as price, operational costs, number of patients and the effect on profit. The next step in the business of general practice is to analyse and build scenarios in the using Dynamic Equation tool introduced in the next article Decision Support Tools.

In our previous article about break-even analysis and how critical is to making any business profitable. Incorporating break-even analysis in your financial and business planning will help you manage the business of your medical practice. Break even becomes a powerful tool for further planning, management and scenario building.

This article below continues on from the break-even analysis and introduces two key decision support tools, the dynamic equation and benchmarking.

The AMCG Dynamic equation is developed for Medical Practices from a standard business formula. The equation views a business in five distinct business elements. You can see from the table below that the titles of the five elements have been adapted to suit the medical practice environment. The key is in understanding the elements that you can control and understanding the power of compound improvement across the variables. A 10 % increase in one element will increase the profit by 10 % but a 10 % increase across all 5 elements can produce a 62% increase in profit. Imagine asking your practice team for a 62% increase on the profit line. It seems an unreachable target and a target set so high makes it difficult to know where to start and the team can easily lose motivation, but could you or your team manage this perceived insurmountable goal of 62% increase or is it better managed through 10% increases in manageable elements? The Practice profit is not a result of one element in isolation, it is the result of multiple of variables managed as part of an integrated approach.

When a practice manager says that they want to increase the number of patients for the practice I explain that they cannot directly get more patients. It is an outcome of improved lead generation (Market awareness of the practice) and conversion rate (inquiries converted to actual appointments). Once the practice manager understands this concept they can then develop, plan and measure strategies that will grow your patient base.

We recently worked with a medical practice that wanted to build its patient base repeat visits per year. Repeat visits is a business element within our control in the dynamic equation. Rather than simply sending out reminder letters, our approach was to plan and implement an integrated system involving the reception staff, nursing and the doctors that ensured an exceptionally high response rate to our reminder letters which lead to the increased booked appointments. The outcome is that the practice now has increased the repeat visits as well as providing improved service and a competitive advantage in a tough market.

Conversations with practice owners or managers are often based around the average sale or the average fee per patient. There are numerous strategies and processes to increase the average fee per patient or any of the business elements, as in the example above and which we discuss in our practice business forums. The power behind using this formula is to workshop a number of ‘what if’ scenarios and integrate those scenarios into workable plans for business improvement in your practice. The business scenario approach is enhanced when you establish a set of key benchmarks for the business performance.

What is a benchmark?

A Benchmark can be simply defined as A standard against which the performance of something can be measured.
Benchmarking is the process of comparing the cost, cycle time, productivity, or quality of a specific process or method to another that is widely considered to be an industry standard or best practice. Essentially, benchmarking provides a snapshot of the performance of your business and helps you understand where you are in relation to a particular standard. The result is often a business case for making changes in order to make improvements.

A single benchmark by itself may not always tell the full story, but analyzing particular sets of benchmarks and factoring in other practice specific variables such as the practice business philosophy, male or female doctors and practice patient demographics allow for better planning and optimizing the balance of healthcare services and profit.

Benchmarking in the business of General Practice

The business can have almost an endless number of benchmarks, therefore care needs to be taken to benchmark and measure with purpose. There are approximately 8-10 benchmarks that are helpful to the business manager of a general practice. A few benchmarks relating to the fee earner (Doctors) are; revenue per hour, average fee per patient and number of patients per hour and, private/bulk billing ratios. A range of benchmarks and their application to a medical practice are available through AMCG. Lets have a closer look at the ‘Revenue per hour’ benchmark.

The revenue per hour benchmark is a Key Performance Indicator (KPI) used for management reporting of the practice performance against monthly budgets and industry benchmarks. The monthly budget can be planned based on a number historical figures, benchmarks, practice philosophies and local conditions. It is important to adapt your set of benchmarks with consideration to your business healthcare philosophy and other factors; the key is to be consistent in your measurement each month. For example revenue per hour benchmark will be different if you are a 100% bulk billing practice, a mixed billing practice or a private billing practice. The KPI Doctor Revenue Per Hour table (above) illustrates one format of how a practice reports this information to the owner each month. This KPI along with an agreed set of other business KPI’s forms the foundation from which to discus and plan future business and healthcare operations.