Whether you own a dental practice, a medical practice, or another type of office, running a healthcare practice takes time and effort. It’s hard enough providing top-notch care for your patients, let alone managing the business side. As a result, profit margins, patient turnover rate, and overhead can fall by the wayside, leading to monetary losses.
To keep this from happening, paying attention to specific key performance indicators (KPIs) is essential. Let’s take a look at the four most crucial healthcare KPIs to address to ensure the success of your practice.
What Are KPIs?
As the name indicates, key performance indicators are healthcare metrics of practice success. There are dozens of different KPIs, and they all consist of statistics and data intended to analyze and optimize your business.
By understanding KPIs and how they relate to your practice, you can increase cash flow and improve patient care and satisfaction rate. Additionally, consistently tracking KPIs over time will tell you if your business is thriving or needs additional support.
Here are the four practice KPI metrics you need to know if you own a medical or dental practice.
Number of New Patients Per Month
As with any business, bringing in new patients is extremely important to ensure practice success. The reasons you need to bring in new patients will differ for every practice. For example, your existing patients must find other doctors when they reach 18 for pediatric dental and medical practices.
Patients in orthodontic and rehab facilities will move on to other providers or stop seeing you when their treatment course is finished. Additionally, there are plenty of other reasons why you might lose patients. Common reasons may include:
- They move away
- Your practice no longer accepts their insurance company
- Illness complications or death
Regardless, you can only partially rely on your existing patients to keep you busy indefinitely.
Therefore, it’s crucial to keep careful records of the number of patients you gain each month versus how many you lose. It’s also important to measure what percentage of your profits are coming from new patients versus existing ones so that you can compare these metrics with one another.
Your Collection Rate
Your collection rate is another critical metric for measuring the success of your practice. The collection rate refers to the percentage of payments you have received versus everything you have billed to patients and insurance providers. This is the best metric for calculating your actual profits during a revenue cycle.
Collecting payments can be challenging at times, especially regarding insurance considerations, billing practices, and more. However, knowing your collection rate is essential to run a successful practice. In addition to revealing your actual profits, your collection rate will show you how much revenue you lose each year due to bad debt and insurance or filing issues.
Calculating Your Collection Rate
Here’s how to determine your collection rate or adjusted collection rate.
- Determine your total payments, and subtract any refunds or credits.
- Determine your total charges, and subtract any write-offs.
- Divide your total from #1 by your total in #2.
- Multiply your total in #3 by 100.
- The answer is your adjusted collection rate.
According to the AAFP, the minimum acceptable collection rate for dental and medical practices is 95% per a 12-month timeframe. However, the closer you are to 100%, the more revenue you generate, and your practice will be more successful.
Account receivable, AR, refers to how efficiently and successfully you collect payments from patients and insurance companies. The longer a claim spends in accounts receivable before receiving payment, the less productive your practice will be.
The average days a claim spends in accounts receivable will vary depending on your specialty and the insurance company involved. On average, claims take between 30 and 60 days to process, but they can take up to 90 days. The faster your accounts receivable turnover time is, the more productive your revenue cycle management is, and the more profitable your practice will be.
The most important thing to understand for any business is your overhead. Overhead is the percentage of your revenue that pays for fixed and variable costs (but not cost of goods), such as rent, clinical costs, personnel costs (a good target is 30% of total overhead), etc. Not knowing your overhead could lead you to overspend or underproduce, and your business will fail.
As with accounts receivable, the amount of your overhead will vary depending on your area of specialty. In general, however, the overhead for dental practice owners should be around 60% of total revenue and between 60% and 70% for most medical practices. While managing and limiting overhead is more challenging than ever, thanks to inflation, the lower your overhead, the higher your profits.
If you have questions or need assistance regarding any of the 4 KPIs all healthcare providers should know, contact us at Professional Business Management Inc. We’re a leading healthcare practice management and accounting firm with over 90 years of experience assisting healthcare providers with their practices. From essential healthcare practice management to taxes, payroll, and everything in between, we’re here to help your every need.