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KPIs to Drive Increased Volume and Profitability

KPIs to Drive Increased Volume and Profitability

By Brian Ford
Steps to Take Now Heading Into 2022 (Article 3 of 4)
Continuing our series for healthcare services companies, we look at the importance of having Key Performance Indicators (KPIs) for operators. In our first article, I highlighted Eight Considerations for Improving Cash Flow for Healthcare Services, followed by the importance of Understanding Multi-location Profitability. This article highlights specific KPIs to benchmark performance across the organization, from which the team can drive increased volume and profitability. Here are some commonly used KPIs that can be tailored for most healthcare services entities:

Leading KPIs

1. Total referrals
2. Total new patient appointments

Tracking referrals is often the first step in projecting future revenue, and it’s even more important to combine that data with new patient appointments. Too often, management teams do not realize how many referrals are lost because they are not properly tracked. Continuing with our examples, the management team quickly realized that most referrals were not converted to patient appointments. Further analysis helped the team identify capacity constraints, where certain providers were in a given location only a few days per month. As a result, new patients could not get scheduled in less than 30 days. After realizing the trends, the management team shifted the clinic and provider schedule, resulting in a higher conversion rate, better relationships with referring providers and most importantly, a better patient experience. 

Lagging KPIs

It’s important to present lagging KPIs consistently on a Date of Service (DoS) basis. Too often, teams look at information not perfectly correlated, by comparing date of receipt cash collections or cash paid for wages, to date of service patient encounters. Due to timing of reimbursement or shifts in the payroll calendar (e.g. 3 pay month), the KPIs can be skewed and not presented consistently over time. Below are three KPIs critical to tracking revenue and profitability: 

3. Net Revenue per Encounter – Calculated as [Collections, net of refunds and recoupments / Unique Patient Encounters]. Some companies might like to take this a step further, and look at Net Revenue / Encounter and Net Revenue / Billable Encounter. Looking at these KPIs on a DoS basis, the management team can measure what they actually earned, when the service was performed. 

4. Total Procedures per Encounter Calculated as [Total procedures performed (e.g. CPT codes charged) / unique patient encounters]. As management teams seek to understand changes in Net Revenue per Encounter, identifying shifts in the procedure mix can help. By way of example, the Net Revenue per Encounter was down meaningfully year over year. However, the management team noted no significant changes in contracted rates. Using this KPI, the team realized the case mix changed and the average Procedures per Encounter decreased from 2.1 to 1.7 due to a provider out on medical leave. As a result, the operations team again shifted the clinic schedule to restore a consistent volume mix at the clinic. 

5. Direct wages per encounter – Calculated as [Wages + taxes for clinic staff (e.g. nurses, techs, scribes, etc.) / Unique patient encounters]. This KPI can be one of the most critical in influencing gross profit for many operators. Going back to our article, Understanding Multi-Location Profitability, the management team deployed clinic staff more efficiently using this KPI. At one under-performing clinic, the team realized staffing costs per encounter were 30% higher than other clinics in the same area. Staff with excess capacity were re-deployed to nearby locations to reduce overtime, resulting in margin improvement at multiple locations. 

These are just a few examples of how our team works with healthcare service companies to (i) understand the historical performance, (ii) develop the right, applicable KPI from which the team can manage, and (iii) collaborate across the organization to help drive growth. 

We conclude our series next time highlighting Operational and Compliance Considerations and touch on some key topics for working remotely. 

Brian Ford is a FocusCFO Area President based in Nashville, TN.

 

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, follow us on LinkedIn.

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Understanding Multi-Location Profitability

Understanding Multi-Location Profitability

By Brian Ford

 

Steps to Take Now Heading Into 2022 (Article 2 of 4)

Continuing our series for healthcare services companies, we look at the importance of clear reporting around multi-location operations. Too often, companies do not have the infrastructure to understand profitability by location, but rather look at financial results in total. Overtime, this can lead to underperforming clinics or service offerings, resulting in a drag on overall profitability. 

By having the right resources in place, some benefits your business may realize include: 

1. Visibility into the direct gross profit of the location and/or service line.

2. Appropriately capturing the costs of administrative staff, allowing management to see the true overhead burden. Too often, we see such costs reported where the employee physically works rather than assigned to their respective department.

3. Understanding the fixed costs of each location, allowing management to enter into more efficient office leases.

4. Analyzing whether clinics are truly underperforming, or does it lead to higher acuity visits at another location. It’s important to see how each location and/or service may be inter-dependent.

5. Aligning compensation agreements with the overall volume and efficiency of the operations.

In a short example, we look at a practice that started with one clinic location, and after several years of organic growth, had four locations in the same geographic market. The Owner did a great job launching new providers into the market, and expanding to different sub-markets within the larger metro area.

However, much of the overhead and administrative functions remained in the original location. The management team attempted to allocate overhead, but it largely distorted the true burden for each clinic, thereby understating the stand-alone contribution margin for each location. With improved visibility into clinic operations and integrated financial reporting, the Owner made some great operational changes that improved profitability. Just to highlight some of the Owner’s accomplishment’s: (i) transitioned administrative employees (such as HR and payroll) out of expensive medical office space into an administrative office, while amending the medical office lease for much less square footage and (ii) created efficiencies in staffing by deploying underutilized staff to needs at other clinics.

Good strategic decisions often require the right financial reporting. If you know of a healthcare services company that could benefit from improved visibility into operations, please reach out.

Next up, we’ll continue the series where I’ll highlight Key Metrics to Drive Increased Volume and Profitability. Whether it’s a single location or multi-clinic operations, having a set of consistent, key metrics provides clear data from which the team can manage.

Brian Ford is a FocusCFO Area President based in Nashville, TN.

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, follow us on LinkedIn.

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Eight Considerations for Improving Cash Flow for Healthcare Services

Eight Considerations for Improving Cash Flow for Healthcare Services

By Brian Ford
Steps to Take Now Heading Into 2022 (Article 1 of 4)

This series is targeted to privately-held healthcare services companies, that we often find have limited resources to compete with larger scale healthcare organizations. In our first article, we highlight eight questions that, when answered and addressed quickly, can improve cash flow. The past 18 months of uncertainty has highlighted the importance for cash flow to deliver quality patient care. Whether it’s staffing shortages driving higher labor costs, increased supply costs, reimbursement delays from insurance, or applying for forgiveness on governmental funds – practices need better information. 

Here are some areas to consider:

1. How can your team improve patient responsibility collections?

2. Are you monitoring how proposed reimbursement guidelines could impact your staffing?

3. Do you have visibility into reimbursement by encounter?

4. Are you actively monitoring trends in reimbursement by insurance payor?

5. How do you track and mitigate payor denials and recoupments?

6. How can you improve the collection speed of Accounts Receivable?

7. What are the costs and time associated with launching a new provider?

8. How do you reduce inefficiencies caused from employee turnover?

This list is just a sample of ways our team guides healthcare services companies to better cash flow. While many of these issues are intuitive to healthcare operators, implementing strategies around these issues can be difficult. In a short example, we look at how, once equipped with the right information, an Owner guided the management team to make some operational changes. Although volume and total cash receipts were up year-over-year, costs increased as well. After studying reimbursement trends, the management team realized the practice had declining collections and increasing labor burden per encounter. The team focused on improving the patient experience, and as a result, operational changes resulted in increased profitability. By being more proactive with the pre-arrival and check-in activities, the practice experienced: (i) improved patient collections, (ii) less denials, (iii) increased total collections per encounter, (iv) decreased time to collect Accounts Receivable, and (v) consistent processes at the front desk resulting in less turnover.

If any of these items sound like opportunities for your company to improve, and you want to learn more, please reach out to us.

Coming up next in our series is Understanding Multi-Location Profitability. We’ll illustrate the importance of looking at profitability by location and/or service line, and the operational efficiencies gained when armed with the right information.

Brian Ford is a FocusCFO Area President based in Nashville, TN.

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, follow us on LinkedIn.

FocusCFO Logo 2021

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Consumer’s Bank Testimonial

Consumer’s Bank Testimonial

“FocusCFO helped guide one of my lending clients during a time of significant decline in their business due to unforeseen drop in the demand of the industry they operate in. The FocusCFO team of Jim Rowlands and Jeff Semple provided financial guidance and professional management to this company with their hands-on approach, helping improve internal processes and cost management, resulting in improved financial and operating results that ultimately helped retire debt quicker. FocusCFO also helped improve communication and improved the client’s relationship with the Bank. I would highly recommend the FocusCFO team of experienced professionals to any business looking to maximize efficiency and profitability, and increase transferable value.”

Scott Lawrence, Vice President, Consumers National Bank, East Canton, OH

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Don’t Go it Alone – Smart Business Magazine

Don’t Go it Alone – Smart Business Magazine

By Jeff Semple

Why it’s critical to establish transferable value in your business

INTERVIEWED BY ADAM BURROUGHS

The largest asset on a business owner’s personal financial statement is typically their company. At some point in time, however, they’re going to want to monetize the value of that asset — in a sale, succession or private-equity driven liquidity event. To do that, the business must have transferable value.

“Transferable value is not what the value is to you, the business owner,” says Vistage International Chair and Focus CFO Area President Jeff Semple. “It’s what it’s going to be worth to somebody else.”

Smart Business spoke with Semple about how business owners can create transferable value in their company.

Why Should an Owner be Concerned with Transferable Vaule?

Business owners typically build a business based on what it can do for them. But at some point, they’re going to want to be able to monetize all the hard work that they’ve done over the years. That requires transferable value, which is built through business processes that are repeatable and predictable. It requires a team capable of carrying on the company’s critical functions — sales, operations, etc. — without the founder. If those aren’t in place, few buyers are willing to write an owner a sizable check for what essentially is a job. A strategic buyer may be interested in acquiring a competitor’s gross margin and customer base, but they may close the place down and roll the valuable assets into their own facility, which likely compromises the jobs of anyone working in the company. 

How is Transferable Value Built

Transferable value is built through systems and processes that enable someone else to make the decisions that the owner had made without directly tapping the owner’s experience, knowledge and expertise. It means having proper reporting, cash flow improvements, weekly operating rhythms, management reports — a flow of information that’s considered foundational to the business. That gives the new owner the ability to make proactive decisions based on where they want to take the business. On top that foundational reporting, there are elements that contribute to the health of the business such as gross margin, budgeting, forecasting, cash flow analysis, metrics and KPI’s. Those combined are part of the equation that can provide a path to proactively increase company value.

Buyers are also looking for a team with the ability to make proactive decisions without relying on the business owner. The more dependent the business is on the owner-operator, the less value it has to the person buying it.

When Should the Process of Building Transferable Value Begin? 

In a perfect world, building transferable value starts from the day the business begins. However, owners commonly put off building transferable value because the day-to-day grind always seems stand in the way. But the day to day is never going to go away — owners will always have a fire to put out and there will never be a perfect time. Every business owner is busy dealing with challenges. By putting off the work of creating transferable value, business leaders introduce risk into the enterprise because the business is too dependent on them and they aren’t able to predict how or when they’ll exit the business. They could have a plan, but that plan could be disrupted by a disagreement with partners; a death, disability or an accident in the family; something that’s going to essentially force the transfer or sale of the business well before anticipated. If the biggest asset on an owner’s personal financial statement is unprotected because there’s no certainty of when and how an exit could occur, it’s a risk that should be mitigated. Further, not being deliberate about creating transferable value often means owners will likely stay where they are while others who make time for these activities achieve the success that everybody is trying to get to. 

Business owners don’t have to do it all by themselves. It’s about leadership development and building a team with relentless execution because transferable value isn’t an event, it is a journey. 

Jeff Semple is an Area President for FocusCFO based in North Canton, OH. 

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, follow us on LinkedIn.

FocusCFO Logo 2021

855-236-0600