Continuing our series for healthcare services companies with net revenue under $40 million, 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:
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.
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.
Next week, we’ll highlight Operational and Compliance Considerations for 2021 and touch on some key topics for working remotely.