October 2000 Bulletin

How do you shape up?

‘. . . physicians and medical practices must aim for a higher level. . . .’

Benchmarking is key to analyzing success

By Janice G. Cunningham

In the good old days, being a good orthopaedic surgeon almost always guaranteed a steady stream of patients and income. But now you need more than clinical excellence to have a strong orthopaedic surgery practice. As competition for patients increases, costs rise and reimbursements fall, it is critical that you manage your orthopaedic business as just that—a business.

How healthy is your orthopaedic surgery business? How do you compare with other practices? How may you detect early warning signs of trouble ahead? Benchmarking is the key.

Benchmarking is the process of analyzing the indicators of business success and applying that information to achieve business growth and improvement. Throughout most of the business world, benchmarking is a key element to strategic planning, a vital necessity to all medical practices.

Historically, physicians have downplayed the importance of business in the medical practice. However, most physicians who are owners or co-owners of practices have—typically, informally and intuitively—applied elementary benchmarking techniques.

For example, many physicians routinely calculate their practice expenses and compare their own figures against national averages often to control expenses and improve the bottom line.

Formal benchmarking techniques offer a more structured approach to the establishment of business parameters and the review of financial progress against baseline values. Do benchmark your practice using a formal program.

But, before you do, find out whether the program you are considering will compare your practice against "average" or "median" benchmark indicators. If so, you will be actually determining whether your practice is mediocre.

To compete successfully in today’s increasingly hostile economic environment, physicians and medical practices must aim for a higher level of success. That means comparing your practice’s values against higher standards and determining:

"Best of Class" (BOC) benchmarking compares the practice’s indicators against those established by the most successful practices in the subject practice’s class.

Most practices monitor basic financial data such as income and expenses. This is how they measure practice health.

All too often, practices do not begin to look seriously at the benchmarks until there is a marked decrease in income available for physician compensation. By the time a problem has affected the bottom line, it is often too late to efficiently correct it. It is much more beneficial to correct negative situations before they become serious problems.

To know the overall health of your practice, you must monitor practice data routinely, usually monthly. Truly successful practices look at certain key indicators on a weekly or even daily basis: charges, receipts, number of visits, number of procedures, etc.

Successful practices also recognize that there is more to monitoring practice health than just financial data. For example, changes in referral sources or number of new patients today may not translate into decreased income for a few months. Successful practices identify changes in patient volumes and correct the problems before the bottom line is affected.

Additional areas of data for benchmarking may include:

Beyond identifying problem areas, benchmarking may be used for other purposes. Successful practices use practice data for:

To get started, perform a baseline analysis to acquire a "snapshot" of your practice’s business health. Elements of this financial picture, frozen in time, are the business indicators that apply to your unique practice, sampled at the time of the initial analysis.

Use this snapshot to compare your practice against a hypothetical "average" practice of a similar type, a hypothetical "BOC" practice of a similar type; and against future analyses.

First determine what to benchmark. Then locate, generate and apply the appropriate benchmark data.

Determine the appropriate norms against which to compare your data. Many sources for benchmark data exist. Professional organizations and professional practice management consulting organizations produce benchmarking information. Also, check with your hospitals and managed care organizations. They often have additional information very specific to your local market. The government, specifically the Health Care Financing Administration, is another source of data pertinent to orthopaedic practices.

In addition to external sources of benchmarking data, you should develop internal sources. For example, comparing your practice’s performance in key areas like income, expenses, number of procedures, volume of new patients and the like against how you fared in prior years will show you whether you are improving over time. You may also compare your current position to predetermined goals, as, for example, you do when you compare your actual profit and loss statement to your budget.

After you have collected the data you need, use those numbers to determine your practice’s strengths and weaknesses, improve your practice and market it.

Make sure your analysis focuses on your practice numbers. For example, look at your average gross revenue, or collections, per full-time equivalent (FTE) physician. Are all of your physicians "pulling their own weight?" Are your specialists doing too few procedures, or too many? Are you referring out services you can bring in-house at a profit?

Assess your personnel needs, costs, duties, efficiency and office protocols. Is every member of the practice doing the right work and doing the work right? Should you pay overtime or hire more help? Can you cross-train key personnel? Do you need temporary help?

Assess your square footage; floor plan/work space; and rental costs. Do you have enough space? Should you reorganize your current space? Can you? Is it time to move to a new location or renegotiate your lease? Do you have too much space and not enough patients to fill it? Can you sublet space?

Does your practice always seek competitive bids, take advantage of group purchasing options, and (assuming you have the storage space) bulk buying? Do you use generic office supplies? Do you need new, better or more equipment?

Consider leasing and outsourcing options, rather than purchase. Some practices even lease their employees.

Focus on what managed care organizations (MCOs) expect of you. Most MCOs have quality assurance (QA) and utilization management (UM) programs. Before you accept a managed care contract, learn what the MCO’s QA/UM parameters are. Review the QA/UM programs in your existing managed care agreements.

Janice G. Cunningham, JD, is a health care consultant with The Health Care Group® and an attorney with Health Care Law Associates, P.C.

Home Previous Page