Some attentive physicians are interested in minding the store. They are vastly outnumbered by their 'hands-off management' colleagues who stay in exam rooms and the hospital hoping everything is okay. They 'trust' that managers, billers and CPAs are all doing their jobs vigorously. And these doctors are why we management consultants are in business. Why is supervising the business so repugnant a chore for physicians?

Before you shout out the answers to our rhetorical question - "we're too busy" "we're over worked and under paid" "we're not babysitters" - check your level of accountability for the business. If you're an employee working for an HMO or faculty practice plan you may not feel responsible for the success of the organization. But if you're an owner, it's folly to expect someone else to care more about the practice than you do.

There's good news: keeping track of a practice doesn't take long and when you find a problem, it may be easy to fix. Here are the 'pulse points' we consultants check to tell us where to concentrate our efforts to improve practice performance. [1]

Cash Flow
Happiness is positive cash flow and it's the easiest way to know how you're doing. After you pay all the bills, including market rate salaries for the doctors, the bank balance should go up each month. To make this metric work, don't pay bonuses to physicians until you know if they've earned it. If you save the excess cash to year-end you're more likely to fund your retirement plan and less likely to commit one of the biggest business sins: borrowing money to live on.

Billing and Collecting
If your practice is average, your accounts receivable (the amount payers owe you) will equal 1.0 to 1.3 times your average monthly charges. For orthopedics and general surgeons it's a bit higher at 1.5 and 1.6 times, respectively. If you have a lot of Medicare patients, your number will tend to be lower because Medicare is the fastest and most reliable payer.

If your number is much higher, there's a problem with AR follow-up. Most likely, there's none being done. Take a look at the proportion of your AR over 90 days old (ask for the 'aged trial balance' report and look at the totals on the last page). The average is 13% to 16% for most specialties (19% for orthopedists and 20% for cardiology practices). If yours is much higher, it's time to figure out why.

Overhead
The cost of running your practice is something you can control and it varies a lot depending on what style practice makes the doctors comfortable; some like a lot of help doing the work and buy every new diagnostic tool offered at the academy meeting. Others can do a lot for themselves and refer out the tests and procedures. There's no right answer for the total overhead number but there are two averages that can signal correctable problems.

The amount spent on non-provider pay and benefits averages 30% in primary care and between 20% and 26% for most other specialties. Ophthalmologists average 29%. More employees should mean more productive physicians so this number is a good indicator across practice styles. [2] If your payroll cost is high, you might too many staff or the wrong kinds of workers.

The second highest cost is rent. The median for building occupancy (rent or depreciation, utilities and maintenance) is 5.7% of receipts for internists, 6.7% in family practice and varies from 4.2% for general surgeons to 7.4% for ophthalmologists. If your occupancy is much higher there may be an opportunity to grow the practice into the space, especially if it's unfeasible to move.

Productivity
In business, productivity simply means output per unit of labor and in medical practices the purest measurement is collections per physician work RVU. Instead of pricing your services in dollars, price them in work RVUs. If your practice management software has the RVUs built in, great. Otherwise, just run the CPT codes billed for each provider and multiply each by its work RVU. (Your manager speaks Excel, right?) This number is comparable with averages reported for physicians all over America. (A less precise number is patient encounters per year.) Not all specialties reported meaningful figures last year but here are some that were:



Market Positioning
If your 'business' numbers are respectable but your income is low, consider your demographic mix. Here's the gross collection percentage by payer plan for a client we worked with:



Our reaction: can we make room for more Plex Net patients by closing the practice to plans offering below Medicare reimbursement? A lot depends on the referral relationships and how well the phone and appointment staff are trained. Most practices can do a better job of regulating access to scarce physician time.

Money doesn't buy happiness, but it buys everything else. Tracking some of these critical indicators can make the difference between wondering what happened and controlling your destiny.

Jeffrey J. Denning is a principal management consultant with Practice Performance Group, La Jolla, CA. Since entering the field in 1971, Jeff has worked in a consulting capacity with more than 300 practices representing over 1,000 physicians in forty states, has conducted more than 500 workshops, seminars and speaking engagements in the United States and Australia, and written over thirty feature articles for leading industry publications. They include Medical Economics, OBG Management, Pediatric Management, Managed Care, California Physician and numerous specialty academy journals. Mr. Denning is also editor of UnCommon Sense(R), a monthly practice management strategy and tactics information service of Practice Performance Publishing, Inc. Jeff can be reached at 858/459-7878 or via the web at http://PPGConsulting.com

1. Consultants use averages compiled across the industry. The ones quoted here are from the 2010 Medical Group Management Association Physician Compensation and Production Survey and Cost Survey for Single Specialty Practices. For more information, contact the MGMA at http://www.MGMA.com

2. Cutting payroll was one of the supposed benefits of digital patient records. Most practices have to upgrade the staff to cope with EHR technology.