Over the past year, the PMI team has seen every conventional Key Performance Indicator (KPI) go sideways in a variety of ways. A precipitous drop in charges (or payments) from one month to the next does weird things with gross and net collection rates. Ditto for Days in Accounts Receivable as well as many other common KPI's practices should be tracked. Added to the mix of things to keep an eye on are the management of your practice’s cash position and the constant need to monitor upcoming bills due. The trick to managing your monthly KPI review is to keep the numbers in context. If there is an explanation as to why various metrics are going sideways, that's okay as long as your KPIs return to normal as patient visit volumes continue to increase from the brutal first quarter most, if not all, pediatric practices have faced.
With the end of the first quarter in 2021 officially behind us, we need to take a few minutes to confirm our practice overhead rate- which is an essential ingredient to determining whether or not we are maintaining a profit margin for the employed providers. The shift in well versus sick patient visit percentages is having a profound impact on the conventional norms of monitoring a practice's financial performance. With that in mind, there are several ways to evaluate an individual provider’s profit margin. The first approach is to run a report showing the individual provider’s total revenue generated and calculate your practice’s overhead rate. With these two numbers, you can easily replicate this spreadsheet (or run it by hand):
If you have an acceptable positive margin, then the above calculation is usually sufficient. However, if you have a lower-than-expected margin, you can dig a little deeper and consider running some additional analysis backing out the vaccine drug costs from the overhead rate and run it again backing out the vaccine drug revenue generated by the provider:
When practices analyze the numbers, they should use the revenue and expense amounts over a six or twelve-month span. PMI considers it "best practice" to measure provider profit margins on a rolling six-month timeframe every month. In the two examples above, we used a twelve-month window of revenue and expenses.
You will notice in the first approach, the individual provider's margin is compared to the total revenue generated while the second approach compares the provider margin to the total non-vaccine revenue generated. PMI believes the second approach is more accurate and provides practices with better insight on which individual provider's compensation may need adjusting. As always, the PMII team is available to help pediatric practices with its Onsite & Remote Practice Assessments to provide the review you need to identify opportunities for improvement and ensure your continued success.
To help you, PMI has posted a new online calculator to help practices measure their providers’ profitability. The online calculator can be accessed by clicking here.
While many would like to know how they stack up against other practices, there are a variety of reasons why practice comparisons are not always applicable. In addition to the COVID pandemic having varying impacts on patient volume, the patient population distribution and payor mix have traditionally been the biggest obstacles for such comparisons. PMI encourages practices to measure each of their provider profit margins regularly and monitor such statistics on a monthly, quarterly, and/or annual basis to identify areas of concern.
Whether your providers are paid with a flat salary, provided an RVU production incentive, or allowed to earn a bonus based on revenue generated, it is important to monitor each provider's profit margin to ensure the practice remains financially viable.
