KPIs for Medical and Dental Practices

This post follows our previous article on Key Performance Indicators and is part of our ongoing content for our business advisory services group. This one focuses on medical and dental practices.

Your medical or dental practice is more than a business—it’s a community resource. Protecting that resource and ensuring the quality of its services requires vigilance and attention to detail. One way to determine whether your practice is meeting its goals, both in the short and long term, is to examine performance metrics.

Key Performance Indicators (KPIs) offer a succinct way for you to gauge your practice’s effectiveness. Let’s examine a few ways in which KPIs can help your practice operate more efficiently as a business, better serve the patients it treats, and achieve its long-range goals.

Revenue Cycle KPIs

Several revenue cycle KPIs have proven particularly useful in the medical/dental services industry.

Net Collection Percentage

The net collection percentage reflects the ratio of net payments received to net approval of contractual adjustments x 100. This indicator lets you see how much of the revenue your business receives versus how much it is owed. A net collection percentage below 90% means that one-tenth of your billing remains outstanding, or pending collection. Net collection percentage can help you determine whether a cash inflow problem is the result of one or more late payers or is related to a problem in billing practices (for example, rejected claims).

Practice Work Relative Value Units (wRVUs)

Another useful tool in gauging your practice’s performance is practice Work Relative Value Units (wRVUs). This indicator helps ensure that cases are being properly coded. Medicare annually determines wRVUS using codes based on procedures performed. wRVUs that fall short of industry benchmarks for your region may be a sign that practice standards could be improved. Similarly, a dip in wRVUs over time can indicate that your practice could do more to serve its patients. Monitoring subtle changes in wRVUs over time can help you adjust your practices to boost performance.

Payer Mix

Chances are your practice receives its payments from a range of sources, from self-pay clients to private and government insurers. Tracking your payer mix can help you determine your reimbursement rate (as private payers tend to bring in more than public source reimbursements. By understanding the nature of your payer mix, you can make more informed strategic choices (such as the way contracts are drawn up or negotiated) to help keep your revenue stream flowing.

Accounts Receivable Aging

As a business, your practice attempts to avoid taking bad risks. But for any business, a significant number of late-pay, slow-pay, or delinquent clients can affect your practice’s cash flow. If the majority of your practice’s billing is “net 30” (due within 30 days or less), you’re probably seeing solid cash flow with a low collections rate. If many of your accounts are lingering unpaid in the 90+ days area, you may need to boost collection activities, as bills with longer reimbursement periods tend to be paid more slowly and to end up more often in the collections process. A little research now can save you the hassle of dealing with poor credit risks in the future. Knowing the nature of your contracts and the status of your accounts can also help you make better decisions about when you pay your suppliers, vendors, etc.

Expense Cycle KPIs

The expense side of the ledger has its own array of performance indicators to help you control both provider compensation and regular business overhead costs.

Analysis of Provider Compensation

Is the compensation you receive in line with the services your practice offers? One way to answer this question is to look at the costs per service. “Reasonable compensation” is an important part of tax compliance and planning. Tax authorities are particularly wary of practices that seem to bill below the benchmark average for a given procedure, and may spark suspicion that a practice is undervaluing its work to escape a greater tax obligation. Maintaining clear compensation and billing policies can help you avoid increased scrutiny from the IRS.

Ratio of Overhead Expenses to Total Collections

Overhead percentage can help you determine where your costs stand, and where they’re likely to go in the future. This not only helps you understand your practice’s strengths and vulnerabilities, it is an invaluable asset in long-range strategic planning that can indicate where and when critical improvements are due.

Monitoring KPIs

So how can you be expected to keep track of all these metrics while still managing a successful practice? Fortunately technology can help. Try setting up a dashboard where all your practice’s critical metrics are viewable at a glance. Set aside time each month, quarter, and year to review your metrics for any significant changes.

By keeping your most vital KPIs at your fingertips, you’ll be able to

  • Call up essential data quickly
  • Compare your practice’s performance to past years
  • Compare your practice’s performance to that of your competitors
  • Improve billing efficiency
  • Spend less time collecting outstanding debts
  • Remain compliant with all government and industry regulations
  • Avoid IRS problems

We hope you find these tips helpful. At Moskowitz LLP, we specialize in helping business owners reach their financial goals. Our business consultants, tax professionals and attorneys are ready to assist you with even the most complex tax issues. Don’t go it alone. Contact us today!

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