A medical practice is a business and like all businesses these practices must be evaluated regularly to ensure that they are profitable. Unprofitable medical practices can not survive any longer than unprofitable businesses can. Of course, most physicians don't have backgrounds in business and may not understand how to keep track of their practices' performance. That's where benchmarking becomes a very useful tool for physicians.
What is Benchmarking?
Benchmarking essentially means making a comparison. Back in medical school, students were benchmarked all the time against their classmates. Their success was being compared to the success of others in order to give them an idea of where they needed to be to make it in medicine.
When it comes to medical practices, benchmarking usually means comparing different aspects of the practice to national standards to determine the practice's success or lack thereof. Although benchmarking can make a physician feel good about his or her practice, it is usually used to help physicians identify areas that need improvement. By making these improvements, a physician's practice can become more profitable.
We'll look at three important aspects of medical practices that can be benchmarked, and we'll show how you can begin making the necessary comparisons to improve your practice.
Aspect #1: Revenue and Net Collections
Because a medical practice is a business, one of the most important benchmarks that determine its success is revenue. The amount of money your practice is making is a good sign of your success; however, many physicians don't know if their revenue numbers are strong.
Before you do a comparison, you need to make sure the comparison is going to be accurate. If your practice is in a small community with only 30,000 people, you should not compare revenue to that of a practice in a major city. You should compare yourself to other practices similar to your own. Also, when it comes to determining your practice's revenue, you should only look at net collections. Net collections refers to the money you actually receive, not the total you bill (accounts receivable). As you well know, payers often have lower allowables than what you bill. The money they owe cannot be counted as part of your revenue until it has actually been collected.
That doesn't mean you should ignore those charges. As part of your benchmarking, you also need to look at your gross charges, particularly when compared to your net collections. If the difference between the two is significant, then your practice may be facing financial difficulties either because your payer mix is not optimal or because your billing department is not performing up to potential.