It’s a challenging time for general practices. Because bulk billing rates haven’t increased dramatically, income is fairly stagnant. Yet, at the same time, expenses like salary and wages tend to be increasing, making things difficult financially. To combat these issues, it is crucial that general practices do a thorough review of their finances.
In this post we outline the steps you can take to review and optimise your clinic’s finances.
1. Reviewing Your Finances
While reviewing your financial numbers is always a good idea, sometimes analysing other metrics can yield important information that will improve your clinic’s bottom line. For example, there is a GP who runs a very successful mixed billing practice in Mount Druitt. Mount Druitt is heartland bulk billing in Sydney, and it’s lower on the scale socioeconomically.
This GP said that rather than analysing financial numbers, they examined the patient numbers and the operational numbers of the practice. Doing so didn’t just give them a broader picture of the practice, it also helped them identify opportunities to improve their finances.
This is a great example of finding and reviewing metrics that match your vision, which is very important, because sometimes you can get bogged down in the numbers whereas it can be a lot easier to focus on things that are more tangible, like patient numbers.
With this in mind, there are two primary ways to review your finances — using internal benchmarks or external benchmarks. For instance, an internal benchmark might be, ‘How many consults did we do last month? How many did we do this month?’ or ‘What was our average consultation fee this month as compared to last month?’
External benchmarks, on the other hand, are typically harder to pinpoint. Fortunately, there are organisations like Australian Medical Benchmarks, which provide an external benchmark reference for practices.
There are four key areas to focus on when determining your clinic’s benchmarks:
i) Measuring Full Time Equivalents
The first external benchmark is full time equivalents. By way of example, that would be things like how many full-time doctors, nurses and admin staff members your practice has. Essentially, you want to learn the ratio of support and nursing staff to doctors. This is a key benchmark you would use to compare yourself to other practices.
This is again where Australian Medical Benchmarks can be valuable, because other practices have provided them with these key metrics, they can tell you the optimal staff ratio for a clinic of your size.
For instance, the practices that tend to be more financially successful usually have a higher ratio of nurses and support staff to doctors
When you think about it, that totally makes sense because the more staff members you have, the more doctors can stick to patient care.
After all, you don’t actually need a doctor to take someone’s blood pressure. A nurse could do that prior to the doctor even seeing the patient and that would probably free up about five minutes of the doctor’s time. While that might not sound like a lot, over the course of a day, the doctor might save an entire hour of time, giving them room in their schedule to see an additional three or four patients. Not only would the doctor benefit from the additional income, but the practice would as well.
ii) Measuring Profit Area
The second area of external benchmarking is the profit area. This benchmark refers to the profit of the practice as a percentage of medical fees, as well as a percentage of total fees. Both calculations are important to look at, because there’s a distinct difference between medical and total fees.
In general practice, for instance, you get income from the GP’s doing the work — the medical fees — but you also get other income, like incentive income. Incentive income is a very important part of the financial viability of a practice, so you definitely want to understand the operational relationship that exists between the operations and the finances.
Of course, you’re also going to want to look at expenses to see how they affect your profitability as well. Rent, salary and wages tend to be the biggest expenses for practices. For that reason, knowing how much those expenses are as a percentage of income is another important thing for clinics to review.
iii) Measuring Number of Consults
Another important external benchmark is the number of consults your practice does. This information — coupled with the average fee per consult and the average consult time in minutes — calculates your average fee per hour which is very important to know.
Naturally, the higher the average fee of a practice, the better it tends to do financially
At a minimum, it’s a good idea for clinics to know not just their own average fee per hour but to also know how their average fee per hour compares to those practices that we might call ‘best practices’.
iv) Measuring Capacity
The last piece to reviewing your finances is paying close attention to your capacity. By capacity, we’re referring to the number of hours your practice has — both the open hours, as well as the doctor hours. And once you have those figures, you want to look at how closely these numbers are aligned.
Reviewing key performance indicators in all four of these areas is important. But don’t just do it once and forget about it. You’re going to want to compare your clinic’s metrics over a period of time so you can benchmark your practice internally.
2. Identifying Financial Opportunities
Once you’ve reviewed both your internal and external benchmarks, your next step is to look for opportunities to better your financial performance.
i) Adapting to the Market
One way you can improve your financials is by changing how you position yourself in the market. For instance, the Mount Druitt practice mentioned above looked at patient numbers and discovered that many of their patients had diabetes. Knowing the prevalence of diabetes in their community, the clinic changed the way they operated and began offering nurse-led clinics.
Not only was this much more effective than having doctors run the clinics, but it also provided a direct benefit for their patient base.
ii) Embracing Technology
If you’re willing to embrace technology, you’re definitely going to be able to cut some of your expenses. Look around your clinic and ask yourself, ‘Is there anything we can eliminate? Are there things we’re currently doing that technology can do for us? What can we automate?’ This is all about identifying issues that have a direct impact on your finances.
For instance, a lot of practices are using automated kiosks. Rather than having patients visit a receptionist to check in, some practices are now having patients check in on a kiosk or iPad, which frees up receptionists’ time
The same holds true for online bookings. Patients no longer need to actually call a practice’s office to schedule an appointment with a receptionist. Instead, they can go online to book their appointment. Again, this frees up a receptionist or an admin support staff member from having to spend most of their day on the phone. Instead, they can turn their attention to tasks that add more value to the practice.
iii) Leveraging Capacity
By leveraging capacity, you’ll have another opportunity to improve your financial performance. Say, for example, that you have four consulting rooms but only two doctors. Essentially, you’re paying rent and overhead for two spare rooms — of course, that’s going to have a direct impact on your finances. However, it does present an opportunity.
In a situation like this, it is prudent to review the issue and choose a strategy that’ll increase your revenue. For instance, could you get another health professional to come in and use those rooms — perhaps a doctor or an allied health professional? Alternatively, could you sublease the rooms?
These solutions cost nothing to implement because you’re already paying the rent and utilities. Meaning you would see an increase in income were you to go forward with one of these strategies.
3. Monitoring and Reporting
The final step is to set in place a good monitoring and reporting structure. Start by identifying some key performance indicators in each of the above areas and then monitor them on a quarterly basis, making sure you compare them to internal and external benchmarks.
It’s a good idea to do this activity quarterly, because you have to do your business activity statement on a quarterly basis. Doing it more often than that will get tedious and when that happens, this type of activity tends to get scrapped.
Alternatively, if you only did it once a year, you wouldn’t be getting the metrics you need to make key financial decisions throughout the year.
Avoid picking too many KPIs to track — that will just lead to information overload. Instead, pick your most important ones and put them in a 2-3 page report, summarising the information.
Ideally, you’ll include graphs in your report — they’re a way to get a very quick snapshot of how a practice is doing. For instance, you could create a full-page quarterly report based on some KPIs from each of the four areas mentioned above.
While monthly reporting may not be realistic for your practice, if you do decide to go this route, it’s useful for identifying trends. It’ll prevent you from having to wait several months to have one of those epiphanies, ‘Oh look at that number. That’s a bit odd isn’t it? It’s fallen dramatically’. Whereas if you did it monthly, you’d be able to notice and investigate these things far sooner.
It’s less important whether you monitor your metrics monthly or quarterly and far more important that you make a commitment to regularly track these numbers. By doing so, you can not only improve your practice’s efficiency, but also increase your revenue — something that’s grown increasingly important in today’s challenging economic times.