Update: Financial Benchmarking for Dermatology Practices

As BSM Consulting and Allergan, Inc. enter our 12th year of administering the benchmarking survey, we have found that dermatology practices participating in our financial benchmarking program continue to recognize the benefits of comparing their financial results to benchmarks from similar practices. The continued success of the program is the product of the two companies continuing to work together to gather, collate, analyze, and publish financial benchmarks for the benefit of dermatology practices.

The financial benchmarking program provides certain key measurements to dermatology practices that can be used by each practice as a method of evaluating its practice performance against that of other practices within their industry. Each year, Allergan Practice Consultants collect specific data from participating practices. That data is then reviewed for completeness, entered into a proprietary database, analyzed, and published by BSM Consulting. This article is a summary of the major data points from this dermatology survey.

Database Parameters

The results from participating practices through November 30, 2010, have been compiled in the database and include information from 142 practices for 2007, 134 practices for 2008, and 99 practices for 2009. Table 1 provides a geographic breakdown of participating practices. Table 2 illustrates the breakdown of practices by number of physicians. Since participating offices typically provide data for the most recent complete year plus two previous years, the number of practices in the database for each year will continue to grow as additional practices submit their information. The database continues to be updated with fullyear 2009 operating results.

2009 Results

The interpretation of changes to our key benchmarks from year to year may vary from person to person as they attempt to analyze and compare them to their practice's performance. It is important to remember that there may be other underlying factors, such as economic conditions, that may be causing certain trends or productivity results. Table 3 shows the mean and median results for the past three years for 13 key benchmarks. A review of the average revenue per full-time equivalent (FTE) physician indicates an increase of three percent from 2007 to 2008 and two percent from 2008 to 2009.

While growth in collected revenue per physician was moderate in 2009, revenue per non-physician provider (physician assistants and nurse practitioners) showed strong growth, with average revenues reaching $522,031, more than a six percent increase over 2008. This growth seems to indicate that practices are utilizing other providers, offering patients lower cost for certain visits and procedures. This conclusion is supported by the eight percent increase in aesthetician revenues during the same period.

Operating expenses as a percent of collected revenue remained constant in 2009 as compared to 2008 and 2007. Also, it should be noted that the nonprovider payroll ratio, the rent expense ratio, and the marketing and advertising expense ratio had only a slight change from 2007 to 2008 and from 2008 to 2009. It appears that practices have been able to maintain practice efficiencies as they face the challenges of our current economic conditions. Table 3 provides an illustration of the ratio results for 2007, 2008, and 2009.

Please see the box titled Key Benchmark Definitions for explanations of how the individual benchmarks are calculated in Table 3.

Diligence in Benchmarking

Benchmarking is designed to enable a practice to compare and measure their results against better-performing practices and can be very useful in the ongoing management of their business. We have found that the more successful practices are diligent in gathering and measuring results and comparing their data year over year. In addition, these practices incorporate benchmarking into their budget forecasts and their business planning processes.

It is important to note that the 2009 results are based on 99 practices who have participated in our survey to date. Results may change as we continue to add practice information to our database; therefore, comparison of practice results will vary over time. The results shown are to be used in the context of this article and should not be relied on as a comparison of a practice's overall performance.

Robert Thorne, CPA, is the Director of Financial Programs with BSM Consulting.

Edward Wynne is a Senior Financial Analyst with BSM Consulting located in Incline Village, Nevada. Both authors can be reached at (775) 832-0600. The company's website is www.bsmconsulting.com.