Financial Benchmarking Update for Dermatology Practices

Each year, BSM Consulting and Allergan, Inc. provide updated productivity and efficiency results from their robust financial benchmarking database. The database results are derived from information provided by practices participating in Allergan's ongoing financial benchmarking program. In the middle of the current economic downturn, BSM and Allergan find that practitioners remain anxious to see how they compare to other practices and to current economic trends. By comparing their financial results to the BSM/Allergan database results, practices are able to assess the health of their business and identify any needed strategic changes.

The collection of the 2011 financial data begins the thirteenth year that BSM and Allergan have administered the benchmarking survey. Members of the Allergan Practice Consultant team continue to gather specific data from participating practices and the data is sent to BSM Consulting, where a financial benchmarking report is prepared and analyzed. The production and operating results of each report are entered into a proprietary database and then published.

Database Parameters

This update includes the database results for the years 2008, 2009, and 2010 with current results through November 30, 2011. The number of participants with reportable results includes 145 practices for 2008, 125 practices for 2009, and 108 practices for 2010. Table 1 illustrates the geographic breakdown of participating practices, and Table 2 provides a breakdown of practices by the number of physicians.

2010 Results

When comparing the changes year over year, it is important to understand that each metric cannot be treated as a stand-alone indicator. Although several key metrics are examined, the best of each category may not be from the same practice. This gives merit to the fact that one metric cannot be used to correlate the results of other metrics. There are several underlying factors that may need to be considered when comparing the trends of the productivity and efficiency results; this includes the lack of consistency of data reporting, calculation of a full-time equivalent (FTE) physician, cash reporting method of accounting, and inconsistency with chart of account classification. Table 3 shows the mean and median results for each of the past three years for 13 key benchmarking metrics. A comparison of the revenue per FTE physician shows no change from 2008 to 2009 and an increase of 1.8 percent from 2009 to 2010.

As we begin to see an uptick of the revenue per FTE physician, it is interesting to note that the non-physician provider continues to show significant growth each year. The average revenue per FTE non-physician provider is $563,971—an increase of 5.9 percent; this equates to a compound annual growth rate from 2008 to 2010 of 6.3 percent. Results suggest that practices are using non-MD providers to offer patients lower-cost options for certain visits and procedures. Although the revenue per FTE licensed aesthetician was static, it does indicate that practices and patients continue to find the value of affordable options.

Although there has been an increase of practice total revenue year to year, operating expenses continued to remain constant in 2010. This was also true for individual metrics, such as non-provider payroll, rent expense, and marketing and advertising. We continue to see a majority of practices participating in our benchmarking program diligently maintaining lower to moderate operating costs as a percent of collected revenue. One can only speculate that a practice's ability to compare its historical data to the healthy ranges established from our database allows assessment of practice strengths and weaknesses, resulting in better business decisions.

Please see the sidebar for explanations of how the individual benchmarks are calculated in Table 3.

Conclusion

The BSM/Allergan benchmarking report provides practices with performance metrics to use to evaluate operating trends and to compare against better-performing practices. Whether a business benchmarks its revenues and expenditures to its budgeted amounts or its productivity and efficiency metrics to industry better performers, it seems that businesses that do so are able to make better decisions. Success comes to practices that are diligent in measuring results, comparing year-over-year trends, and using the information to make and support sound strategic business decisions.

As we continue to prepare additional benchmarking reports, we expect to add new practice information to the database, and as such, comparison of practice results will vary over time. The information shown is to be used within the context of this article and cannot be relied upon as a comparison of a practice's overall performance. n Robert Thorne, CPA, is Director of Financial Programs with BSM Consulting. He works out of the company's Incline Village, Nevada office. bsmconsulting.com.