PracticalDermatology

When businesses are looking to improve profitability, their first instinct is often to reduce operating expenses or the cost of goods. While enacting such cost-cutting measures is certainly viable, it isn’t necessarily the best solution in today’s pandemic climate because cost cutting has a limited impact on margin expansion. Reducing costs can increase profitability only if revenue remains constant. However, if cost reductions reduce the quality of a practice’s services, any potential gain will be diminished by patient attrition. Instead, practices that want to have the greatest impact on profitability should focus on top-line revenue growth while managing expenses appropriately.

While a practice can grow its top-line revenue in several ways, we will focus on increasing existing patient revenue and enhancing provider productivity. These tasks are not as daunting as they may seem. There are some simple steps practices can take to see improvement in both these crucial areas and enjoy a boost in dividends for a more financially secure practice.

Increasing Patient Lifetime Value

Many practices believe that attracting new patients is the most important strategy to grow top-line revenue. However, trying to attract new patients can be a pricy and risky proposition, especially with a lean balance sheet. A practice that has a balance sheet with reduced current assets will find spending capital on marketing and/or promotions can quickly result in the business being overextended, especially if return on investment does not occur quickly. This is particularly true given the current post-pandemic climate and need for conservative spending. Knowing this, practices should avoid investing in acquiring new patients and rather focus on what’s already successful with existing clientele, thereby enhancing patient lifetime value (PLV).

PLV centers on building relationships, understanding patients, and providing increasing and ongoing value. Therefore, a practice may enhance this metric by analyzing conversion of services, ensuring optimal patient outcomes, and implementing a treatment plan that aligns provider expertise with patient goals. To assess areas of opportunity for increasing PLV use the steps below as a guide.

1. Analyze average ticket spend.

For any improvement to occur, practices must first know their starting point, and this is where average ticket spend comes into play. This metric is the amount each patient spends, on average, per visit. Determine the average ticket spend within the practice over the past six months and then compare that dollar value to the following:

• The same six months of the previous year (Which year is higher?)
• The industry average
• Regional data

This analysis will help shape the practice’s ticket spend goal, and from there, strategies can be created to reach it. One option may be to identify the practice’s most profitable offerings and actively market them. Another option may be to bundle complimentary services and products and price them with the target ticket spend in mind. Whatever strategy is chosen, monitor and adjust it as needed to reach the goal.

2. Evaluate service mix.

A great way to increase PLV is to encourage patients to take advantage of multiple services. Start by pulling a sample report containing the services of the practice’s last 200 patients. Then analyze the data and use it to answer the questions below.

• What percentage of patients are taking advantage of more than one service?
• Why are some patients not utilizing more than one service in your practice?
• Are patients aware of the other products and services the practice offers?
• Are providers developing patient treatment plans? If so, are patients following them?

By knowing where the practice stands, efforts can then be made to boost interest among existing patients to double-dip. Consider creating a patient interest questionnaire on practice offerings to both educate and gather direct intel. The resulting information can be used to create effective digital marketing programs focused on specific audiences and their interests, along with definitive calls to action that yield results.

3. Consider average annual patient visits.

Industry data shows that a patient visits a practice an average of 1.5 times per year. Take that benchmark and compare it to the practice’s average number of patient visits per year, and then answer the following questions:

• How does the practice fare against the industry average?
• Is the practice where it should be?
• Is it sustainable?

It’s essential to understand where the practice stands on this spectrum to know whether an adjustment is needed. The right adjustments can be derived when the practice knows what keeps patients coming back. Perhaps it’s the relative ease to book new services and appointments through the practice website. Playing up those returning drivers will simultaneously improve the patient experience and recurring revenue for the practice.

Enhancing Provider Productivity

Time is a precious commodity, especially for practice providers. Their work generates the bulk of the practice’s income. Rather than leaving this vital top-line revenue item to chance, analyze it thoroughly to know where provider performance stands so adjustments can be made, if needed.

1. Determine provider productivity level.

Since every provider is an agent for practice revenue, knowing each one’s current productivity level—i.e., the time each provider spends generating service revenue—is crucial. Calculate this by determining the number of work hours less any time blocked out for meetings, breaks, trainings, and anything else that would prevent the provider from being in front of a patient. The total is the number of service provider hours available.

2. Calculate revenue rate per hour.

Knowing service provider hours, the revenue rate per hour for each provider can be calculated by using the following equation:

Total Collected Gross Revenue ÷ Service Provider Hours = Revenue Rate per Hour*
* To arrive at an accurate answer use the same timeframe for both gross revenue and service provider hours and avoid over- or underestimating service hours.

This metric quantifies provider productivity, which can be used for comparative purposes—both internally and externally. Furthermore, industry benchmarks can provide insight as to whether a provider is in the 75th or 10th percentile of productivity.

3. Evaluate the data.

Now knowing where practice providers stand, answer the following questions to help identify areas of opportunity.

• How full are provider schedules?
• What obstacles (if any) keep their schedules from being full?
• Are their schedules filled with the right mix of services?
• Are there procedures that only certain providers can perform?
• What products or services generate the most revenue?
• How much time is allocated to non-revenue generating activities?

Let these answers guide improvement activities as they relate to provider productivity.

Set new goals to achieve. At this point in the process, set new expectations. This can include everything from schedule fullness to service packages and pricing to enhance revenue rate per hour. Notify all staff of new goals and review results each month. If the target revenue rate per hour is not achieved, discuss areas of improvement for staff and adjust as needed. If it is achieved, consider implementing the successful modifications into the practice permanently!

Creating Long-term Financial Resilience

Although the pandemic has changed many aspects of business, one thing remains the same — all practices need to be profitable to survive. Boosting top-line revenue may be the fastest and smartest way to impact a practice’s profitability. It all starts with a hard look at the business, analyzing data, and enacting improvement strategies based on facts. The result is a path to success in 2021 and financial resilience for the long term.