Productivity is Key to Financial Success
By Dixon Davis, MBA, MSHA, CPPM
The most important factor in achieving financial success in a clinic is productive providers. Higher productivity results in higher revenue, while lower productivity results in less revenue. This is a simple concept, but we often don’t give it the proper attention. Effectively monitoring provider productivity helps manage the provider’s expectation of compensation and the business’s bottom line.
Those responsible for bringing in revenue must understand the correlation between productivity and financial outcomes beyond the concept to literal correlations. A manager always should look for ways to enhance revenue streams through creating more efficient processes and additional services. Too many times we find ourselves looking at where to cut costs rather than where to increase revenue. Maximizing revenue is number one for financial strength.
A fairly common scenario involves a provider who thinks he or she should be making more money. The provider explains that the practice (schedule) is full and yet the provider is not making as much as a colleague down the street. Upon review, the provider believes seeing 25 patients per day is a full day. Yet the provider down the street is seeing 35 patients per day, and national benchmarks for the same specialty is over 28 patients per day.
The next calculation is very important to understand. For this practice, the average revenue per patient visit is about $100. For a provider who takes off three weeks per year, seeing one additional patient per day equates to about $25,000 per year. Ten more patients per day equates to $250,000 per year. We know that as we apply financial calculations to this revenue there will be associated overhead costs (all of the revenue will not hit the bottom line); however, also remember that once the fixed costs and certain level of variable costs are incurred, the incremental overhead allocation to additional revenue will usually be a lower percentage. This means that a greater percentage of revenue brought in from increased productivity will find its way to the bottom line.
Make Providers Accountable
When we think of productivity in a medical practice, the majority of billable production is performed by the provider (physician, mid-level provider, etc). For this reason, it is very important that providers are given the information, know how to interpret it, and understand how it will affect them personally and as a practice.
To effectively use productivity numbers, a business must first identify what productivity measurements will be tracked. Possibilities include total number of patient visits, total evaluation and management visits versus procedure visits, the number of units for each CPT® code billed, total work relative value units (wRVU) earned, amount of collections received, and hours worked. Measurements may vary depending on the specialty or culture of the practice. It is important to identify a metric that can be consistent and one that is understood by the provider.
Identify Target Goals
Once a productivity metric is identified, the report, or dashboard, needs to provide a clear picture of how productivity numbers influence financials. For identifying target goals, historical productivity and financial data can be used as a starting place. External benchmark data can also be used effectively as a tool to identify target numbers. The following illustrates a simple example of how both net revenue (collections) and wRVUs are tracked on a monthly basis and are compared to an internal goal and to a national benchmark.
In an effort to get providers invested in productivity, some provider compensation models are built on a straight productivity formula. Examples include paying providers a dollar value for every wRVU earned or paying based on an identified percentage of collections. If the provider knows he or she will make $51 per wRVU, then there is a clear understanding of how the level of work (productivity) will directly tie to total compensation. Likewise, if a provider is paid 48 percent of total collections, there is clarity of how providing more billable services will directly affect compensation. Utilizing this type of compensation model makes it clear that when a provider sees more patients, or provides more billable services, compensation increases.
Set Reasonable Expectations
Utilizing and comparing benchmarks, either internal or external, can provide additional information for setting goals or expectations. For example, a provider may know that she will be compensated $51 for every wRVU personally generated, but providing her with a benchmark that the average provider in the specialty is earning 4,200 wRVUs per year (350 per month) and is making $214,000, can create an expectation of where productivity should be.
We start to accomplish our objectives when the provider understands how much he or she is paid for each wRVU, where the total number of wRVUs should be, what compensation is expected at that level of production, and that the level of compensation for the associated level of productivity is equitable.
Similar models can be set up using varied metrics. If revenue numbers are identified as the metric, will it be gross revenue (charges) or net revenue (collections) that is measured? If a practice uses a fixed fee schedule, charges may represent pure production better, but will not represent actual money received.
Effective productivity reports that tie to provider compensation will include the following components:
- Identify the metric(s) that will be measured.
- Associate a conversion factor that relates to compensation or practice profits.
- Benchmark productivity numbers to either internal or external benchmarks.
- Create clear goals and expectations of productivity and financials.
Production measures can be reported to create competition among a group or to just motivate providers on an individual level. However, that should not be the end of the productivity monitoring.
Maximize Productivity Report Benefits
Productivity reports can also be a valuable tool for practice managers to increase revenue streams. By reviewing productivity reports and benchmarking them against better performers, managers become aware of opportunities for greater productivity and increased revenue.
For example, the manager of a neurology practice is made aware that providers in the practice are not making as much as other community physicians or as much as national salary benchmarks. It’s up to the manager to help discover why this may be the case. The providers are working from 8 am to 6 pm, the same as other providers in the area. The office work flow appears to be efficient within the office ,with full schedules and patients moving through their visits in a timely fashion. However, further review of a good productivity report identifies that the providers in this office see a higher percentage of E/M visits compared with industry benchmarks where providers do more office-based procedures such as EEGs, nerve conduction tests, and spinal taps.
The manager can track these trends, educate the providers on the missed opportunities to provide more office-based procedures, illustrate how revenue would be affected by making the change, and then let the physicians determine if this is something they are comfortable doing. Using productivity reports provides the manager with good data on how changes in productivity patterns can affect revenue streams.
The effective use of productivity reports by managers can help them to:
- Identify opportunities for work flow efficiency to increase the number of patients seen per day.
- Identify information technology tools that improve productivity.
- Modify scheduling models to increase patient volumes.
- Identify opportunities for offering new services in the office.
- Benchmark to better performing offices for new opportunities.
- Identify ways to utilize staff differently to increase billable services.
By keeping close tabs on productivity measurements in the practice, managers identify opportunities for revenue that can be shared with physicians. Sharing productivity numbers with providers helps them understand how the work done in the office relates to financial outcomes and can provide the impetus to make good business decisions on how work is performed to maximize revenue opportunities.