Okay, so you’ve heard us talk—seen us write?—a metric ton of content about the importance of measuring the things that matter to your practice (outcomes data, anyone?). Well, today that discussion continues as we move to the realm of actual business metrics: key performance indicators (KPIs), to be exact. You can think of KPIs as super-important measurements—ones that are imperative to meeting key business objectives. In other words, these metrics are mission-critical to the success of your practice.
To make the most of your clinic’s KPIs, you have to compare them against your baseline measurements—which represent the status quo in your practice—as well as industry-wide benchmarks or company goals. This gives your KPIs context, so you know how far you’ve come—and how far you still need to go. As this article points out, $20 million in total sales for one quarter seems great—unless we’re talking about Boeing, in which case we may also be talking about bankruptcy. Additionally, you’ll want to check up on your metrics every so often to ensure you’re still measuring the things that matter most to your practice. If your KPIs are no longer representative of your practice’s key areas of focus—or they’re no longer indicative of your performance—throw ’em out and replace them with ones that are more relevant to you.
Here are several physical therapy business metrics that are important enough to fit the KPI bill:
- Net revenue per month: Becker’s Healthcare—which WebPT’s Brooke Andrus cites in this article—says that too many healthcare professionals make the mistake of tracking what they bill instead of what they collect. And the latter number definitely is the more important one; after all, this is the actual dollar amount that you receive, and knowing what you’re bringing in can help you assess the health of your billing processes and the growth trajectory of your business. Once you have a baseline, you can set goals to work toward—and, if you happen to notice that this number unexpectedly rises or falls, you’ll know to dig deeper into your data to identify the cause.
- Net revenue per visit: You can calculate your clinic’s net revenue per visit by figuring out how much, on average, you’re collecting per visit from each insurance carrier and/or patient. Knowing what you’re averaging across payers—and per carrier—can help you negotiate fee schedules. Once you know your net revenue per visit, you can subtract your net cost per visit to determine your net profit per visit, which you can then use to identify whether you’re making money or operating at a loss.
- Top payers and payer revenue per patient: The point of these two metrics is to understand the average amount of reimbursement each carrier is paying per patient visit, so you can weigh these numbers against your costs. If you’re not making money, “it may be time to consider non-participating,” writes Geoff Elledge. First, identify the five to ten payers that make up the largest percentage of your clinic’s revenue; then, get really familiar with their rates, claim processing details, and special policies. This way, you can milk every cent from your most-frequently tapped payers. Next, widen your lens to include all of the insurances you contract with, not just your top payers. As Elledge advises, “take a good, hard look at your various contracts and reimbursements by insurance.”
- Income per square foot: To calculate this number—which tells you how efficiently you’re using your clinic’s space—divide your total annual revenue by your clinic’s square footage. A low number might mean you have too much real estate on your hands; a high number might indicate that it’s time to expand. For reference, a study cited in this Advance Healthcare Network article reported that the median income per square foot reported by physical therapy clinic owners was $203—with a range of $61 to $550.
- Revenue per therapist: A true measure of productivity goes beyond the number of patients each therapist sees and accounts for the average amount of revenue each therapist generates per month, per day, or per visit. Armed with this type of insight, you’ll know therapists are effectively managing not only their time, but also their billing.
- Percentage of receivables over 120 days: This metric measures timely collection. To calculate this percentage, divide the total receivables over 120 days due by your total receivables. If this figure comes out to less than 10%, you’re good to go.
- Daily sales outstanding (DSO): This metric measures the average amount of time it takes for you to collect payment from an insurance carrier or patient. To calculate your DSO, divide your total current receivables by your average daily charge amount, the latter figure being your total gross charges for the past year divided by the number of days in a year (365 in case you’re not sure).
- Net collection rate: This number represents the effectiveness of your practice’s collection process. To determine this figure, divide your total payments by your total charges over the course of the previous six months. Then, multiply this number by 100—and shoot for at least 95%.
- Denial rate: To calculate the percentage of claims your payers reject, divide the total dollar amount of all denied claims in a three-month period by the total amount of all claims you submitted during the same time-period (your goal is a number under 10%).
Marketing and Sales Metrics
- Customer lifetime value (LTV): While most people associate LTV with subscription-based services such as Netflix (or WebPT), this metric applies to physical therapy practices, too. That’s because patients—and payers—pay per visit, which means physical therapists also are in the subscription business. To calculate your LTV, take your average revenue per visit and multiply it by the average number of visits patients complete in a care episode and the average number of lifetime care episodes per patient. Now, as a therapy provider, you’re limited in your ability to adjust either your price variable (unless you’re going cash-based or adding cash-based service offerings) or the duration of a particular patient’s care episode. That being said, there’s still huge value in measuring LTV, because—as WebPT’s Charlotte Bohnett explains in this article—you still have control over patient retention (i.e., the difference between the number of visits a patient attends and the number insurance covers).
- Customer acquisition cost (CAC): This is the amount of money it costs to acquire a new patient. Obviously, the lower this number is, the better. To calculate this metric, take the amount you spent on marketing and sales over a particular time period and divide it by the number of new patients you generated over that period. This can help you assess the effectiveness of a specific marketing campaign or sales effort.
- Vacancy rate: Your vacancy rate is the percentage of unbooked time on your therapists’ calendars. To calculate it, take the number of hours not booked and divide that total by the number of total bookable hours. Then, multiply that number by 100. To improve your vacancy rate, consider reducing cancellations and no-shows, minimizing padding between appointments, maximizing calendar scheduling, and pre-booking appointments.
- Conversion rates: Your clinic’s conversion rate is the percentage of prospects who convert to customers. You can track your overall conversion rate or narrow your perspective to track the conversion of a particular task or campaign. The latter will help you better understand the effectiveness of your efforts. In this post, physical therapist, social media expert, and San Francisco Spine and Sport owner Jerry Durham recommends measuring your phone call conversion rate: the number of new patients booked over the phone divided by the number of phone calls you receive from prospects multiplied by 100. To learn what other important data Durham—and Bohnett—recommend collecting while on the phone with a prospective patient, check out this blog post.
There you have it: everything you need to know about KPIs and the role they play in your practice. Does your clinic track KPIs? Tell us what you measure—and why—in the comment section below.