5 Profit Tips to Increase Practice Revenue $150K

Learn how to how to put your data to work for you and your staff.

By Jamey Schrier, PT

How do we become more profitable?

This has always been the central challenge for physical therapy practices, and the pandemic has brought profound new urgency to this question for practice owners.

Circumstances change. Fundamentals don’t. Improving team performance was, is, and will be the single best route to greater profitability. Most private practices are chronically under-utilizing clinical staff, and that is often a primary driver of slim and inconsistent profit margins.

Many practices aren’t using metrics to measure performance, which prevents them from making the improvements they need to optimize utilization of their staff and boost profit margin.

Metrics by themselves aren’t a silver bullet. No amount of data can transform your team’s performance if you don’t know what to do with the information. Metrics are a tool, a means to a better, more productive and profitable result—when you know how to put your data to work for you and your staff.

A practice owner I worked with a number of years ago epitomizes this challenge.

From our initial conversation, two issues became clear immediately.

ISSUE 1: SHE DIDN’T KNOW HER PROFIT MARGIN

This practice owner watched her cash flow constantly by watching her bank balance, but she wasn’t monitoring her practice’s financial data to stay in touch with her practice’s profitability. She desperately needed a financial dashboard, a system for tracking and analyzing key financial metrics that would provide her an ongoing, real-time snapshot of the financial health of her practice.

Once her financial data was flowing through a dashboard, she learned her profit margin was 12%. Not bad considering it was roughly the average for physical therapy practices at the time.

(Obviously, things have changed a lot over the past year. Cash flow may be running smoothly for many practices thanks to PPP loans. But it’s never been more important to distinguish between cash flow, the ongoing net flow of money in and out of a business, and profit margin, the revenue that exists after all expenses are paid.)

Annual revenues for her practice were $600,000. Her practice generated an annual profit of roughly $70,000. It was enough to keep going, but not much more than that. Facility upgrades, expansion to a second location, the owner’s ability to take a step back from patient care and the day-to-day operation—all these goals were out of reach. She was working furiously to tread water. Working longer and harder but not moving closer to her goals.

ISSUE 2: SHE WAS COMPLETELY IN THE DARK ABOUT HER PRACTICE’S UTILIZATION

In addition to treating patients herself, she employed three other full-time physical therapists, but she was without any type of system for tracking their productivity. Utilization is a critical measurement and the single most important performance metric that affects profit margin.

UTILIZATION EQUALS PATIENT VISITS SEEN DIVIDED BY TOTAL VISIT CAPACITY

In other words, of the maximum number of visits your therapists could see in a month, what percentage are they actually seeing?

Salaries for three full-time therapists were a major share of her fixed costs—and she was paying them each $80,000 a year whether they generated $100,000 or $200,000 in revenue.

Working 40 hours a week, were her therapists seeing patients for 90% of that time? Sixty percent? Without tracking utilization, she had no specific, objective information about whether she was anywhere near to maximizing her investment in her staff.

We determined her utilization was 71%. There’s a big red line when it comes to utilization in physical therapy practices. Typically, with a utilization rate of less than 85%—meaning less than 85% of all possible visits are taking place—owners will find it difficult to generate enough revenue to pay their bills, purchase equipment, and bring home a salary deserving of the time, risk, and money they have invested.

No wonder this practice owner was treading water, exhausting herself trying to keep her business afloat. Seeing the data, she realized she had to zero in on improving productivity to increase her profit margin. That meant addressing several fundamental issues that involved both her clinical and administrative staff: referrals, high cancellation rates, conversion rate (conversions of referrals to new patients), a high number of patients dropping out of treatment before completing their plans of care, poor billing habits from her therapists, and sluggish collections. But before this owner could tackle those critical issues, she had to go deeper, to address something even more fundamental to productivity and profit.

EXPECTATIONS

One of my favorite sayings is: “Confused people don’t.”

When it comes to operating an efficient business that provides you everything you want, there’s almost nothing more important for a practice owner to understand than this.

When people are confused, frustration sets in. And in the case of your staff, confusion leads to being less productive, less engaged and less proactive. Profit margins shrink. Strong, organized practices that deliver clear, well defined expectations, with standardized processes, clear expectations, and clear communication lines are the antidotes to confusion—and the keys to radical improvements in profitability.

There’s a realm of management science research that demonstrates the essential role that systems for setting expectations have in elevating performance,¹ including fascinating research that shows how setting high expectations for teams leads to a dramatic uptick in performance.²

Tracking profit margin and utilization for the first time gave this practice owner the opportunity to set clear expectations, matched with clear and specific targets, for her staff—something she’d never done before.

“I knew everyone was working hard,” she told me at the time. “I didn’t understand that they needed guidance about how to prioritize their time and get the most from their hard work.”

5 WAYS TO IMPROVE PERFORMANCE AND DRIVE PROFIT MARGIN

This practice owner did 5 things to improve performance and drive up her profit margin–and all of them incorporated metrics:

1. She gave her therapists utilization benchmarks, with bonuses attached to exceeding them.
2. She pulled her administrative and clinical teams together to set goals and implement new procedures to reduce cancelations, increase referrals and conversions, and see higher numbers of patients through their full plans of care.
3. She identified areas where staff needed training in order to meet their targets and provided it. That included training for her clinicians on how to bill appropriate units per visits, and training for administrative staff on more effective scheduling and collection procedures, including up-front collections, collecting balances while patients are still in care, and scheduling visits for entire plans of care at the beginning of treatment.
4. With a financial dashboard in place, she monitored expenses closely. She got rid of unnecessary expenses, including unused memberships and outdated software, and trimmed expenses by 3%—enough to have a real impact on her bottom-line profits.
5. She started having weekly staff meetings to discuss the previous week’s metrics.

Her utilization shot up from a sluggish 71% to a healthy 89% within 120 days.

One year later, as a result of improving utilization, monitoring expenses and improving billing, collection, and scheduling practices, her practice had increased its revenues from $600,000 to $750,000. Her profit margin had increased to over 20%—almost double what it had been before applying the five strategies. (A bonus she hadn’t anticipated? Staff turnover dropped significantly the following year.) And she couldn’t have made intelligent decisions without clear metrics.

Now it’s your turn. Incorporate one, two, or all five tips to improve your productivity and financial performance. 

References:

¹Savchuk K. How Much Does Management Matter to Productivity? Stanford Business Press. https://www.gsb.stanford.edu/insights/how-much-does-management-matter-productivity. Published September 9, 2019.

²Livingston JS. Pygmalion in Management. Harvard Business Review. https://hbr.org/2003/01/pygmalion-in-management. Published January 2003.

Jamey Schrier, PT, is an author, former practice owner and founder of Practice Freedom U. PFU solely focuses on helping practice owners work less, earn more, and reignite their passion for patient care. Jamey is on a mission to help ambitious practice owners achieve their dreams of what is commonly called Practice Freedom.