Leveraging Data to Rebuild Your Practice
By Mike Osler, PT, DPT
COVID-19 has left most business owners with the daunting task of not only rebuilding practices but also doing it in a way that will put the company in a stronger financial position once the recovery is complete.
Using data to prioritize opportunities and strategic initiatives is even more critical today than before the crisis. Clinics that ran on thin profit margins will need to rethink the viability of past business practices. To be blunt, thin profit margins equate to losses during a downturn and now is the time to engage staff in realizing the changes that are essential for not only surviving, but thriving in the years to come.
The right level of data will enable you to assess key aspects of the business without getting bogged down in analysis paralysis. Proper data will also assist with forecasting financial performance so that you are able to project financial performance in real time without waiting for financial reports to roll out two to three weeks after month’s end. This article is intended to help owners leverage data and key performance indicators to clarify priorities and create a sense of urgency in creating a 90- to 180-day recovery plan.
LEVERAGING NEW PATIENTS NUMBERS TO FORECAST REVENUE AND STAFFING NEEDS
New patients are one of the best leading indicators within our industry. By multiplying weekly new patient volumes by average visits per new patient and average revenue per visit, an owner can project revenue weeks before it hits the bank account. While most owners are used to using a cash accounting system, this method of looking at projected revenue is incredibly helpful and simple.
As an example, a clinic that generates 20 new patients this week can project that at 12 visits per new patient, they will see roughly 240 patient visits per week in the upcoming weeks. At $85 per visit, this will generate roughly $20,000 in weekly revenue, or $84,000 per month (assuming 21 workdays).
Using visit and revenue projections can also assist in making decisions on staffing. A clinic that is projecting 240 visits per week will need six clinical full-time-equivalent staff members (FTEs) if the goal is to operate at one visit per clinical hour. The same clinic will only need five clinical FTEs if the goal is to operate at 1.2 visits per clinical hour. Comparing weekly new patient volume and projected visits with current staffing capacity will allow for adjustments in staffing to keep pace with demand. It is also vital to assess weekly increases in new patient volumes. If the weekly new patient volume is increasing at a steady rate of 5% each week, this will give you additional information to ramp up staffing accordingly.
FORECASTING KEY FINANCIAL INDICATORS
Labor as a percentage of revenue is one of the best indicators of profitability, and now is a good time to look at both historic performance and projections for this key metric. Once you know the projected revenue from your weekly or monthly visits, you can compare that to your projected labor expense for the same time frame. Estimate benefit costs and create an Excel spreadsheet to calculate accrued labor expenses. Then assess total labor as a percentage of revenue to see how your projections align with historical targets.
Adjusting labor costs to a more acceptable labor as a percentage of revenue will allow you to replenish cash reserves and better prepare for any future needs. This may be a great time to consider leveraging incentive pay to shift more of your labor cost to functioning as a direct variable expense. While incentive pay is a complex topic and may not fit the historical culture of your organization, one of the benefits is alignment between patient volume and labor costs.
MAKING MARKETING DECISIONS
Marketing decisions are critical during any rebuilding process and even more so right now. Comparing referral patterns from before, during, and after the crisis will help you select the right strategies for recovery and prepare for any future pandemic needs. Assess trends related to new patient volumes by referral sources such as physicians, past patients, and digital marketing. Track these segments closely to see if one is recovering faster than the others. It is also helpful to assess which referral segments were least impacted by the crisis and which may be the most viable in the future. Consider assessing a sample of 20% to 30% of patients if you do not currently track this information. While all practices will look to minimize controllable expenses, effective marketing strategies warrant continued funding.
FUTURE CRISIS PLANNING
While most clinics have completed a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis at some point during the strategic planning process, most likely none identified a “national pandemic” as a legitimate potential threat. Assessing outside threats is a worthwhile exercise for determining the impact of each so that the ROI on potential solutions can be discussed. Since the chances of a return of COVID-19 in 2021 is not known, it is worth assessing.
If the potential financial cost of a COVID-19 repeat for a clinic is $200,000, the next question becomes can the loss be mitigated and at what expense? Could a faster and better telehealth response mitigate a portion of the loss and at what cost? Could a faster in-home visit solution be a worthwhile investment? Does an investment in leadership training have a positive ROI in addressing the threat? Finally, how do these rank in comparison to the ROI on other strategic initiatives that you are considering for the remainder of 2020?
PUTTING PRIORITIES INTO ACTION
Crisis planning requires a different leadership style that is efficient, decisive, and decentralized. The last factor can be quite scary during a crisis. While your instinct might be to resume management for all aspects of your business, this is neither helpful nor practical. Rolling out a systematic planning process with your team will help in many ways. With key performance indicator data in hand, you can identify your greatest opportunities and clarify where time and energy need to be placed. Objective calculations allow your team to share in the sense of urgency and assist in creating accountability with short-term goals. Objective data also illuminates the ROI for each initiative, allowing you to set appropriate budgets for each. With clarity on priorities and data, you can then delegate initiatives to your team and check progress on a regular basis.
Mike Osler, PT, DPT, is the VP of Growth and Development for Rock Valley Physical Therapy. He may be reached at Mike.email@example.com.