An Analytical Approach to Improving Practice Performance
At a recent seminar, one of the speakers—a Fortune 500 CEO—pointed out that most businesses’ strategic plans fail because the decision-makers neglect to start by asking, “Where are we now?” Although his presentation also included discussion of two other questions—“Where are we going?” and “How are we going to get there?”—the first question is paramount, because without getting specific answers to it, the other two do not matter.
Many dentists experiencing poor financial performance attribute it to external factors, such as the recession, slow recovery, consumer caution, and intensified competition. Certainly, these “game changers” have profoundly altered the business of dentistry. However, blaming the market has led many doctors to adopt one of two ill-advised strategies. The passive strategy involves trimming overhead, putting life plans on hold, and waiting for things to “get back to normal.” A more active, yet no more effective, approach is to implement quick-fix solutions that often do more harm than good.
Fortunately, there is another way to stimulate rapid practice growth: analyzing performance data to identify the problem before creating a solution.
The Value of Practice Analysis
Once a dentist accepts the fact that waiting for things to get better will not work, the need for decisive action becomes obvious. However, knowing what action to take is another matter. Coming up with the best solution requires a quantitative analysis of the current state of the practice—one based not on vague generalizations but on specific numerical values. Used as a starting point for the strategic planning process, this analysis makes it possible to identify, extract, and document these vital practice statistics objectively. As the foundation for the development of the practice’s short- and long-term growth strategies, this analysis is invaluable.
The Metrics Tell the Story
The current performance and status of any dental practice—that is, a determination of where it presently stands—can be expressed in numbers. This involves several steps as follows:
1. Decide Which Numbers to Extract or Track
Having too much data is as big a problem as having too little. Not only does it obscure the real barriers to growth, but it also overtaxes dentists’ time and patience to the point where they may abandon the analytical process altogether.
Every practice is different, and dentists have diverse professional and personal goals, so there is no single set of key numbers to gather. The following questions can help individual dentists decide which metrics matter the most to them:
• How many referrals does the practice receive, and how many of them become new patients?
• How many current patients give at least one referral per year?
• What is the case acceptance rate?
• How many accepted cases involve comprehensive rather than single-tooth treatment?
• How many active patients are currently scheduled?
• How many inactive patients are on the practice’s books?
• What is the practice’s gross revenue?
• What are the practice’s fixed and variable operating expenses?
• How much net income does the practice earn?
• How much earned revenue does the practice not collect?
• How many billable hours do doctor and hygienist log?
• How many no-shows, last-minute cancellations, and late patients have there been?
2. Collect Pertinent Data and Assemble It in a Manageable Format
Once a set of essential statistics has been identified, the doctor and staff—or an expert analyst—gather the data. Some of the data will come from the practice’s profit-and-loss statements and other financial records. Some will be found in other sources, such as management software databases, the schedule, patient records, logs, time sheets, etc. Bear in mind that some data may not be available because it was never captured (a problem that should be corrected immediately so the information will be available for future analyses).
Once the metrics are attained, they should be pulled together in a way that makes them easy to find, review, and evaluate.
3. Compare Actual Practice Statistics with Norms and Suggested Targets
The practice can determine where it stands in broad financial terms by comparing its numbers—revenues, overhead, net profits, etc—against national or, if available, regional norms. For a more granular perspective, practitioners can compare their numbers with various key targets, such as the following:
• Keep 98% of all patients scheduled at all times.
• Collect 99% of all money owed to the practice.
• Increase production by 15% to 18% annually.
• Limit overhead to a maximum of 59% (for GPs).
• Maintain a no-show rate of less than 1%.
• Motivate 40% to 60% of all patients to refer at least one new patient every year.
• Reactivate 85% of all inactive patients.
• Close 90% of all cases presented.
At this point, the practice has gained a clear picture of where it stands financially. Now it needs to determine why it has gotten there.
4. Analyze the Numbers to Identify Root Causes of Growth Problems
The practice leader can now see much more than flat or declining production. The reasons for poor performance become apparent. For example, maybe collections are low, or the practice is not presenting or closing enough comprehensive cases. Perhaps the office has allowed too many patients to become inactive, or patients are not referring enough new patients. There can be many reasons a practice is struggling. By discovering exactly what they are, the dentist can concentrate on specific areas for improvement.
5. Juxtapose Current Performance Numbers with Aspirational Targets
This step is suggested in order to raise the bar for improvements. Suppose that a practice is collecting only 91.3% of its billings—the average for US practices reported in 2013, according to the Levin Group Data Center™. In this case, an improved collections system designed to achieve a target of 99% could increase income significantly. If there is a high percentage of no-shows leaving unproductive gaps in the schedule, the practice knows it needs better scripting for front desk staff in order to hit the < 1% target.
At this stage, the well-informed dentist will know better than to grasp at quick fixes. Effective action steps will be clear. Moreover, the practice will now be operating with a full set of specific targets.
For many practice leaders, the prospect of conducting this analytical process can be daunting. That, along with the need for objectivity, leads many dentists to seek assistance from skilled, dental-knowledgeable business analysts. Whether or not an outside expert is used, dentists can take comfort in knowing that once an initial analysis of this type has been conducted, tracking performance and implementing subsequent analyses will be much simpler.
Most important, the likelihood of developing successful growth strategies will increase dramatically when the planning process begins with the Fortune 500 CEO’s question, “Where are we now?” and a practice analysis is designed to answer that critical question.
ABOUT THE AUTHOR
Roger P. Levin, DDS
Chief Executive Officer, Levin Group, Owings Mills, Maryland
To learn how to run a more profitable practice, visit the Levin Group Resource Center at www.levingroup.com. You can also connect with Levin Group on Facebook and Twitter (@Levin_Group) to learn strategies and share ideas.