Picture living in a financial bubble, effortlessly sharing your resources wherever you please. Sounds like a dream, right? But the reality is, to enjoy that freedom, you need to manage your finances with the same care and precision you give to your patients.

The best way to maintain financial health is to set metrics that provide insight into financial performance.

Why Financial Metrics Matter for Patient Care Practices 

Financial metrics don’t just measure your practice’s performance. They also pinpoint areas for improvement so you can operate more efficiently and effectively and enhance patient care. 

The thing is, the pool of metrics is huge! Your choice depends on factors that vary within your practice. For example, cost per patient may include individual services with different costing, like EEGs and ultrasounds. Then there are indirect and regulatory costs to consider.

KPIs are also essential for operational efficiency because success (and failure) provides data that can improve your practice’s operations and – uber important – enhance patients’ experience.

There are overhead ratios, which also affect revenue. OHs look at how well practices manage expenses and use resources.  High ratios: bad. Low ratios: good.

Essentially, financial metrics are necessary because they factor into the overall financial analysis of your practice. Financial analysis is necessary because it underlies all financial decisions, which are necessary to keep your doors open.

Revenue Metrics to Track

You probably want to know how much profit you make in a month, especially if you want to buy your midlife crisis cabriolet. Tracking revenue metrics gives you that information.

  • Net revenue per patient visit: Knowing what each patient costs vs their revenue shows you where you can optimize operations, for example, delegate wellness exams to interns or nursing staff, leaving you to focus on complex (high revenue) cases.
  • Revenue per payer type: There are three types – insurance, private, government. You want to know their payment rates so you can adjust pricing or set limits, like only working with insurance companies that have good reimbursement rates.
  • Patient volume trends: This includes new and existing patients, in and outpatients, and emergencies. It helps manage resources according to volume (or demand). Predictive analytics can even identify future trends in volume so you can start planning.
  • Accounts receivable aging: The time it takes to collect payments.The shorter the better. You can accelerate the process by using billing software or outsourcing bookkeeping services to experts in accounts receivable.

It’s also important to analyze gaps in billing and collections. This identifies shortcomings in your revenue cycle that result in lost revenue, increased payment collection times, and poor communication with patients regarding payment collection.  

You must close the gaps ASAP or you can kiss your cabriolet goodbye.

Expense Management and Overhead Costs

Commercial enterprises have two primary goals: Increase revenue and reduce expenses. But it’s tricky when reality slaps you with ongoing financial demands. You can control expenses and identify opportunities for greater efficiency by tracking the following metrics:

  • Overhead expenses as a percentage of revenue: This includes salaries, wages, insurance, rent, and other facility costs. You can’t skimp on these – unless you’re a shmo and cut salaries or a twit and reduce insurance. You can reduce expenses by using low-energy office appliances, upping your waste management game, and going digital to save paper. 
  • Payroll and staff-related costs: Unfortunately, being a shmo can be unavoidable. You can’t afford to keep superfluous staff on your payroll. You could outsource your financial management requirements and allocate staff more effectively to keep your team intact.  
  • Supply chain inefficiencies: This is a relatively easy way to cut costs (not staff). Consider your supply chain. Can you consolidate goods or services by reducing your suppliers? Can you negotiate more favorable prices or outsource services? Can you automate processes and manage them yourself?
  • Compare expense benchmarks to industry standards: It’s good to know where you stand in comparison to industry standards. It gives you an idea of where you are cost-wise compared to your competitors. You could have inflated expenses that you need to control immediately.

Profitability Metrics

The biggie. No one’s ambivalent about their profit margin. You need profits to reach personal and professional goals and this means tracking these metrics:

  • Operating profit margins: This is the amount left over after all direct and indirect costs have been deducted, including patient-related and operating costs. 
  • Break-even analysis for patient care: This tells you how much revenue you need to cover your expenses. It’s when costs = revenue, so there’s no profit but there’s also no loss. Knowing this point enables you to implement strategies to increase profits. 
  • EBITDA as a key performance indicator: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures overall financial performance, but there’s a twist: interest, taxes, depreciation, and amortization are included in net income. 

In healthcare, EBITDA includes: 

  • The number of practitioners per practice or organization
  • Assessed growth potential
  • The location – rural, suburban, or urban
  • Reputation and patient goodwill
  • Overall quality – facility and equipment
  • Unique value-added services/treatments
  • Short- and long-term risks

Finally, there’s the matter of costs per service or treatment—a tricky but crucial calculation. It starts with figuring out the true cost of every step, from measuring blood pressure to a specialist consultation. It can get overwhelming quickly, so instead of letting it drive you to the brink, you can always consider outsourcing your financial management to experts who won’t crack under pressure—even if Slim Whitman’s yodeling were to make a surprise comeback!

Alternatively, invest in advanced healthcare-specific accounting software with automated billing functionality. You’ll enjoy more free time, enhanced accuracy, and remove one source of stress from your shoulders.  

Cash Flow and Liquidity Indicators

You’re doing well when your accountant is chuffed with your cash flow. You must know what you’re doing to bring such joy into their lives and keep doing it. Here’s how you keep the smiles coming.

  • Monitor cash flow cycles: Not to flog a dead horse, but by now you should know that technology plays a big role in your practice’s financial health. The right software provides insight into your cash flow, so you can optimize operational management. 
  • Days in accounts receivable (AR): Days in AR is the average time it takes for accounts to be settled. The longer it takes, the less ready money is available to run your practice. Guess what? Software can streamline your billing processes to reduce the days accounts languish in bookkeeping purgatory.
  • Identifying cash flow gaps: It’s distressing when your expenses exceed your income. It’s frustrating when you manage to close the gap, but it springs open again. For instance, you pay suppliers on the 15th of every month, but insurers pay you on the 25th. Those 10 days can be interesting if no other revenue is forthcoming. 
  • Maintaining adequate reserves: You can avoid cash flow gaps by maintaining a decent cash cushion. We know it seems impossible to build a cushion when you’re always trying to fill a gap, but it’s important to put some pennies aside just in case. 
  • Tools to forecast and manage cash flow: You can take control of your cash flow with forecasting tools. There are old-fashioned spreadsheets, if you’re a sucker for punishment. However, there are far more advanced tools available. You’ll never see this coming … 

Accounting software, like Sage Intacct ERP, uses automation and AI functionality to reduce human error and deliver forecasts that are based on real-time data for superpowered accuracy.

Own Your Financial Metrics

Now you know that financial metrics are important to your practice’s ongoing financial health. You know which metrics are particularly important. You know which ones are complicated pains in the nether regions. And – most importantly – you know how to whip your metrics into shape. Here we go, accounting software with a sprig of outsourcing thrown in.