Key Metrics in a Healthcare Business Cameron Cox, III, MHA, FACMPE CEO, MSOC Health

First Discussion More data than you can shake a stick at Overwhelming where to start…sometimes delays our start Be consistent when you do start

My Soap Box Moment….. …..about what and why we should measure differently

Let’s start with in the box thinking Source: Dilbert Classics by Scott Adams

The Usual Ones

What we all expect Net Collections – Lots of trickery Gross Collections – Most important to understand Days in AR – many different formulas Accounts Receivables (AR Aging)

Performance

More of what we expect No Show Rate Denial Rate (Clean Claims) Number of patients per day/month

No Show Rate

Denial Rate (Clean Claims)

Number of patients per day/month

Let’s get down to work

Patient (Customer) Metrics Customer Acquisition Costs Retention Rate Patient (Customer) Lifetime Revenue Patient (Customer) Satisfaction Metrics Patient (Customer) Wait Time 1. Customer Acquisition Cost (CAC) CAC measures -- you guessed it -- the cost of acquiring a new customer. The easiest way to calculate CAC is to pick a specific time period and then divide your cost of marketing and sales by the number of customers you gained. For example, if you spent $1,000 to get 20 customers, your CAC is $50. Clearly, the lower your CAC the better, but how low depends on your business model and your industry. If you're in the prepared meal kits business, your CAC may be over $100 per person. If you're selling iPhone charger cables, it'll probably need to be in the pennies. A rising CAC can be a sign of trouble, but not if you've introduced a new product or service with much higher margins. Like most metrics, CAC can't be evaluated in a vacuum; it should be evaluated in conjunction with a number of other metrics. Such as ... 2. Retention Rate Also known as churn rate, retention rate evaluates the percentage of customers that stay with you and the percentage that leave over a given time period. (That's why it's particularly relevant for subscription business models.) The formula can be a little complicated, but one way is to subtract the number of new customers from your total customers at the end of a given period, then divide that number by the number of customers you started the period with. For example, if you started the month with 10 customers, gained five new ones, and lost two, the calculation is 13 (total customers at the end of the month) minus five (new customers) equals eight, divided by 10 equals .8, or 80 percent. That means your retention rate is 80 percent -- you kept 80 percent of your customers. (Or, if you prefer, you can calculate churn rate in very simple terms: If you have 100 customers at the start of the month and at the end of the month have 97, that means your churn rate is three percent.) The goal is to keep your retention rate as high as possible, or your churn rate as low as possible.  3. Customer Lifetime Revenue (CLR) Also known as Customer Lifetime Value, this metric measures the revenue you receive from repeat customers. While it can be tough to predict CLR in the early stages of a business, once you have a reasonable data set you can start to make certain assumptions. If yours is a subscription- or recurring-revenue model and you keep your average customer for 14 months, then that 14 months' revenue can be considered your CLR. Why do you care? For one thing, knowing your CLR can help you determine how much you can afford in CAC: The greater the lifetime revenue of a customer, the more you can afford to spend to acquire that customer. CLR can also help you evaluate the quality of your customer service; some customers will leave because they don't like your products or services, but many will leave because they feel your customer service is inadequate.

Customer Acquisition Costs What does it cost to actually secure a new patient into the practice?

Retention Rate Retention is essential in any business. Retention helps grow “sales” and creates more people to spread the word about your practice. This rate demonstrates repeat users of the practice. Retention Rate = ((PE-PN)/PS)) X 100 PE = number of patients at the end of a certain time period (1 year, for example) PN = number of new patients acquired during the same time period PS = number of patientss at the start of the time period

Patient (Customer) Lifetime Revenue

Patient (Customer) Wait Time

Inventory Metrics Profit Margin on inventory (aggregate/individual) ROI on products Inventory Turnover

ROI on Products/Service ROI (Return on Investment) measures the gain or loss generated on an investment relative to the amount of money invested. ROI is usually expressed as a percentage and is typically used for financial decisions, to compare a company's profitability or to compare the efficiency of different investments with a product line or service line. Multiply this by 100 and explain as percent

Inventory Turnover Why? Inventory turnover shows how many times a company has sold and replaced inventory during a given period This helps businesses make better decisions on pricing, servicing, marketing, and purchasing new inventory A low turnover implies weak sales and possibly excess inventory, while a high ratio implies either strong sales or insufficient inventory An alternative method includes using the cost of goods sold (COGS) instead of sales. Analysts divide COGS by average inventory instead of sales for greater accuracy in the inventory turnover calculation because sales include a markup over cost. Dividing sales by average inventory inflates inventory turnover. In both situations, average inventory is used to help remove seasonality effects.

Brass Tacks Revenue – Does it match your forecast/budget? Gross Profit Margin – Measures a company’s efficiency of operations EBITDA – Profit is good, but the real test is EBITDA. This reveals the true operational profits without the effects of non-cash accounting entries.

RVU, RVU, RVU, RVU!!!

Relative Value Units Implemented in 1992 by CMS Sets the reimbursement rate for each CPT code Each CPT code has three RVU parts Physician effort/intensity RVU Practice Expense RVU Malpractice Expense RVU

RVU Teaser The only true common denominator that physician practices have. Baselining expenses per RVU and revenue per RVU can be invaluable Just ask Medical Economics  “Knowing the costs and revenues associated with specific procedures and payers can yield an additional benefit, Cohen notes. In most cases, costs and revenues tend to increase relative to each other. But occasionally a practice may encounter certain procedures where, for whatever reason, the cost-to-revenue ratio is much higher than in others. Source: https://www.medicaleconomics.com/health-law-policy/rvus-valuable-tool-aiding-practice-management/page/0/2”

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Thank You Thank You MSOC Health Cameron Cox, III (919) 960-0336 Cameron.Cox@msochealth.com 200 Timber Hill Place Suite 221 Chapel Hill, NC 27514 www.msochealth.com