I recently attended a seminar on the use of overhead rates as a financial indicator of practice performance. Numbers are important in managing a business. But never confuse fixating on numbers as managing the business.
Numbers are data. What a manager needs is information. In many clinical situations, the numbers are information. In business situations, most numbers are data – the value a manager brings to the business is applying knowledge, experience and judgment to turn data into information, information that is the basis for decision making.
For the smaller of small businesses, which would encompass most physician practices, cash is king. On a weekly basis, know what your cash position is – the cash available for use by the practice. You should be budgeting cash each week for payables and payroll. Payroll is pretty fixed, so you have to pay the bills that are starting to get closer to the due date. While you don’t have to pay bills the moment they come in, you do need to be setting aside cash and paying every one to two weeks to stay current.
On a regular basis – usually monthly, but for solo practices on a quarterly basis – look at actual revenue and expenses compared to your budget. Items that are over budget are not a cue to be upset, stop spending or cut other budget items. You have to ask questions – why is an item over budget? Many times, there are seasonal variations (such as utilities), sometimes you order a quantity of supplies in order to gain discounts.
In addition to financial performance, you also want to look at productivity, such as: how many patient visits (office versus hospital), how many diagnostic tests or other in-house services provided, and the percentage of available time is booked for patient services.
All of these numbers are most useful when put in a context. My first approach is always to look at variations over time. I want to see two years worth of monthly data before I am comfortable making a lot of significant decisions or changes. Usually, the practice hasn’t been capturing data, so we have to start recording data on a monthly basis and build from there. Once we have the basic building block of monthly data, I can look at changes on a quarterly basis. Looking at a data on a quarterly basis smoothes out the month to month variations that occur because of number of days worked (20, 21 or 22), weather, vacations and other factors that impact the workload. Pretty soon, we can see patterns emerge and compare one year to the one past, and then two years and so on.
Data. Information. One leads to the next, but they are not the same thing, as the example below clearly indicates.
Physicians
(A) Approximate number of physicians in the U.S. is 700,000.
(B) Approximate number of accidental deaths caused by physicians per year are 120,000.
(C) Approximate number of accidental deaths per physician is 0.171.
(Statistics courtesy of U.S. Dept. of Health Human Services)
Guns
(A) Approximate number of gun owners in the U.S. is 80,000,000. Yes, that is 80 million.
(B) Approximate number of accidental gun deaths per year, all age groups, is 1,500.
(C) Approximate number of accidental deaths per gun owner is 0.000188.
Statistically, doctors are approximately 9,000 times more dangerous than gun owners.
Remember, "Guns don't kill people, doctors do."
FACT: NOT EVERYONE HAS A GUN, BUT ALMOST EVERYONE HAS AT LEAST ONE DOCTOR.
Please alert your friends to this alarming threat. We must ban doctors before this gets completely out of hand!
Out of concern for the public at large, I have withheld the statistics on lawyers for fear the shock would cause people to panic and seek medical attention.
Numbers are data. What a manager needs is information. In many clinical situations, the numbers are information. In business situations, most numbers are data – the value a manager brings to the business is applying knowledge, experience and judgment to turn data into information, information that is the basis for decision making.
For the smaller of small businesses, which would encompass most physician practices, cash is king. On a weekly basis, know what your cash position is – the cash available for use by the practice. You should be budgeting cash each week for payables and payroll. Payroll is pretty fixed, so you have to pay the bills that are starting to get closer to the due date. While you don’t have to pay bills the moment they come in, you do need to be setting aside cash and paying every one to two weeks to stay current.
On a regular basis – usually monthly, but for solo practices on a quarterly basis – look at actual revenue and expenses compared to your budget. Items that are over budget are not a cue to be upset, stop spending or cut other budget items. You have to ask questions – why is an item over budget? Many times, there are seasonal variations (such as utilities), sometimes you order a quantity of supplies in order to gain discounts.
In addition to financial performance, you also want to look at productivity, such as: how many patient visits (office versus hospital), how many diagnostic tests or other in-house services provided, and the percentage of available time is booked for patient services.
All of these numbers are most useful when put in a context. My first approach is always to look at variations over time. I want to see two years worth of monthly data before I am comfortable making a lot of significant decisions or changes. Usually, the practice hasn’t been capturing data, so we have to start recording data on a monthly basis and build from there. Once we have the basic building block of monthly data, I can look at changes on a quarterly basis. Looking at a data on a quarterly basis smoothes out the month to month variations that occur because of number of days worked (20, 21 or 22), weather, vacations and other factors that impact the workload. Pretty soon, we can see patterns emerge and compare one year to the one past, and then two years and so on.
Data. Information. One leads to the next, but they are not the same thing, as the example below clearly indicates.
Physicians
(A) Approximate number of physicians in the U.S. is 700,000.
(B) Approximate number of accidental deaths caused by physicians per year are 120,000.
(C) Approximate number of accidental deaths per physician is 0.171.
(Statistics courtesy of U.S. Dept. of Health Human Services)
Guns
(A) Approximate number of gun owners in the U.S. is 80,000,000. Yes, that is 80 million.
(B) Approximate number of accidental gun deaths per year, all age groups, is 1,500.
(C) Approximate number of accidental deaths per gun owner is 0.000188.
Statistically, doctors are approximately 9,000 times more dangerous than gun owners.
Remember, "Guns don't kill people, doctors do."
FACT: NOT EVERYONE HAS A GUN, BUT ALMOST EVERYONE HAS AT LEAST ONE DOCTOR.
Please alert your friends to this alarming threat. We must ban doctors before this gets completely out of hand!
Out of concern for the public at large, I have withheld the statistics on lawyers for fear the shock would cause people to panic and seek medical attention.
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