The Financial Metrics that Matter Most to Therapy Private Practices

According to Pink Floyd, money is a “gas.” While the surface level interpretation of that lyric may be that money is fun and entertaining, the word “gas” seems deliberate here. After all, money is fuel. We as a society run on it, and yet, so many of us—including rehab therapy professionals—manage it poorly. The trick to better financial management is knowing what to actually manage—or more specifically, what to track, monitor, and act upon. With that in mind, here are the financial metrics that matter most to rehab therapy practices:

Days in A/R

Cash is king, so the sooner you can convert revenue into cash, the better. But, in between funds promised and cash-in-hand lies accounts receivable (A/R)—that awkward middle stage where your business eagerly awaits payment.

Days in A/R is defined as the number of days it takes for your clinic to get paid. Here’s how to calculate this number (according to AAFP):

1. Add all of the charges posted for a given period (e.g., 3, 6, or 12 months).
2. Subtract all credits received from the total number of charges. (That way, you don’t get an overly positive impression of your practice.)
3. Divide the total charges, less credits received, by the total number of days in the selected period (e.g., 30 days, 90 days, 120 days, and so on).
4. Divide the total receivables by the average daily charges.

Everyone wants money in the bank faster, so once you know your average days in A/R, look for ways to shave time. For example:

• Pinpoint those slow-to-pay payers, and address payment come contract time.
• Collect copayment upfront, and scrutinize your invoicing and collections practices.
• Offer early payment discounts.
• Allow for payment plans. But, as AAFP advises, “Payment plans that extend the time patients have to pay accounts can result in an increase in days in A/R. Consider creating a separate account that includes all patients on payment plans and determine whether your practice should or should not include this ‘payer’ in the calculation of days in A/R.”
• Account for 90-day and 120-day buckets. “Good overall days in A/R can also mask elevated amounts in older receivables, and therefore it is important to use the ‘A/R greater than 120 days’ benchmark,” explains AAFP.

Collections

Expected vs. Actual

Most clinics track net revenue per month and per visit, but you can take this a step further by narrowing your focus to reimbursements specifically and comparing expectation to reality. According to this article, expected collection “is the payment amount the...practice expects to receive for a given service based on the contract between the practice and the insurance payer.” Chances are pretty high that the actual reimbursement amount will differ from the expected amount, but tracking this disparity 1.) enables you to track cash flow, and 2.) alerts you to potential collection issues. Often, the discrepancy will be the result of reduced or denied payments. And there are fixes for those. But, you can’t fix what you don’t know is broken, so regularly compare expected vs. actual reimbursement per visit and segment by therapists and payers.

Copay Collection Percentage

Not to sound like a broken record, but it’s imperative that you collect copays upfront whenever possible. We’ve all seen the stats: chances of collection decrease by 20% after the patient leaves the office. So, institute a check-in process that includes copay collection and then hold your front office staff accountable by monitoring your copayment collection rate.

First-Pass Acceptance Rate

Want to know how accurate or clean your claims are? Want to know if your payer processes are in good shape? Then measure how many of your billed services were paid on the first attempt. Low first-pass acceptance rates are indicative of a much larger problem, and to paraphrase denial management expert—and special guest on our Down with Denials webinar—Diane McCutcheon, you've got to identify the problem in order to stop the bleeding.

Productivity

Revenue per Therapist

To truly measure your providers’ productivity, go beyond the basic metric of number of patients per therapist per day. As this article points out, “For a true measure of productivity, you must consider the average amount of revenue each therapist is generating—per month, per day, or even per visit.” This enables you to monitor time management and accurate billing.

Units per Hour per Therapist

Time is money, so it’s important to examine the number of units your providers are billing per hour. In addition to uncovering instances of over- or under-billing, you can also determine if your front office is underbooking.

Gross Margin

“Gross margin tells you how much is left after paying for the people and things that generate that revenue (i.e., the ‘cost of revenue’),” Jacob Findlay, Fullbay founder and CEO (and former WebPT director of finance), explains in this post. To calculate this number, subtract the cost of your therapists, assistants, therapy supplies, and anything else directly tied to actually providing therapy treatment from your total monthly revenue.

Operating Expense

Operating expense is the cost of overhead. You can determine this by adding together the costs of rent, advertising, office staff, non-therapy supplies, and anything else that’s not directly related to therapy services. “You can choose to allocate a percentage of rent to gross margin or simply count it all as overhead,” explains Findlay.

Net Income

To quote Pink Floyd again, “Grab that cash with both hands and make a stash.” Your stash is your net income, or “what you have left after paying for the cost of revenue and overhead,” says Findlay. Essentially, this is what goes into the practice owner’s pocket—or more accurately, bank account—when all's said and done. And you absolutely want money in the bank if you want to not only stay open, but succeed. As Findlay explains, “no matter how dedicated you are to making a difference, that passion alone won’t keep your doors open. Don’t forget the famous adage: no margin, no mission.”

Pink Floyd also equates money to a “hit”—and that could mean a hit in the sense of either a drug fix or a crowd-pleaser. That observation—while poetic—isn’t unique to classic rock-and-rollers. We all know the power, influence, and necessity of money. All too often, though, we shy away from it, allowing problems to fester and detrimentally impact our practices. Don’t turn such a blind eye that you end up having to shut your doors. Instead, follow the money. Monitor the above financial metrics to ensure the viability and profitability of your business.