Published 4/1/2012
William R. Pupkis, CMPE

Using Benchmarking for Decision Making

The right numbers can make most decisions easier

In today’s uncertain business climate, managing a medical practice involves much more than simply caring for patients. Although that will always be important, to be successful orthopaedic surgeons and their practice managers must also make informed business decisions. That requires a method to gauge pertinent statistics: benchmarking.

Rising costs, reduced reimbursements, and increased competition push orthopaedic practice managers to improve performance criteria that contribute to profitability. Such factors may include productivity, capacity, staffing, accounts receivable, and collections. As an alternative to educated guesses about how well a practice is doing in each of these areas, benchmarking makes this analysis much easier.

Internal measures
A practice can begin to measure its performance by looking internally, using its own numbers: this month’s figures to last month’s figures, this year’s results to last year’s results. By seeing what has changed, a practice can focus on those areas with the potential to reap the most value first.

A good example is overtime costs within the human resources budget. Although overtime is sometimes needed, it can also be a major driver in labor costs for practices if left unmanaged. Scheduling issues often are the main reason given for the need for overtime. If that is the case in your practice, using shared personnel to relieve the overtime of full-time equivalents (FTEs) might help.

If overtime has become the norm, consideration should be given to hiring additional staff. Rather than pushing labor costs up, the addition of one more employee can reduce variable expenses such as overtime and enable physicians to see more patients. Additionally, the time-and-a-half payments for overtime can help offset the regular salary of a new employee.

Outside comparisons
The next step is to look outside the practice, at practices of similar size and/or from the same region. The American Association of Orthopaedic Executives (AAOE) provides comparative measures based on the results of its annual survey. These results enable orthopaedic practices to benchmark operational and financial statistics to other practices across the country.

Among the statistics that can be useful are the following:

  • productivity numbers
  • staffing by FTE physicians
  • expenses in relation to FTE physicians
  • expenses as a percentage of receipts

A practice that finds its cost-to-volume ratio is appreciably different from the national average should look more deeply into its operations.

Effective benchmarking
Effective benchmarking is not just about measuring; it should also involve active goal-setting. To set realistic goals, however, a practice must evaluate how efficient it is currently, how much improvement over time has occurred based on past data, and how far the practice still has to go to match its competitors.

Medical practices have no shortage of data to analyze, and benchmarking provides structure to the analysis. It is the foundation on which a practice can build internal research and help to outline future controls. Benchmarking enables practices to use data in new ways that can help focus time and energy to improve the profitability of the practice. The outcomes should only be limited by the willingness of the practice’s leaders and staff to use the information as feedback in an ongoing improvement process.

Although benchmarking can facilitate accountability, it should not be used to assign blame. Its strength is in finding answers to underperformance. Benchmarks are not absolute. Instead, they can help identify both problems and solutions.

Each orthopaedic practice has its own culture, which includes geography, service mix, patient demographics, and the physicians’ style. These factors may require a practice to modify industry or national benchmarks. However, differences should not be used to rationalize variances from benchmarks inappropriately.

Given the complexity and interdependence of key indicators, it is unlikely that one benchmark source will measure everything. It is more likely that multiple benchmark sources will be required to reflect the interwoven practice processes. Positive variances enable the practice to celebrate successes. Negative variances help the practice focus on performance improvement.

Benchmarking adds considerable value to practices as they evaluate current performance and work toward major improvement. It creates context, which helps to identify issues, set targets, and take action to improve performance.

Each year, the AAOE surveys members to establish benchmarks that can be used by practices. One of the benefits of AAOS membership is that orthopaedic practices that participate in the AAOE annual survey have free access to the results. The 2012 survey recently concluded, and results will soon be available. Each year, participation in this event increases, generating a broader collection of information that can provide key benchmarking data from across the entire spectrum of orthopaedic practice management.

For more information on the survey and on AAOE membership, visit www.aaoe.net

William R. Pupkis, CMPE, is a practice executive with Capital Region Orthopaedics, in Albany, N.Y., and a member of the AAOE board of directors. This article is adapted with permission from the September 2010 issue of AAOE News.