Practice executives discuss the value of benchmarking

How does your practice measure progress? Simply comparing numbers from year to year is one way, but that may not tell you the whole story. Benchmarking is another way to measure practice performance. Participating in a benchmarking survey, such as that conducted by the American Association of Orthopaedic Executives (AAOE), can show how well your practice’s numbers compare to similar practices in your region.

Recently, several AAOE members discussed the value of benchmarking and the ways they use the data in the AAOE benchmarking survey. Moderating the discussion was Chad Sackman, RN, MBA, senior vice president of operations for Signature Medical Group, a 135-physician multispecialty group in Missouri. Joining him were the following individuals:

• David Batulis, MHA, consultant with the New Hampshire Center for Nonprofits, Concord, N.H.
• Jerry Forrester, MBA, president and CEO of the 17-physician Steindler Orthopedic Clinic, Iowa City, Iowa
• Jessie Goodman, practice manager for the 2-physician Nevada Orthopedics, Reno, Nev.
• Ron Chorzewski, executive director of Agility Orthopedics, Stoneham, Mass.
• Ronald D. Whiting, CPA, CFO of Fredericksburg Orthopaedic Associates, PC, Fredericksburg, Va.

Mr. Sackman: Benchmarking data can help us learn more about our practices, make adjustments, and strive to stay competitive. The 2014 AAOE survey included much more data than previous surveys and more than double the total number of represented orthopaedic physicians than in 2013. How important is sample size to you and your practice for a benchmarking survey?

Ms. Goodman: It’s pretty important for us. Obviously, more information and more participants leads to better results.

Mr. Forrester: A large sample size is critical for the data to be statistically valid—and for our surgeons to take the information as credible.

Mr. Batulis: The AAOE survey enables practices to benchmark against several peer groups: practice size, geography, size of metropolitan population, practice type. A large survey means that your peer has enough data points to make some meaningful comparisons. The larger the survey participation, the more valid the “best practice” (based on practice size or geography).

Mr. Sackman: What about the ability to narrow down or customize the results? At Signature Medical Group, we like the ability to narrow down the data based on practice size. Because we’re such a large practice, it’s hard to compare to a smaller practice.

Ms. Goodman: Likewise, if your practice has only one or two surgeons, information from large practices will not give you what you need; it’s on a much different scale.

Mr. Whiting: The survey does band by size of firm and geographic area. There probably could be more granularity in the geographic area. My area involves both North Carolina and Washington, D.C., and there’s a big difference. But the granularity in practice size and metropolitan area is pretty good.

Mr. Sackman: Geographic breakdowns are important. Midwest costs are different than New York costs.

The AAOE Benchmarking Committee created some interactive tools to allow practices to better use and benchmark current data, such as work resource value units (RVUs) or full-time equivalent (FTE) per 1,000 encounters comparisons. Do you use these tools or your own internal tools?

Mr. Forrester: I use several internal tools to look at revenue per RVU, surgery to new patient ratios, the expense per RVU per provider. I focus a lot of attention on RVU categories.

Mr. Chorzewski: Those statistics were really helpful this year because we were trying to compare our practice to another practice in terms of a potential merger. They not only enabled us to compare the two practices as A to B, but also to look at A to B to the national average for practices of that size or practices in the region.

Ms. Goodman: During our monthly business meetings, we discuss and compare our data to the information that we’ve received from the AAOE benchmarking survey. It gives us an idea of where we’re at and how we’re doing as a small practice.

Mr. Batulis: In previous years, the Benchmarking Committee created a comprehensive framework for revenue and productivity analyses. There’s room for adding patient accessibility metrics and throughput metrics. The financial drivers are growing more complex. What will it look like to add quality service, asset efficiency, and total revenue of care metrics?

Mr. Sackman: Do you use this survey to justify overhead costs or explain expenses?

Mr. Forrester: Absolutely. Anyone who works with doctors, especially surgeons, knows how they react when it comes to the bottom line. The first thing they think about is cutting expenses—which often means cutting employees. But if you have actual data that indicate there’s nothing wrong with this particular area or department—expenses may not even be the problem—then they’ll listen. From an overhead standpoint, data are crucial.

Mr. Batulis: Each group will find its own way; there is so much variation in how we define terms. I believe the focus should be on correctly categorizing variable costs and fixed costs. They’re both called “overhead,” but in the new race for value and with rising deductibles, we need to think about how these costs balance with the kind of service and experience patients will pay for.

Mr. Chorzewski: I recommend caution with regard to expenses. I know that I’m not always sure I’m answering the question correctly or entering all the factors that are expected. So I’m a little skeptical of the expense reporting. I think the new tool describes exactly what is expected to be included in the expense numbers.

Mr. Sackman: Surveys may classify clinical and nonclinical expenses differently. Do you use any other specific measures on a consistent basis—things like operating expenses, FTEs, payer mix?

Ms. Goodman: We use a lot of midlevel providers and in the past, it’s been very hard to get good reporting on how these providers are used in a practice and the overhead for them. This year’s report was better in showing overhead, salaries, and other factors.

Mr. Chorzewski: I think the accounts receivable reports are particularly helpful in setting benchmarks to reference with my physicians and compare our own performance. I also think some of the physical therapy data, like net collections per volume statistics, were helpful.

Mr. Forrester: A lot of attention has focused on physical therapy, especially under the physician ownership model. The more data we can get on that particular line of ancillaries, the better. This survey drills data levels down to per provider or per doctor, which can help any size practice. For example, in implementing electronic medical records (EMRs), the big boast was that it would cut staffing. We found that we did need fewer clerical staff, we needed more clinical staff. That data helped in making big decisions.

Mr. Whiting: The breakdown by FTEs is really valuable information. I do cost per FTE per RVU, which is also helpful.

Mr. Sackman: How do you think all the changes in health care will affect benchmarking surveys?

Mr. Forrester: I think benchmarks will be even more important. For example, on meaningful use, surveys that show what measures an orthopaedic practice can achieve in the simplest way possible will be extremely useful.

Mr. Batulis: Other industries and other sectors of health care use bond rating agencies, analysts, trade standards, and public markets to define criteria for benchmarking creditworthiness, customer service, and profitability. To set the standard for knowledge and insight in orthopaedics, we need to expand participation, better customize peer groups, build simple, relevant tools, and publish standards of excellence.

Mr. Whiting: I think the survey needs to be expanded on ancillary services because they are as much a part of an orthopaedic surgeon’s income as professional fees.

Mr. Sackman: If a group hasn’t participated in the AAOE survey, why should they?

Mr. Chorzewski: It’s an invaluable tool for a practice to use, and the more people who participate, the more meaningful the data are.

Mr. Forrester: When a practice participates, it gets information on its performance compared to other practices of a like specialty. Comparing to peers is the main reason to participate to me. But you have to have the data in front of you when you start completing the survey. A lot of that has to do with having your chart of accounts set up correctly. I think smaller groups would benefit from instructions on how and why to set up a chart of accounts.

Mr. Whiting: I like that the AAOE survey is all orthopaedic. Physicians will often discuss another practice’s overhead, and I can use the survey data to show our peer group and how we rank. The biggest hurdle is the time to complete the survey. It’s a lot of work to get it right. I keep my templates so I know where to find the information that I need.

Ms. Goodman: When I was a new practice administrator, the AAOE contacts and benchmarking gave me ideas and a baseline. It’s a great tool for people who are new to the orthopaedic world or management. It tells where your practice sits compared to your peers across the states. The first time I did this, it took me a couple days to find the information. For a first time person, having the time and matching the data up can be hard.

Mr. Forrester: A definitions page would be helpful. What’s the definition of a unit? What’s the definition of a procedure? What’s the definition of a visit? Knowing that would generate better data.

About the AAOE and Benchmarking
The American Association of Orthopaedic Executives (AAOE, formerly “BONES”) is dedicated to providing education and resources to orthopaedic practice executives and their staff members. Its 1,200-plus members represent practices with more than 8,000 physicians and 66,000 employees in all 50 states.

The annual Benchmarking Survey is an important service provided by the AAOE to its members. The information contained in this report represents complete, accurate, and up-to-date compensation and financial data on orthopaedic practices. The 2014 survey was sent to approximately 1,100 AAOE members; participants were asked to report data as of December 31, 2013. A total of 210 surveys were included in the final data set.

Data are aggregated in the following groupings so practices can compare their own data to those of similar operations: All Participants; By Practice Type (Hospital or Private Practice); By Geographic Region; By Population Size of the Region Served; By Group Size.

Benchmarking statistics should be regarded as “guidelines” rather than “absolute standards.” Orthopaedic practices will differ, depending upon their location, size, and other factors. Thus, deviations between a practice’s figures and the benchmarking numbers are not necessarily good or bad, simply indications that additional scrutiny may be warranted.