Healthcare Providers: If You’re Not Benchmarking, You’re Probably Falling Behind.
What is benchmarking? And how can you use this data-driven process to increase profits, improve the patient experience, and give your practice a competitive edge?
There’s no sugar-coating it. In today’s increasingly competitive, technology-driven market, healthcare providers are under enormous pressure from every angle—from patients who demand more streamlined experiences to insurance companies that change the rules in accordance with their financial interests.
The “business side” of healthcare has never been more prevalent, or more challenging. At the same time, the traditional pressures of being a provider are as great as ever. It still comes down to delivering excellent care.
So, as a provider, how do you know if you’re keeping up with the curve? How do you identify areas where your practice is falling behind your peers, and how do you take steps to improve? Where do you even start?
There’s no easy answer. Over the decades, our CPAs have worked with countless providers – from physicians and chiropractors to dentists, eye doctors and others – and we know that no two practices are the same.
However, staying competitive in this market starts with knowing where you stand. If you’re going to improve your operations and financial health, you first need to identify areas where there is the greatest room for improvement.
For that, we recommend the data-driven practice of benchmarking.
What is benchmarking?
Benchmarking is the act of comparing your practice’s data to that of other, similar practices – or to other data sets from within your own practice – in order to gauge your performance in key areas. By comparing your data, you can see where you stand.
As CPAs, we often focus on financial (or revenue) benchmarking, which can reveal the fiscal health of your organization and help us develop strategies for improvement. But you can use the very same process for operational benchmarking, which focuses on Key Performance Indicators (KPIs) like patient retention rates and bottlenecks in office flow.
Whether you’re analyzing operational or financial KPIs, the benchmarking process generally occurs in five stages: Think, Gather, Compare, Diagnose, and Act.
Here’s an example:
Step 1: Think.
Before you start gathering and comparing data, think about some aspect of your practice where there might be room for improvement. In other words, identify a KPI you would like to investigate.
For healthcare providers, some of the most common financial KPIs include:
- Support staff labor costs as a percentage of production
- Cost of medical supplies as a percentage of production
- Net income (either total, or broken down by specific procedures) as a percentage of production
- Occupancy (including rent, utilities, maintenance and other costs) as a percentage of production
Some of the most common operational KPIs include:
- Patient wait times
- Patient retention rates
- Patient satisfaction scores
At this stage, it can be helpful to get other perspectives. Talk to your staff members, your peers, your industry contacts, and your accountant (definitely your accountant). You know your practice better than anyone, but you might be too close to see it objectively, and someone outside the practice might help you identify a weak spot that you wouldn’t have otherwise considered. Often, our weaknesses persist because they hide in our blind spots, so it’s always a good idea to get an opinion from another angle.
For the sake of this post, let’s say you decide to investigate an operational KPI: patient wait times.
Step 2: Gather.
Now that you’ve chosen a KPI to investigate, start looking for relevant data. You’ll need two data sets: principal data (the data that illustrates some aspect of your practice, currently) and comparative data (the data you will use as a yardstick with which to compare your principal data).
In all likelihood, you already have the principal data you need; it could be buried in a desktop folder, or in a financial report. But there are cases where you may have to generate new data. For instance, if you’re benchmarking patient-satisfaction scores, you may need to start surveying your patients, if you aren’t already. (If that’s the case, make sure your surveys are standardized – using the same questions and scoring systems as other surveys – so you can compare them directly to the results of industry peers.)
Good comparative data can be hard to find. If you’re benchmarking against yourself, simply gather data points from your own practice that can be compared to your principal data; for example, you may compare your patient wait times from the same six-month period from previous years to this year. Just keep an eye out for outside events that may cause anomalies in your data, such as COVID-19, which has skewed many data sets from 2020 onward.
If you’re benchmarking against others, head to industry publications, whitepapers and other primary sources to find data you can compare with your principal set. Note: To get good results, you’ll need to find data pulled from practices that are similar to yours, in terms of size, location, services provided, demographics served, etc. No two practices are exactly alike; but, when benchmarking, we want to compare apples to apples.
In this case, your principal data set may be average patient wait times over the last twelve months, broken down month by month. If you want to compare your practice’s current and past performance, you may benchmark your principal data with a set from another 12-month period. If, on the other hand, you want to see how your practice stacks up against your peers’, you may benchmark your principal data with that of similar practices over the same period.
Step 3: Compare.
Now that you have your two data sets, you’re ready to compare. First, make sure all your data is standardized, meaning both sets (principal and comparative) use the same units of measurement and occur over the same period of time—apples to apples. Then, compare the sets and identify where the principal differs from the comparative.
Step 4: Diagnose.
Take a look at the results of your benchmarking. Although the results can tell you a lot – is your practice performing better or worse compared to industry peers, or compared to your own past performance? where is the difference occurring? to what degree? – there is always a story behind the numbers, and the results often bring about more questions than answers.
Let’s say you found that wait times at your practice are higher than those of your industry peers. That’s a problem; it can affect retention rates, revenue, and patient satisfaction. But what the data doesn’t tell you is why this is happening, much less how to improve it.
“Step 4: Diagnose” is not only about seeing your results; it’s really about interpreting them. Don’t take them at face value. Be curious, ask questions, show your data to your staff and peers (and of course your accountant) and get their perspectives. There may be an unexpected explanation for the data; for example, maybe you notice a rise in wait times six months ago, which coincides with the integration of a new office-flow system or the departure of a long-time support staffer.
Start with the most obvious explanations, but don’t be afraid to dig deeper.
Step 5: Act.
Data is only as meaningful as the change it creates. Once you’ve analyzed your benchmarking data and drawn insights from it, the next step is to create a strategy for improving your KPIs based on your conclusions.
Once again, consult your team, your peers and relevant experts to develop your plan. And once you’ve put your plan into action, continue to monitor your KPIs to determine whether your plan is having the intended results. Benchmarking isn’t a linear process with a beginning and an end; it’s an ongoing cycle for building and maintaining an effective practice.
Benchmarking is a valuable practice for any organization in any industry. But as medical providers face an increasingly competitive, fluid and technology-driven environment, benchmarking is essential for maximizing your profits and delivering the best possible patient experience.
It’s by no means a cure-all, but it does show us where we stand and point to the areas where we can improve. Amid all the complexity, benchmarking brings some much-needed clarity.
Interested in using benchmarking to improve your practice? We can help. For nearly 50 years, our CPAs have partnered with healthcare providers across a wide range of industries. From traditional accounting services to business advisory, cash-flow projections and other key services, we leverage our broad capabilities and deep understanding of the healthcare industry to help your practice succeed. Learn more about our services here.