Here’s an exclusive peek at the profit and loss statement from an actual chiropractor’s practice… we can’t tell you who it is, but we can show you what this doctor did right, and where this practice can be improved.
Here’s how to grade the ability of our anonymous chiropractor, Dr. Calvin Chiro, to supervise the day-to-day operation of the practice, manage accounts receivable, control expenses and maximize profits. Like it or not, market forces are changing the way you practice chiropractic. It is clear that, in the future, you must operate a lean practice. Think of yourself as a cost center. If you control operating expenses, you will increase practice earnings and add value to your practice. In the past, doctors compensated for poor management and administrative weakness by practice building and raising fees. In the future, this will not be an option. The most successful practice will be the one that can deliver the highest quality of care to the largest volume of patients in the most cost-effective manner. Expense management together with strong patient management is fundamental to your success. Let’s take a peek at the profit-and-loss statement of Dr. Chiro Chiropractic Center, P.C. Does the doctor operate a lean practice? Is he a good patient manager? If not, what can he do to improve his bottom line?
DESCRIPTION OF DR. CHIRO’S CHIROPRACTIC CENTER, P.C.
Dr. Chiro,* who is a 1984 graduate of National College of Chiropractic, lets 1,892 square feet in a professional office building. There is ample on-site parking for patients and staff. Prominent signage increases visibility. Other building tenants include a dentist, an OB/GYN, a lawyer, a psychologist, and a real estate developer. The doctor conducts a general practice with a moderate emphasis on personal injury and workers’ compensation cases. Care is provided to a middle-to-upper-middle income patient population concentrated within a ten-mile radius of the office. Patients 45 to 64 years of age account for the largest segment of the active-patient population, followed by patients 65 to 74 years of age. At the present time, the number of patients under treatment is approximately 180. The active-patient population, or those patients treated within the past twelve months, numbers between 300 and 400. The practice maintains 2,800 active- and inactive patient charts.
The following table indicates the mix of services rendered:
Patient Examinations & Follow-up Office Visits 54%
Supportive Therapy 36%
X-ray 10%
Acute care accounts for 40% of services rendered; rehabilitative care, 30%; and well care, 30%. Patient compliance with case management is as follows: acute phase, 90%; rehabilitative phase, 75%; well-care phase, 15%. If a patient misses a scheduled office visit, he/she is immediately contacted by phone to reschedule. The no-show ratio is 5%; the reschedule ratio, 90%. The practice conducts an active-patient recall and inactive-patient reactivation program but does not track the number of patients that reactivates care. The doctor is a provider for the following managed care plans: MedNet, Doctor Care, Signal, Integrated Care, Health State, ChiroChoice, and OmniHealth. All of the aforementioned managed care plans are discount fee-for-service; discounts vary according to plan contract. Dr. Chiro is also a participating Medicare provider. The payor profile of Dr. Chiro Chiropractic Center, P.C., is as follows:
Major medical insurance, 25%; personal injury, 25%; self-pay, 20%; HMO/PPO, 10%; workers’ compensation, 10%; Blue Shield, 5%; Medicare, 5%. As of December 31, 199X, the accounts receivable were $198,446, or 162 days gross billings. Of the accounts receivable, 65% is due from patients; and 35% is due from third party payors, including personal injury and workers’ compensation cases.
The following table indicates the accounts’ receivable aging:
0 – 30 Days 36%
31 – 60 Days 21%
61 – 90 Days 9%
Over 90 Days 34%
The accounts receivable have not been adjusted for non-qualifying or uncollectible charges; the doctor estimates that approximately 50% of the accounts receivable is uncollectible. External marketing consists of Yellow Page advertising. Internal marketing consists of a patient information booklet and direct mail. Active patients together with internal marketing account for 60% of all new patients; 20% is generated as a result of external marketing; 15% from MCO plans; with the balance generated from professional referents and practice networking. The primary catchment area is concentrated within a ten-mile radius of the office; the secondary catchment extends eighteen miles. The concentration of patients within the catchment area is detailed below:
Primary Catchment Area: 70%
Secondary Catchment Area: 30%
There are approximately 38 other chiropractors who serve the communities in the primary catchment area; yet, due to dynamics that exist, the area is not over-served.
ANALYSIS OF THE PRACTICE STATISTICS
Although it is apparent that this quality chiropractic practice possesses the external as well as internal dynamics to drive it to higher levels of production, Dr. Chiro Chiropractic Center, P.C., is vulnerable to the market forces that are shaping health care reform. Utilization review restricts patient services and cost containment measures limit fees.
Comparing the practice statistics of Dr. Chiro Chiropractic Center, P.C., to 199X Continuing Surveys confirms the quality of the practice and the ability of management and points out aspects of the practice that are weak and require management attention. Schedule C (Form 1040) for the fiscal years ended December 31, 199Y, December 31, 199Z, and December 31, 199X, indicate that Dr. Chiro Chiropractic Center, P.C., generated the following collections. Gross billings and adjustments to charges were provided by the doctor. See Table Two. Operations show a downward trend. For the fiscal year ended December 31, 199X, gross revenues from patient-service activities declined 18.7%; collections decreased 9.0%. For the twelve months ended December 31, 199Z, gross billings fell 8.7%; total income collected declined 4.3%. Gross billings are in the 79th percentile of the 199X Continuing Survey, total income collected is in the 73rd percentile. Accounts receivable management is sub-par. The adjusted collection ratio is in the 43rd percentile of the Continuing Survey; the number of days of gross billings on hand exceeds comparable practices; and there is a concentration of accounts receivable in the over-90-day category. The average charge per patient encounter is in the 70th percentile of the Continuing Survey. This exceeds the survey median, which is attributable to the practice fee schedule, which ranges from average to the 90th percentile of prevailing fees, together with the utilization of ancillary services. Operating procedures are sound and expenses are well managed. Net practice earnings are above market. Table Three compares the practice overhead expense of Dr. Chiro Chiropractic Center, P.C., with the 199X Practice Expense Survey.
LENGTH-OF-STAY ANALYSIS
The key performance indicator of any chiropractic practice is the length-of-stay (LOS). The Paragon LOS, which is a function of the interaction of practice development and patient management, takes into account the relationship between acute/rehabilitative care and maintenance care.
The LOS indicates the clinical focus of the practice and measures patient retention. Patient retention exceeds comparable practices in the survey. This can be traced to case management and patient compliance.
The LOS points to strong patient management but average practice development and underutilization of chiropractic services. Compliance with case management is excellent during the acut phase of care; the no show ratio is in the 75th percentile of the Continuing Survey; and reschedule procedures produce positive results. The proportion of patients under care to the active-patient population, 51.4%, exceeds comparable practices.
Dr. Chiro Chiropractic Center, P.C., is a quality practice. However, market share is declining. Analysis indicates that despite patient compliance and the census ratio, the number of office visits per month does not reflect the number of patients under care or the size of the active-patient population or the total number of patient charts. Two factors restrict the number of office visits: practice development and patient management protocol.
Practice development is sub-par. The number of new patients in the 46th percentile of the Continuing Surveys, which does not reflect the demographics of the catchment area, maldistribution or the referral potential of managed care. Internal referral patterns are weak; there is a paucity of professional referents; and, despite an active- and inactive-patient recall program patient reactivation efforts produce lackluster results. Although compliance with case management is excellent during the acute phase of care, compliance is sub-par during the rehabilitative phase and weak during well care.
The ratio of active patients to the total number of patient charts, which is 12.5%, lags comparable practices and negates the strong daily census ratio. These factors do not impinge the quality of the practice nor have they impeded the growth in services rendered. Rather, they offer the doctor an internal market opportunity to generate additional production and increase total income collected. The socioeconomic profile of the primary catchment area is healthy, and the demographics of the revenue-producing patient base are good. The office is well located and well appointed, and the design and layout are functional as well as contemporary. Extensive patient-service hours provide ease of access for new and existing patients. The clinical focus together with the payor profile show the balance and broad scope of the practice. Networking and the reputation of the practice extend the catchment area.
Membership on the panels of a number of quality managed care organizations positions the practice to compete in the managed care environment mandated by health care reform and increases the likelihood that existing and potential patients will continue to purchase chiropractic services from the practice. Sound expense management maximizes gross practice income.
Continued skilled patient management together with marketing programs designed to acquire new patients and an emphasis on patient management protocol could produce a 15.4% in-crease in office visits per month. The synergism of additional office visits together with better control of fee adjustments has the potential to generate adjusted gross billings of $477,564 during fiscal 199W. Strong accounts receivable management could produce a 17.1% increase in total income collected. Strong expense management should generate gross practice income of $226,225 compared to $167,748 for the prior years.
[NOTE: Article refers to 5 tables/charts]” “David J. Shuffler is founder and President of The Paragon Group. Inc., Montvale, New Jersey, specialists in practice valuation and business planning for chiropractors and other health care professionals He can be reached at 1-800-582-1812.
