I get this question from time to time. Especially from people that are thinking about opening their own practice.
As with most things, it is hard to say unless one understands the situation. For example, some doctors go for profitability regardless of lifestyle, while others are going for lifestyle and don’t mind forgoing some profitability.
Deciding which one you want will go a long way in understanding how to tackle this question.
So where do we begin? Glad you asked. First, you need to determine a few practice numbers. Let’s start with Cost.
- Practice cost
Practice cost is everything that cost you money. This is all the expenditures that go out. Some people exclude doc salaries and doc benefits, but for the purpose of this exercise, I include everything except bonuses. Quick example, le’t say a practice will spend $450,000 in operational cost and a solo doc wants to make $200,000 in an anual salary. Then your total cost is $650,000. If the doc is comfortable with $100,000 then the cost is 550K.
Naturally, you need to bring in at least that much to pay off the bills and for the doc to get paid. But how many patients does that translate to?
Well, for that, we need to know the average payment for each encounter (net, not gross).
- Average payment per visit or encounter
This is the net dollar amount your practice gets per encounter. An easy way to figure this out is add all the encounters in a year and divide that by your net receivables.
Let’s say a solo doc brought in $650,000 in receivables and the practice saw a total of 5950 encounters in a year. Simple math tells you that your average payment is $109.
Example: $650,000 / 5950 (encounters) = $109 avg payment
I know, I know, we aren’t looking at well visits vs. sick versus RN visits. You’ll want to do that later. But I want to keep it simple. So stay with me.
Next, you’ll need to know how many days your practice is open.
- Number of days worked (or will work in a year)
If a practice is open 5 days week and is open all year around, the practice will be open for roughly 260 days. If the doc takes vacation then you’ll need to subtract the number of days off.
Let’s put these concept into practical terms.
How much do I need to break even?
Let’s say a solo practice will spend $650,000 (including the doc’s salary). We know that the average payment per visit is $109 (don’t get bent out of shape if the $109 is not your number. Focus on the process, not the numbers).
Now we can answer how many patients the solo doc will have to see in order to break-even.
Cost / Average payment = Number of patients.
$650,000 / $109 = 5963 patients
If your practice works 260 days a year you can do the math this way.
Number of patients / days open = number of daily patients.
5963/260 = 23 patients a day.
Twenty three patients isn’t all that much. Most doctors are in the 30 patients a day range. But here is the kicker, you have to see at a minimum of 23 patients a day for every single day the doc works. If the doc sees 25 one day and the next day sees 15 the doc is averaging 20 patients; which isn’t enough to make the $650,000 that we discussed earlier.
Please, keep in mind that this is a very simplistic view. Of course a good accountant can help you figure this out better.
But the idea is to put some of these numbers in perspective. Once you have them, you can start going crazy with more complicating reporting. For example, you can look to increase your per encounter average or look to reduce expenses all of which will change the “patient a day” figure.
Well visits revenue is different than sick child revenue, so you can manage these two visits and make a big difference in how your practice does financially.
But again, the point is to start to give you an idea what the expectation ought to be. Once you have this perspective, then you can move in to refine your numbers.
(This blog was originally posted on Pediatric Inc)
Brandon Betancourt is a business director for a pediatric practice in Chicago. He is a speaker, consultant and blogger. You can follow him on Twitter @PediatricInc or visit his blog atPediatricInc.com
