Business Advisor: Financial Benchmarking for Dermatology Practices

Successful practices use benchmarking to compare their performance to other practices, to assess their own performance over time, and for long-term planning.

By Robert Thorne, CPA, and Edward Wynne

Financial Benchmarking for Dermatology Practices
Successful practices use benchmarking to compare their performance to other practices, to assess their own performance over time, and for long-term planning.
Robert Thorne, CPA, and Edward Wynne
Dermatology practices that participate in our financial benchmarking program continue to recognize the benefits of comparing their financial results to benchmarks from similar practices. The Allergan Practice Consulting Group and BSM Consulting established the first benchmarking database for dermatology practices and are in their 10th year of administering the survey. Since the inception of the program, the two companies have worked together to gather, collate, analyze, and publish financial benchmarks for the benefit of dermatology practices.

The financial benchmarking program was designed to provide certain key measurements to dermatology practices that would allow each practice a method of evaluating its practice performance to other practices within their industry. Each year, the Allergan Practice Consultants collect specific data from participating practices. That data is then reviewed for completeness, entered into a proprietary database, analyzed, and published by BSM Consulting. This article provides a summary of the major data points from this dermatology survey.

Database Parameters
We have compiled the results from participating practices through August 31, 2009 in the database, which includes information from 135 practices for 2006, 108 practices for 2007, and 64 practices for 2008. Table 1 provides a geographic breakdown of participating practices. Table 2 illustrates the breakdown of practices by number of physicians. Since participating offices typically provide data for the most recent complete year plus two previous years, the number of practices in the database for each year will continue to grow as additional practices submit their information. The database continues to be updated with full-year 2008 operating results.

2008 Results
The interpretation of changes to our key benchmarks from year to year may vary from person to person as they attempt to analyze and compare them to their practice’s performance. It is always important to remember that there may be other underlying factors, such as economic conditions, that may be causing certain trends or productivity results.

Table 3 shows the mean and median results for the past three years for 14 key benchmarks. It is interesting to note that average revenues per full-time equivalent (FTE) physician increased just over three percent from 2006 to 2007 but increased by six percent from 2007 to 2008 even as the economy slowed dramatically, more noticeably in the latter part of the year.

While growth in collected revenues per physician grew in 2008, revenues per non-physician provider (physician assistants and nurse practitioners) showed strong growth, with average revenues reaching $529,358—more than an 8.5 percent increase over 2007.

This growth appears to reflect a shift by practices to utilize other providers in order to offer patients lower costs for certain visits and procedures during the economic downturn, a conclusion that is supported by the eight percent increase in aesthetician revenues during the same period. A review of the collections generated by the nonphysician providers and aesthetician providers makes it clear that, in offices where these employees are well utilized, the practice owners benefit financially.

Operating expenses as a percent of collected revenue remained constant in 2008 as compared to 2007. It is also noted that there was little or no change to the non-provider payroll ratio, the rent expense ratio, and the marketing and advertising expense ratio. While it is tempting to draw the conclusion, it appears that practices utilizing benchmarking results as a management tool do an excellent job managing their expenditures and maintaining expenses at a reasonable level.

Please see the boxes titled Key Benchmark Definitions for explanations of how the individual benchmarks are calculated in Table 3.

Conclusion
Benchmarking is designed to enable a practice to compare and measure results against better-performing practices and can be very useful in the ongoing management of a business. We have found that the more successful practices are diligent in gathering and measuring results and comparing their data to that from prior periods. In addition, these practices incorporate bechmarking into their budget forecasts and their business planning processes.

It is important to note that the 2008 database results are based on 64 practices that have participated in our survey to date. Results may change as we continue to add practice information to the database; therefore, comparison of practice results will vary over time. The results shown are to be used in the context of this article and should not be relied on as a comparison of a practice’s overall performance.

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Business Advisor: Financial Benchmarking for Dermatology Practices

Successful practices use benchmarking to compare their performance to other practices, to assess their own performance over time, and for long-term planning.

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