To improve a practice, it's important to understand exactly what benchmarks are and how to use them effectively, according to Derek A. Preece, MBA, senior consultant, BSM Consulting Group, Orem, UT. A benchmark is a standard that practices can use to measure how they are doing; it can help diagnose operational challenges, find possible prescriptions, and confirm the effects of the changes made in the practice, he said.

"A benchmark doesn't usually tell us exactly what to do, but it can help us figure out what to do in our practice," Preece said.

He also said that he often sees practices using benchmarks in the wrong way; it is important to use several related benchmarks to get the full picture of practice problems and not to rely too heavily on one in particular.

The real comparison is how an ophthalmologist's practice is doing over time. Comparing apples with apples, such as comparing one month with the same month from last year instead of two consecutive months in the same year, is crucial. Otherwise, you get bad information, which leads to bad decisions, he said.

Be aware, too, that unlike action that needs to be taken when a patient presents with an increased pressure in the eye, action often does not immediately need to be taken in a physician's practice if ratios are slightly above or below the benchmark.

In fact, because practices are different, Preece said, a practice may want to be above or below the baseline at certain times.

One key benchmark is overhead ratio, which is the total practice expenses (excluding doctors' pay and benefits) divided by total collections (or revenues).

The healthy range for the result, according to Preece, is 48% to 68%; the average is between 62% and 63%.

Another key benchmark is the opposite of overhead ratio—profit ratio (or doctor income ratio), which is the doctors' income divided by total collections. The healthy range is 32% to 52%, he said. This benchmark also is what will see the most change if Medicare reimbursement declines.

New patient ratio is another important benchmark. New patients are the "lifeblood" of all practices, because if practices don't grow, they eventually will dwindle, Preece said, adding that practices can include a consultation as a new patient. The result is determined by dividing the total number of new patients by the total number of patient encounters. The healthy range for this benchmark is 15% to 30%. If the range is less than 15%, a practice is experiencing low growth, whereas if the range is more than 30%, it signifies that established patients may not be coming back for additional care, he said.

Practices also need to take a look at the days that a charge is in accounts receivable (A/R). Preece said that the simplest way to figure this ratio is to divide the total A/R by average daily charges. To find the average daily charge, divide the total charges for a period by the number of days in that period. The healthy range for this benchmark is 25 to 40 days, he said. Although most insurance companies have 30 days, the number of days that a charge is in A/R can be less than 25 because some procedures, such as LASIK, need to be paid upfront.

The days should be assessed from the date of service or the date that the charge was entered, as long as they are the same day or one day apart, Preece said.

Other important benchmarks include ratios of:
• Staff payroll. This is the ratio of total staff payroll divided by total collections. The healthy range is between 20% and 26%.

• Collections per patient encounter. Divide the practice's total collections by the total of patient encounters. The healthy range is between $150 and $225 (to find the patient encounter sum, add together eye codes, evaluation and management codes, consultant codes, and 99024 postoperative codes).

• Collections per full-time equivalent (FTE) billing staff member. To figure the result of this ratio, divide total collections by total FTE billing members (FTE = total hours paid per year divided by 2080 [52 weeks/40 hours per week]). The healthy range is $800,000+.

• Facility expense. Divide the total facility expenses (e.g., rent or mortgage interest, property taxes, housekeeping, facility maintenance, and utilities) by total collections. The healthy range is between 7% and 12%.