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Key performance indicators: The clinical signs of the health of your practice

As veterinarians, we are diligent about measuring and monitoring our patients’ vital signs. While well trained in assessing our patient’s well-being, we are not as attentive to the indicators of our practice’s health such as:

What are the “clinical signs” of a healthy practice?

There are certain measures of performance that practice owners and managers should be tracking. These can be obtained in two different ways: either through the practice management software (PMS) program or through independent data mining programs, such as VetSuccess. My personal preference is to combine both methods to obtain a more comprehensive snapshot of practice performance.  Minimally, the following financial metrics should be routinely evaluated:

Gross Revenue: hospital revenue as well as each doctor’s production

Available from most PMS reports, these metrics inform about overall practice growth or decline. Generally, there are three ways to increase hospital and doctor revenue:

Average Client Transaction (ACT)

This data is available on the PMS report and represents the total revenue divided by the number of invoices generated.

Average Medical Transaction per Doctor

Most PMS will calculate this based on each doctor’s medical transactions divided by the number of invoices credited to that doctor.

Active Clients

An active client is defined as a client that has received services from your hospital in the preceding 12 months.

New Clients

A new client is identified by PMS reports as purchasing product or services from your hospital for the first time in the designated time frame.  Attracting new clients is critical to hospital success, as they:

Number of transactions (invoices)

This calculation is available on the PMS reports and indicates how many transactions, or invoices are generated during a specific time frame. This number is in part an indication of efficiency.

Number of transactions (invoices) per active client

This calculation is one that often needs to be performed manually and is determined by dividing the number of transactions (invoices) by the number of active clients. This is a very important metric in that it helps to measure how many times an active client visits your hospital during the time frame measured, which is usually annually for this metric.  While having a large number of active clients is desirable, what really matters is how many times they seek your services.

Percentage of revenue from unique profit centers

This data can be extrapolated from PMS systems and is actually presented in a chart format in VetSuccess reports. Percentage of income from profit centers usually reflects the culture and philosophy of the practice. For example, does your hospital heavily promote preventive care services? If so, it will be evident in looking at income from examinations, diagnostics and dentistry. If you have doctors on your team that perform advanced surgical procedures, it will be reflected in the anesthesia, surgery and possibly diagnostic profit centers. It is important to understand which profit centers generate income for the following reasons

Percentage of expense from unique expense categories

It is important to understand that productivity does not correlate with profitability. It is essential that leadership teams manage the expense side of the equation. Typically, the largest expenses in a veterinary hospital are payroll and Cost of Goods Sold (Inventory). Aggressively managing these expense categories, in addition to others, will help improve the profitability of hospitals. Well-managed hospitals can reinvest in current or upgraded facilities, equipment, medications and staff necessary to provide the best patient care and provide for the financial security of the practice, its owners and the staff.

How often should you evaluate these crucial metrics?

I recommend that practices minimally evaluate the above metrics on a monthly and annual basis.  There are some metrics that might be “spot checked” throughout the month, such as gross revenue, ACT, number of transactions, number of clients seen and number of new clients obtained. This spot-checking can provide for early detection of emerging trends and allows for corrective actions as needed.

How do you know if your results are within normal limits or if they indicate a less than favorable prognosis?

Compare your hospital’s profit centers, team productivity and expense centers to industry benchmarks.  One excellent resource is the AAHA Financial and Productivity Pulsepoints [2].  Published every two years, this publication not only provides current benchmarks, but also explains how they are derived and includes suggestions for improved performance.

Published with permission of Wendy Hauser, DVM, Peak Veterinary Consulting