Comprehensive Guide to Analysing Profitability of Medical Services in Australia
- Finance, Financial Sustainability
- Chris Smeed
- November 9, 2023
Frequently, the focus of professionals in the healthcare sector is patient outcomes and the wellbeing of the communities they serve – a commendable and necessary focus. However, in doing so, it is crucial not to overlook the financial sustainability of the medical practice itself. An understanding of the balance between income and expenses can ensure the longevity of your practice, even in the face of unexpected costs like accreditation fees, employee wages, and operational consumables.
The financial stability of a medical practice can also be compromised by unforeseen reductions in billing due to factors such as holidays, changes in Medicare rules, or the introduction of new incentives. The first step to combating this is to plan and identify what your practice requires now, to efficiently deal with these changes when they arise.
Comprehensive understanding of your expenses
A thorough understanding of the financial realities of running a medical practice is key to maintaining its profitability. This begins with recognising the average weekly costs associated with running your practice. Without a clear idea of the inherent costs of operation, it’s impossible to effectively manage what you need or plan for the future direction of your practice.
Being aware of your average cost can help you identify what actions you need to take and enables you to review potential scenarios and take necessary actions. If you are currently unaware of your exact expenses, it may be beneficial to speak with your accountant or financial advisor to get a clearer picture of your operating costs. This will allow you to update your weekly budgets, set realistic goals, and make the necessary adjustments to maintain profitability.
Evaluating the cost of providing services
Another important step is assessing the cost of providing each service within your practice. Some services may require additional employee time, more space, or extra consumables, all of which contribute to the associated cost of providing the service. It’s crucial to consider these costs when determining the fees being charged for these services.
When setting financial targets for your practice, ensure that your billing targets align with what you need to maintain profitability. Any discrepancies between what you need to earn and what you’ve historically been billing should prompt a review of your current billing practices.
Illustrative Examples
Here are some examples of assessing the costs associated to providing services within a medical practice to provide a clearer understanding:
Excisions: Calculate the cost of consumables used for the procedure, the support wage costs, and the room space needed for the procedure.
ECGs (Electrocardiograms): Determine the wage for the nurse conducting the ECG, the consumables used, the procurement and maintenance cost of the ECG machine, and the cost of the machine’s calibration.
Chronic Disease Management (CDM): For CDM, it’s crucial to factor in the wages of the nurses providing the service, as well as the time spent on patient recalls and outreach.
The cost of providing these services should ideally be covered by the billings charged for them. If this is not the case, consider adjusting your practice structure to ensure profitability.
Conducting regular financial health checks
In summary, understanding the costs associated with delivering medical services is essential for maintaining the financial wellbeing of your practice. Regularly reviewing these costs can help you identify areas where expenses may outweigh revenue, allowing you to make necessary adjustments. There are numerous resources available, including financial analysis tools and spreadsheets, that can assist in tracking and optimising your practice’s profitability. Above all, the goal is to strike a balance between patient health and business profitability – a harmony that will ensure the sustainability and success of your medical practice.
Trusted, reliable, loved by practices
