Early in the 1980’s orthotics and prosthetics was an excellent business to be in. Even after Medicare locked in prices on January 1, 1989, the industry still had large profit margins due to low regulation, no Medicare audits and reasonable reimbursement. The industry was flush with money. This bounty has slowly diminished over the last 30 years to the place where we are today. Adjusted for inflation, Medicare reimbursement rates are now one-half of what they were in 1989 and, sadly, we are pressed on every side by increasing costs from wages, vendors, utilities, and landlords. How are we to survive in this environment?
This frenetic situation is the same type of position that faced the United States automobile manufacturers after post World War II growth ended. After WWII, auto manufacturers were living high with soldiers coming home, buying vehicles, and enjoying a booming economy. Conversely, although built on scarcity, the new Japanese economy was expanding quickly. In the 60s and 70s, Japanese auto manufacturers were able to surpass the efficiency of the United States automobile manufacturers and began to sell their automobiles at a great discount in the United States. To do so, the Japanese had to import raw materials while at the same time dealing with little land for warehouses filled with extra parts. This affront baffled the United States automobile establishment. How did the Japanese make such inexpensive, quality vehicles within these challenging constraints?
I am not about to dive into all the ways that Japanese giants such as Toyota and Honda were able to produce a consistent, quality product at a much faster and cheaper rate than their United States counterparts. Instead, I will focus only on one factor: business metrics. The ability to measure all areas of business, without covering-up weaknesses by large profit margins, allowed the Japanese to evaluate and analyze how their companies were doing. Just as the auto industry had to knuckle down and update processes to stay competitive and survive, so must we.
Metrics are a way to measure something. Business metrics measure areas, processes, or money within a company. These factors tell us how we are performing. Measuring something allows you to change or adjust it. Although the profit/loss and balance sheets are important, these factors do not measure staff productivity or show how or what you might do to ensure improvement.
Improvement leads to increased profits. Improvement is a key reason to have business metrics or KPIs (Key Performance Indicators) as they are often called. How do we know we are doing better if we cannot measure our process? For example, if you are training for a 100m run, you will time yourself when you begin training and then again later in your training. With this information, or metrics, you can see if you are getting faster. You can determine if your training regimen is working or if you will even be competitive in running the race. These are metrics in your training. Similarly, in business, we need to have metrics, or KPIs, to tell us how we are doing or to track progress over time. Business metrics also help us measure ourselves against industry standards.
Recently I tried to see if anyone knew what the average time was for an AFO to be delivered, start to finish. How can I determine how our company measured against a national average? Seems like an easy question to ask right? Wrong. As I received answers back, I realized that not only did people have different views of what denoted start and finish; some did not realize why this question even mattered.
As an industry grows, it moves from a ‘fly by the seat of your pants’ or ‘gut feeling’ management style to measured and performance-based management. If you want to know how you stack-up against other clinics in your area or how much time it will take to go from initial evaluation to delivery of an AFO, how do you get this information? What can you do with this information? At the clinic where I work, one of our top ten referral sources stopped referring for a short time because they felt we were too slow. ‘Were we?’ I asked myself. I did not know the answer to this question.
I had a gut feeling, but no definitive answer. Does it take 10 days to deliver the average AFO or does it take 60 days? Answering this question only resulted in asking more questions as I explored for an answer. In the end I did the arduous work of looking into patient files, noting the date of the prescription, when we saw the patient, when the device was authorized by insurance or when we got amended notes, when the device was fabricated and when the device was delivered. This research generated actual date-based data showing that it takes X days to go from start to finish. Using this data, I created a metric (measure of the time it took to deliver the AFO). The resulting answer was much different than the one from my gut feeling. Now that I had a starting point, I set a goal to reduce this number by changing the process our company employed. Thru this examination, I was able to make a change which resulted in a 45 percent decrease in the amount of time it took to deliver an AFO, and we won back the referral source who had stated we were too slow.
This outcome leads to an obvious question: In what other areas can massive improvements be made? How do we identify these areas? What we realized…there are an endless number of options. What you measure depends upon your needs.
When determining important business metrics for use in your practice, it depends upon what and where your pain points are. You know what these points are and business metrics can help you resolve them. Ask yourself, ‘In what ways can we measure this activity/process/task?’ Then ask, ‘How can I get that information?’ The answers to these questions will result in a business metric that you can use to improve or enhance a process. Be sure not to limit your knowledge base by excluding staff members who perform the task. When all these facts are collected, you will know how to measure your pain point with metrics. Once you have established these metrics, you can set goals, then update or revise the process so that it is more in line with how you think it ought to be. Then remeasure with the metrics you have created to determine if you were successful.
I believe that for O&P to remain a player in the healthcare industry, we must get paid now and keep the payment by having appropriate supporting documentation thereby avoiding punitive audits. Establishing solid and strong administrative/insurance processes must be our number one goal, even over fabrication of devices. Most of us do not have the luxury of working in a healthcare system with an internal payment structure. Therefore, when tracking delivery times or other large processes, you must include all activities and actions to get a true reading. Not only does the fabrication method of the device need to be considered in this process, but also you must include the insurance and administration methods and activities in the evaluation process.
Hard times force us to either get smarter in how we manage our companies or force us to leave the field and find some other area of work. There may be massive changes ahead, but if we know how to document and measure our processes, we will weather these changes. And after the storm passes, we may note that these changes allowed us to return to the profitability of earlier times.