Evaluation of Entire Financial Statement Essential to Profitability

Although it is poor public relations to admit that profitability is more
important than patient care, the truth is if an orthotics and prsothetic
(O&P) business is bleeding cash on a daily basis, practitioners will
eventually have no patients. Rob Benedetti, consultant at Promise Consulting
Inc., asked a group of O&P practitioners and industry leaders if
profitability trumped patient care at the
American Academy of Orthotists and Prosthetists Annual Meeting and
Scientific Symposium
in Orlando, Fla.

“I asked that question to the audience, and I estimate that about
80% to 90% of the audience agreed that profitability is more important,”
Benedetti told O&P Business News. “They understood that they
would not be able to serve their patients if they were not on top of their
business affairs. They make money to stay in business, all the while serving
their patients. If they do not, their competition will.”

  Image: © iStockphoto.com

Profit, patient care equally important

Benedetti said that profit is actually not in any way more important
than patient care or vice versa.

“You can have all the money in the world, but if you do not serve
the patient, your reputation will get around town, and the doctor or referral
source will stop referring his or her patients to you and you will lose money
that way,” Benedetti said. “They go hand in hand.”

Running a business is always about the bottom line — even in the
health care profession. But to remain solvent, O&P business owners must do
more than simply look at the last number on their balance sheets.

“If the last number on your profit loss statement has brackets
around it, you will not be in business for long,” Benedetti admitted.
“That is the most important number. But there are other benchmarks as

Revenue per clinician, revenue per full-time employee, charged patient
ratios, salaries as a percentage of revenue, percentage of accounts receivable
in the past 120 days: These targets are crucial benchmarks for an O&P
company. If the company does not do well in most of these categories, then
there is little doubt that the business is losing money.

“There is an ebb and flow of business,” Benedetti said.
“Businesses can get by with a down year or period of time and still
rebound. Just because you have a bad year does not mean you need to close up
shop and find a different profession. Most of the companies we work with are
struggling and most companies are able to turn it around. That is why these
benchmarks are important. They may lead to the answer.”

Proper reimbursement remains an issue

In truth, the last number on the financial statement only tells
Benedetti that the company lost money during a certain period of time. To
really understand your company’s financial situation, Benedetti suggested
evaluating other ratios and benchmarks to get the full tale. It could simply be
one or two things that need tweaking before the bottom line gets healthier.
Sometimes, the financial situation is more ominous. According to Benedetti, the
main hurdle O&P businesses continue to face is the struggle for proper

“Contracted reimbursement is always under siege,” he said.
“Getting insurance companies to pay what you bill or what is contracted on
time or even a reasonable amount of time and not just denying for denial’s
sake is a big issue.”

He also discussed the fall of the custom orthoses. Custom orthoses are a
big-ticket item, but the influx of over-the-counter (OTC) orthoses has made
some of the custom orthoses obsolete or has challenged their necessity.

“Having a custom brace built when there is an OTC version can
reduce billable charges,” Benedetti said. “A doctor or hospital may
go with a cheaper version. Custom work is under siege, in my opinion.”

On the expense side, the increased cost of doing business, like rising
gas prices for mileage reimbursement, utility bills or health insurance
premiums, can do great damage to the profit/loss statement.

Benedetti’s overall message to the audience was to pay attention to
the details. He suggested learning how to address the smaller issues in the
company before they become bigger problems. He also called for business owners
and managers to slow down and evaluate smaller problems now because the
solutions could lead to big gains or opportunities in the future. — by
Anthony Calabro


  Joel  J. Kempfer, CP, FAAOP
  Joel J. Kempfer

When you are a small office, you are directly in control of what you do
as far as expenses. I try to be as efficient as possible. Because we are
smaller, we can control our bottom line a little better, which makes us more
profitable overall.

I try not to let our bottom line interfere with our patient care. I try
to treat the patients as I always had. Sometimes there are particular patients
that you know you are not going to make money on because of repeated visits,
but there are other patients that you see just a few times and they do well. It
comes down to how much time you are putting into each particular patient.

We have to remember to ask ourselves why we got into this business. Was
it to treat people and help people gain their independence back or to make
money? I understand the importance of making money. I cannot survive without
making money. But I think a business, especially smaller companies, can find a
happy medium.

— Joel J. Kempfer, CP, FAAOP

Kempfer Orthotics and Prosthetics and
O&P Business News
Practitioner Advisory Council Member

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