Buried Treasure in Your PT Clinc
Talking to other physical therapists is the best part of my job. PTs tend to be kind, outgoing people that are always willing to share their successes and failures as either clinicians or business-owners. Rarely do I leave a conversation with a PT and not feel more energized about the future of our profession; I also tend to feel that the two organizations I serve (ProEx Physical Therapy and Collectivity Billing and Consulting) are poised to be leaders in the industry for decades to come.
Recently, I spoke with a friend of mine who owns a thriving outpatient PT clinic in the Greater Boston area. We talked about a wide range of topics, including our organizations’ successes and challenges, where the profession is headed, and how we, as business owners, can be leaders. His organization, like my own, has identified growth as a strategy to help combat some of the challenges he faces. Growth, though, requires cash. He had gone to banks looking for access to capital, but wasn’t willing to put his personal assets on the line, yet again. He also didn’t want to fully fund growth through the cash flow of his current clinic, for fear of becoming over-extended. He was pretty much out of ideas, until I asked a simple question:
What are your current Days in A/R?
If I were to ask this question to ten different PT practice owners, I would get 10 different answers. Many would give a very vague answer like, ‘We collect most claims around 30 days.” Others might not know what Days in A/R even means. Some, typically the most successful business people, would answer the question as quickly as if I had asked them their own birthdate.
Since I’m a physical therapist and have no background in finance or accounting (Just ask Marc Jackson or Tara Holzman), I’m not going to write a long-winded essay on how to calculate days in A/R, what makes it naturally fluctuate, or any of the other fine print. That would give you, and me, a popsicle headache for the ages!
Generally speaking, days in A/R is the average number of days that it takes you to collect the full amount owed to you for providing care to a patient. Industry standards vary based upon the state in which you practice, your payer mix, and other factors; but most experts would tell you that 45 days is the PT benchmark.
So… back to my friend. He tells me that his days have crept up a bit lately due to a laundry list of things (notes not being signed in a timely manner, outstanding patient balances, an over-sized 120+ day bucket, etc.), resulting in him running at 60 days currently. Previously, he had shared with me the size of his practice and his reimbursement rates, which allowed me to do some quick math and give him the best news of the day:
If I gave you $100,000 with no strings attached, is that enough to help you grow?
You see, my friend had stumbled on buried treasure without even knowing it. A second clinic, new equipment, and a larger safety net were all buried in his A/R; he just needed someone to help him dig it up!
While the industry standard for Days in A/R might be 45, the best companies out there are doing it in 30 days or less, regardless of state, payer mix, or any of the other variables I mentioned before. If my friend could shrink his days from 60 to 30, he would essentially collect an ‘extra’ month of volume during the 3-6 month process. He collects roughly $80 per visit, and averages 1,250 patient visits each month, meaning $100,000 in collections per month. By going from 60 to 30 days, my friend was going to have all the capital he needed, with 0% interest, and no requirement to pay it back. Ever!
We talked for a while about how to do this: whether to use his own people or an outsourced solution like Collectivity, how to collect from patients in a people-focused manner, how to ensure that the changes were sustainable, etc. But, mostly, we talked about how $100,000 was going to change his business forever.