5 Ways to Make Up for Lost Revenue in Your Clinic
Are you a physical therapy or chiropractic clinic owner looking for ways to increase revenue and create long-term practice growth?
Many of us are in the same boat. Today’s market conditions have created downward pressure on revenue, upward pressure on costs, and shrinking margins for many private practice physical therapy clinics. A lot of practice owners I’ve talked to recently are wondering how to grow revenue.
So what do you do in this situation?
We need to figure out how to make up for lost revenue in our clinics, and for physical therapists, we need to make up for the recent 4% Medicare Reimbursement Cut.
Here are some of the ideas to help you think through this, get your mindset right, and make meaningful changes long-term that create practice growth.
1. Avoid the Urge to Pull Back — Instead, Focus on Practice Growth
For most of us (95% of the population), we’re wired so that we usually pull back whenever there’s any sort of danger or threat. This is how our lizard brain works to make us feel safe.
Robert Kiyosaki shares a story in Rich Dad, Poor Dad that’s relevant here: As a helicopter pilot, one of the key things he was taught was that if you get hit in wartime, you should push forward rather than pull back.
Although it can be counterintuitive, the same is true for practice owners. When things get tough, we need to double down and develop creative business solutions to create practice growth rather than pull back and get small.
But that’s easier said than done.
I’ve been through it myself. Early on in private practice, when I would take a loss or lose money, I would pull back my marketing. I’d try to minimize our costs and somehow think that was going to help me come out on the other end.
It never worked.
Usually, I’d go a few months before I figured out that I needed to course correct.
After surviving that a couple of times, I eventually figured out that when there is revenue loss, when we’re in the red, and when we have more costs than we have income coming in, it is very easy to pull back.
The only way to get out of it is to go forward. To figure out a way to grow your revenue.
Financial Analysis of a Hypothetical Physical Therapy Clinic
To show you why it’s important to continue growing revenue, let’s look at some hypothetical numbers.
Let’s say you have a clinic producing $100,000/month in revenue, with $95,000/month in costs. In that situation, it’s very difficult to create margin.
What if your revenue goes from $100K a month down to $97K in a month?
You had a $5,000 margin per month, now it’s $2,000. So you had a 60% decrease in margin.
That’s a pretty big deal.
A lot of owners, at least when we’re being reflexive and reactive, we’ll try to shrink costs down. We think that we can somehow go from $95,000 in costs down to $50,000 or something like that and create margin again.
That’s not how it works.
Instead, we have to think about how to take the $100K that went down to $97K, up to $110K or $120K. It’s a better way to business problem solve.
So that’s the first thing to work on in terms of creating a practice growth mindset. You’re almost never going to be in a situation where pulling back and clamping down on costs helps you succeed.
2. Aim to Fill Space and Fill Schedules
The second thing for creating practice growth is to understand the game and the scoreboard that we’re playing.
We’ve invested in space. That’s a fixed cost. We should aim to fill the space.
If we have 3,000 sqft and we’re seeing 100 visits/week, then we have way too much space.
We can either choose to fill the space or cut down on space.
Let’s say we estimate the capacity for the space to be 300 visits, right?
Then we need to ask the question, “What do we need to do to create enough demand for my services that we’re seeing 300 visits a week in this space?”
If we can’t get visits up or don’t want to, then the next time our lease is up, we can cut back. Maybe we bit off more than we can chew and we need to adjust. That’s fine.
But eventually, we need to get to a point where we can control the space that we’re in and can maximally fill it.
In addition to space, we need to fill schedules. If we have four full-time clinicians and each clinician can see 50 visits a week, then our capacity is 200 visits a week.
Let’s say we’re at 130 visits/week today. Then the game we’re playing is to get up to 200 visits/week.
We need to create enough demand for our services that both our schedules and our space are full.
3. Don’t Be Afraid of the Waitlist
When I talk to practice owners, I often hear some variation of this story:
“I don’t have a problem of not having enough demand for my services. I have a waitlist. My problem is keeping therapists and hiring. I recently lost a therapist who was with me for years. They went to work for the local hospital system.”
This is a very real pain. But if you think through it further, you realize the solution really comes back to building demand for your services.
Let’s say your space was full, schedules were full, and you had a $20,000 margin instead of a $5,000 margin. In that situation, you’d be able to compete better with the hospital system on salary and benefits.
It’s hard to have that conversation without talking about payer mix as well.
If we can generate $120/hour instead of $90/hour, we could create a lot of lot more margin for the business.
How do you do that if the schedule is already full and you have a waitlist?
You increase revenue per patient.
Bob Kawalick has talked about this, saying something like, “We’re seeing patients covered by $60/hr capped payers, while we have prospective patients covered by $120/hr payers on our waiting lists.”
I’ve heard some owners talk about the waitlist as a bad thing.
But if we’re created enough demand that we have a waiting list, it might be time to consider either a) adding cash pay services or b) going out of network with those lower payers. In both cases, we’re increasing revenue per patient and generating more revenue without increasing our capacity.
So don’t be afraid of the waitlist and consider optimizing your payer mix.
4. Increase Per Patient Revenue with Cash Pay Services
This one is a must in today’s financial climate. There are a number of cash pay services you can add to your practice that both provide value to your patients and provide more cash flow to you. By adding cash pay services you can charge more for a plan of care and create more income to support your traditional services.
Examples of cash pay services that are working for many practices include therapeutic lasers such as the Lightforce Laser, electrical stimulation such as Neufit, dry needling, fitness classes or facilities, e-commerce (e.g. supplements or other relevant products), or coaching.
Adding cash pay services is a key way to create practice growth.
5. Develop Ownership Mentality and a Practice Growth Mindset Within Your Team
The final way to create practice growth is something that was a really big error for me in the beginning. And I’ve talked about Jack Stack and the great game of business and also stake in the outcome. They’re essentially the same book. The Great Game of Business is the one that I prefer, but it’s how to be. So most of us, if we have very thin margins, we’re like hiding that from our staff. So they’re not even sure what the score of the game is.
And that’s not healthy or good. It means we’re internalizing and carrying all the stress with us.
The team doesn’t understand exactly where we’re at as a company. They don’t know the scoreboard and we’re not being transparent.
In the Great Game of Business, Jack Stack talks about how he made that transition back in the 80s and he developed owner mentality across everybody in this company. From the C suite the whole way down to the Janitor and everybody else in between in their organizational structure, everybody had ownership mentality.
When I made that transition, it was a significant for us. It was a game changer. It took a lot of pressure off of me.
Now, when we have a bad month or a bad quarter, we’re asking ourselves better business questions and getting to a solution more efficiently rather than me having to create the solutions for 100 plus team members that we have here. That’s impossible to do.
We have very competent, smart people on our team, so I don’t need to carry all the weight of the company. I’ve empowered my team with transparency and they are going forward, producing solutions, creating new policies, and developing new procedures that help our business across the board.
Cultivating a Practice Growth Mindset
So we’ve talked about mindset and we’ve talked about some specific strategies you can implement for practice growth.
I hope you got something out of this that helps you shift your mindset and generate some ideas for you so you can increase revenue and create forward practice growth in 2023.
Interested in learning how Breakthrough can help you increase revenue and create practice growth? Request a demo.