Provider Profit Margin

There are two easy approaches to determine the profitability of a provider in a Pediatric practice.  The first approach is usually taken to get an overall sense of the profitability.  The second approach removes the vaccine drug expense from the practice overhead costs and the vaccine drug revenue from the provider revenue totals.  

Feel free to plug in your numbers below to measure your provider's profitability. 

 

While practices would like to know how they stack up against their peers, there are a variety of reasons why practice comparisons are not always applicable.  In addition to the COVID pandemic having a varying impact on pediatric practices, the patient population distribution and payor mix have traditionally been the biggest obstacles for such comparisons.  PMI encourages practices to measure each of their provider profit margins on a regular basis and monitor such statistics on a monthly, quarterly, and/or annual basis to identify areas of concern.

Whether your providers are paid with a flat salary, provided an RVU production incentive, or allowed to earn a bonus based on revenue generated, it is important to measure each provider's profit margin to ensure the practice remains financially viable.

Approach #1:

Approach #2:

The second approach goes a bit deeper into the question of provider profitability by isolating the provider's vaccine drug revenue.  PMI consultants always allow the provider to receive credit for the vaccine administration and only backs out the revenue generated from the vaccine drugs (Gardasil, Daptacel, Prevnar, etc).  This approach is helpful to evaluate the profitability of a provider before vaccines are taken into account. 

 

Such a deeper dive provides a more accurate determination of their profitability as the vaccine drugs add very little margin, if any, for the practice and can be helpful in crafting an effective revenue-based production incentive.  Such production incentives should exclude vaccine drugs due to the low margin.