Hourly Costs (Snow Days)

From an intrepid reader:

I want to figure out how much $ it costs our company when we close early, open late, and/or don’t open at all. The past few “snow days” caused us to close early one day, close one whole day and open late another. In the past, and per our handbook, we have paid the employees. There are so many variables, etc. but I didn’t know if there was a way to get a “worst case/best case scenario” per hour we are closed, when we should be opened! Does this make sense? Let me know if you have any ideas or resources I can turn to so I can give it a try!

“Snow day” questions are the most popular subject, just ahead of ICD-10 fears, so far in 2014.  The weather and vaccines have contributed to what looks like the slowest January in a few years.  The schools are closed, fewer kids get sick, and the effort to get the world vaccinated for the flu has really turned visit volume downward.  Great for society, not great for a practice that needs to pay its bills.

Without, yet, getting into the philosophy of whether or not to pay your employees on days when your office is closed by weather, I think there are two ways to assess your hourly costs.  There are, indeed, many variables at play but here’s what I see as a way to make an educated guess:

  • First consider what I’d consider the “total cost” of closing your office – in other words, what does your practice really generate for revenue per hour?  It’s fairly easy to calculate, just take your revenue for the last year and then quickly estimate the hours you are open.  Sure, adjust accordingly for practices where the clinicians working at any given moment are quite variable, but your quick guess (“Let’s see…5 days times 10 hours times 50 weeks…”) is going to give you a ballpark that’s as helpful as what you’d get if you took it apart.Of course, there are times of year where your hourly revenue may be quite a bit higher than others (summer physical season) or days of the week that differ (slow Saturdays).   It’s just an estimate.Another effective estimation method is to look at appointment volume. In a given hour, how many visits do you really do? 3? 6? If you know your revenue-per-visit you can then do some fast math in your head.Either way, I think of this number as the “Opportunity” cost that you have per-hour. How much money can the owners generate for the business. This is different from the second option…
  • …total up your clinical hours and revenue for the year (as above) and subtract any “profit” shared by the partners.  Sure, a partner may (usually is) one of the clinicians, so include a salary for that work but not the revenue that gets distributed as an owner.  This will give you the “cost” of running your practice without any profit.  I like my clients’ practices to run profitably, so I don’t usually use this counting method 🙂

In both instances, remember that if the driving is bad, your visit volume will go down, so adjust accordingly.

Fast answer?  If you do 4 visits an hour for 2 physicians each, the practice will generate about $1000 in revenue, ~60% of which will go to paying all the overhead except physician salaries.  Adjust accordingly.

When I get back from vacation in 2 weeks, I’ll have some visit volume data for you.

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