Last week, we discussed the how large companies like Netflix and Spotify run their businesses. As it turns out, it's not all that different to how you build a successful PT practice. After all, both businesses run a subscription model. How is that you ask? Well here is the quick breakdown:
Just like you can ditch your Netflix subscription at any time, so too can your patients stop coming to physical therapy. That's why each time your patient comes back in the door, we like to say they "renewed their PT subscription for another visit." In a subscription model, the unit economics are simple.
- Total Number of Subscribers (in your case, patients)
- Avg. Length of Subscription (how many visits do they come for?)
- Subscription Price (How much can you charge per visit)
Multiply these three together and you should have a close approximation of your business's top line revenue (what you make before you start paying for people and things). To optimize a subscription business, there are a set of key metrics you should always keep an eye on. Today we're starting out with one of the most critical: Churn Rate.
What is Churn Rate you ask? It's a measurement of the percentage of patients that drop out before physical therapy is completed. We crunched the numbers at Strive Labs and found that on average, 70% of patients don't fully complete their course of care. While that number is staggering to begin with, there is an even worse subset of that population that needs to be looked at.
By examining 30,000 outpatient episodes of care, we found that over 20% of all patients came for 3 visits or less. While a certain percentage of patients experience quick recovery, I think we can all agree that 1 in 5 patients requiring less than 3 visits is unlikely. It's therefore safe to draw the conclusion that a large subset of patients are failing to see the value of physical therapy for one reason or another, and are failing to complete their course of care all the way.
Why Not Measure Average Visits per Case?
You should measure visits per case, but it can lie.
While almost every practice owner I talk to can rattle off an average visits per case number for their clinic, I find that very few are accurately measuring patient churn, and the impact of patient dropouts on their practice. As it turns out, it's really easy to hide bad churn behind a good average visits per case number. Take the sample we discussed earlier. While 20% of all patients came for 3 visits or less, the average visits per case was still 10. 10 visits per patient is typically just fine. The problem is that this data can be misleading. The reason can be found in the graph below:
While the large majority of patients are coming in for 10 visits or less, there will always be outliers. These outliers have the ability to substantially alter your average visits per case number, as it has done with our sample. Now take a look more closely:
Now you see the hidden impact of patient churn on your business. The moral of the story here is that your average visits per case figure can be drastically swayed by outliers, and because of this, average visits per case alone may not be the best metric to measure. Instead, you should have a metric that helps to understand where patients drop out, and at what frequency. That's where understanding churn rate comes in.
Let's look at the equation:
(Expected Visits - Actual Visits) / Expected Visits * 100 = Churn Rate
The beauty of the churn rate calculation is that it takes into account the diversity of each patient's course of care. By taking the average churn rate for each patient, you start to get a much more accurate assessment of your clinic's ability to keep patients engaged in their course of care.
Measuring Churn Rate
Measuring churn rate itself isn't all that complicated, but it does take a plan. While actual visits is usually easy to pull from your practice management system, expected visits can be a bit more difficult to come by. Here are some of the strategies we've seen practices use to estimate expected visits.
1. Take a guess: The Subjective Approach
After completing an evaluation, every therapist estimates how many visits a patient will need to reach their recovery goals. Usually something like 2 visits per week for 5 weeks. This is relayed to insurance companies, doctors, other therapists. Why not use it for your churn rate assessment? This is often a great estimation of expected visits per patient. If the patient exceeds the expected visits, just calculate that churn rate as 0% (no need for negative churn here).
2. Outcomes Tools: The Less Subjective Approach
If your outcomes tool provider offers an expected visits per case, use that! If you're using a tool like FOTO, finding expected visits per case is simple. It's also a bit less subjective as it takes into account your practice's history, the patient's diagnosis, and leverages a larger dataset to get a more accurate prediction when used correctly. Outcomes tools that provide expected visits per case make this process much easier.
3. Bucketing: The Poor Man's Outcome Tool
If you're not using an outcome tool but you feel like you have a good handle on the expected visits per case needed for a given patient at your practice, it can sometimes work to bucket your patients by diagnosis, age, or a number of other factors that you feel you have a good handle on. Specifically, if you feel that patients at your practice require only 4 visits for a meniscal repair, bucket all patients with a meniscal repair to use 4 visits per case as their expected visits. While this is sometimes hard to administer, Excel can be your friend. Drop me a line if you want a spreadsheet that can automatically handle this bucketing for you.
How to manage "good churn"
Once you've got a handle on Expected visits and actual visits, you're ready to start calculating. Be sure to calculate it on a patient by patient basis to get the most accurate numbers. But there's one common issue people always like to raise:
What about when a patient comes to fewer visits than we expected, but they actually got better?
Congrats, you just won a patient for life. This is not bad churn! In fact, you should strive for this with every patient you treat. Exceeding expectations is an excellent way to develop customer evangelists, and nab some awesome 5 star reviews (if you ask for them). There is an easy way to weed out good churn from bad. Simply ask, were this patient's goals met or not? If their PT goals were met and their actual visits were less than their expected visits, don't sweat it. Simply mark that patient down as 0% in your churn rate calculation. This will give you the most accurate picture of bad churn, and that's what you're trying to correct anyway.
Setting up a standard benchmark
We're still working to create a set of standard benchmarks for these metrics in physical therapy. Want to start calculating churn at your practice? Awesome! Want to tell us about it? Even more awesome! Let us know in the comments if you think this is worth measuring, or is something you are already measuring. Together we can help other practice owners cut down on patient dropouts.