So many analysts and sales people have made the fatal mistake of basing computations and pitches based on per patient metrics. The speech goes something like this: if you use our product on a patient, you’ll use 20% less staff time for that patient.
On its surface, that sounds great. Who wouldn’t want to reduce the people time per patient by adding product x? However, this pitch makes no sense because of the fixed cost nature of this business.
Sticking with the product reduces staff time by 20% for that patient, let’s say that over the course of a 2 year treatment, the staff person spends 2 hours (120 minutes) total with that patient. Cutting that by 20% reduces the total time by 24 minutes. That’s 1 minute per month over a 2 year period. Are you going to reduce a staff person’s time by 1 minute per month to realize cost savings of 33 cents per month (assuming a $20 hourly pay). Of course not, you’re not even going to adjust your schedule. Let’s say you have 100 patients like this. That’s 100 minutes of savings per month, or just under 2 hours per month. Adjusting hours now? Still, probably not. These decisions need to make in the context of the practice cost environment, not rich sounding minutae.
Here’s another example. In all of their massive wisdom, analysts at Baird in the early 2000’s examined orthodontic patients and found that on a per patient basis, money is lost in the first month of treatment for any new patient. They then extrapolated to determine that the company they were analyzing and thus, the entire orthodontic industry as a whole, were amassing huge losses. That’s completely nonsensical. Why? As the number of patients increase, the same work-hours combination of doctor and staff can treat those patients thus reducing the cost per patient as the volume of the practice grows. Basic stuff, but generally ignored by many. Don’t be one of those.
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