Charge capture: Uncharged services are far more damaging than you realize
Charge capture refers to the percentage of goods and services performed for patients that end up getting properly charged for on the invoice. Every veterinary clinic has a charge capture issue to some degree. 100% charge capture is an impossible aspiration, but maximizing charge capture can dramatically improve the financial state of your clinic because converting unrealized revenue on goods and services that already are accounted for as expenses means that all of that realized revenue now can be added to the bottom line as profit. Your clinic already pays the expense on those uncharged goods and services today, so capturing those currently un-captured charges moves your top line and bottom line up together going forward. Every aspect of care for your patients should be getting appropriately charged for because the cost of providing that care will be the same regardless of whether you do or don't collect the proper amount of revenue.
"It's just a nail trim": An example of the impact of poor charge capture:
Let's look at an example clinic of 2 DVMs, $1 million of annual gross revenue, $70,000 of EBITDA (cash flow or profit) representing 7% of gross revenue. The clinic charges $15 for a canine nail trim, performs 1500 nail trims per year, but only charges for 500 of them (33% charge capture).
Current clinic top line: $1,000,000
Current clinic bottom line: $70,000
Current clinic profit margin: 7.0%
Current nail trim revenue at 33% charge capture: $7,500/year
Nail trim revenue at 90% charge capture: $20,250/year
Clinic top line with better nail trim charge capture: $1,012,750
Clinic bottom line with better nail trim charge capture: $82,750
New clinic profit margin: 8.2%
This is just one of many services that the average veterinary clinic has poor charge capture on. Simply by making sure that your team enters charges for all of the work that they already do can dramatically increase the profitability of your veterinary clinic.
Re-framing your mentality around charge capture as an owner:
Poor charge capture is theft from your business, even though it is unpleasant to think about it in that way (nobody wants to think of their trusted employees as stealing from the business). Chances are your employees don't think of it that way either. Re-framing our mentality around poor charge capture to see it for what it is means we can start to give it the high level of attention that it deserves. When they are on the clock and getting paid by you for their time, the efforts of your employees are not theirs to give away. An intentionally omitted $15 dollar nail trim charge hurts your business just the same as if an employee walked into the pharmacy and took $15 of medication off of the shelf. The first step in addressing poor charge capture is realizing the seriousness of the issue as an owner and making it a priority to address.
Re-framing staff mentality around charge capture:
Poor charge capture is often a symptom of a larger cultural concern within most veterinary practices, where staff members feel a disconnect between the price and their perceived value of the services provided to their patients. That disconnect is often exacerbated by negative interactions with clients centered on price. Staff members, like clients, only have insight into the top line of the business. They see the big numbers on invoices and the distress that the cost of care causes clients, but they aren't privy to the massive amount of overhead and expense that eats up 75-95% of that invoice before any of that money ever reaches the owners of the business. Here's some ways to re-frame the way that staff members think about charge capture:
Clarify to staff that charge capture is a theft issue: This isn't a comfortable conversation, but it is a necessary one. Giving away something that doesn't belong to you isn't a gift, it is theft. The goods and services of the veterinary hospital, even if those services only involve the time and energy of staff members, are not theirs to give away.
The carrot is better than the stick: Aligning the interests of staff members with those of the business is a powerful motivator. Profit sharing, year-end bonuses, or other revenue sharing models are a great way to help staff members feel that what is good for the business is good for them as well.
Get to the root cause of poor charge capture: Staff members are usually giving away services because they feel that either the services are overpriced or that clients are unable to afford them. Getting your staff to push for clients to get pet health insurance, educating clients on the cost of care at their first visits so that they can budget appropriately, and reinvesting some of the gained profits from improved charge capture towards a clinic "goodwill" fund for truly hard-knock cases are all ways to help cut down on the number of negative interactions that your staff have with clients due to cost of care.
Supervise and audit: Just as it is important to monitor inventory levels to screen for theft, it is important to periodically audit to make sure that the goods and services reflected in patient medical records are consistent with the charges reflected on client invoices. "Trust, but verify." You shouldn't hover or micromanage your staff, but performing a periodic audit of a sample of records is a good way to ensure that no invoice items are being routinely missed on charges.
Your employees often know things that you don't: Be open to the possibility that some of your prices may actually be too high and that poor charge capture is a reflection of a certain invoice item being a financial pain point for clients. Having frank dialogue with your staff about which items they feel may be overpriced and why is important in identifying areas where your fee schedule may be too high to maximize elastic demand. Your employees have the best perspective of which invoice items cause the most client conflict or are most often declined on the basis of cost. Understanding the price:demand dynamic of a particular invoice item as well as the impact of improved charge capture means that in some cases decreasing the price of certain invoice items is the most profitable path.
AVP prides itself on bringing extensive operational excellence knowledge to our practice partners. If you're interested in finding out more about how a partnership with AVP could benefit you and your practice, please reach out to me at bill@associatedveterinary.com