What Is An “Active Patient”?
Knowing how many active patients a practice has is a very important metric for most buyers and correspondingly should be an important metric for most sellers. Most sellers and certainly most buyers would agree, yet this is an area fraught with misunderstanding and confusion. The reason for this is pretty simple – there is no authoritative definition for an “active patient.” I have seen active patients defined as patients with a booked recall appointment, or patients with any booked appointment, or as patients who have been treated by the practice in the last 12 months, or patients who have been treated by the practice in the last 24 months.
The revenue that a practice can generate is largely dependent on the number of active patients it has, so knowing how many active patients a practice has is a crucial metric in determining how much revenue a practice is capable of generating. Of course, patients alone will not determine the earning potential of a practice. One needs to also look at matters such as the dentists’ abilities and inclination, as well as various cost factors, but right here we are going to focus on what information knowing the number of active patients will provide to us.
Given that there are a number of definitions of an active patient there must also be different expectations of what an active patient can do for a practice. If we were to define an active patient as a patient who had a booked recall appointment, and if we were to calculate the average annual revenue per active patient (AARP – a useful number to know) we should expect that number (the AARP metric) to be different as to if we defined an and active patient as a patient who has received treatment from the practice in the last 24 months. There certainly would be more patients in a practice who have received treatment within the last 24 months than there would be patients with a booked recall appointment.
The key here is that the metric calculated should have a different meaning for the author of each. The reason we calculate AARP is to gauge the operations of a practice against a set of industry standards. So, for someone using the 24-month rule, a good AARP might be $500 per patient while for someone using the booked recall rule might find that a good AARP is $1,500. The real key here is whether the individual using an active patient count to arrive at some AARP metric has the statistics or knowledge to properly make such a comparison. If I was using the recall rule and suggested that a practice should be generating $500 per patient per year, my advice would be very misleading.
From our perspective, we have chosen to define an active patient as one that we expect will provide ongoing stream of revenue to the practice. We know that there are patients that have received treatment within the last 24 months who will not return. We also know that there are patients who have not received treatment within the last 24 months who may well return – university students are a good example of this. The important element however, is that we know from experience and a lot of collective data what to expect in terms of gross revenue from patients who have received treatment in the last two years.
Is our definition of an active patient better than anyone else’s definition – we think so, but this is not necessarily the case. If someone has a different definition of an active patient, then hopefully they have the knowledge and statistics to assign proper and useful parametres to their definition. The real question you should ask yourself, as a buyer or a seller, is how did your advisor determine their definition of an active patient and do they have the experience and data base to properly equate their patient count with accurate and useful information.
For further information on AARP you can read out “Revenue/Patient & Practice Value” blog!