Patient Lifetime Value: How to Calculate It Across a Network

What You Need to Know

• Patient lifetime value adds up what a patient brings in over the years they stay with you, as revenue or as margin, including the downstream care your network provides.
• Calculate it by segment, because spending is concentrated. In 2022, the top-spending 5% of people in the US living outside institutions accounted for 49.7% of healthcare spending, and the bottom half for 2.8%¹.
• For the Access Center Recoverable Revenue Calculator, enter one year of gross billings per retained patient. Give finance the collected revenue and margin versions.

What is patient lifetime value, and what changes when you measure it across a network?

Patient lifetime value, or lifetime patient value, is the revenue or margin each patient brings in over their years with you. Across a network, it also counts the imaging, labs, procedures and referred visits your other locations bill after a patient's first visit.

How do you calculate patient lifetime value?

You calculate patient lifetime value by multiplying annual billings per patient by your collection ratio, contribution margin and expected years retained. Annual billings come first, and they add a patient's own visits to the downstream care your network keeps.

Annual billings per patient = (visits per year × billed charge per visit) + (downstream billings per year × share kept in-network).

Patient lifetime value = annual billings per patient × collection ratio × contribution margin × expected years retained.

• Visits per year is how many times a patient visits their entry service line, the one where they first came into your network. Scheduling or encounter data has it.
• Billed charge per visit is what your locations bill for one visit before payer adjustments. Revenue cycle reports show it by patient.
• Downstream billings per year cover the imaging, labs, procedures and referred visits clinicians order for that patient. Your electronic health record (EHR) holds those orders and referrals.
• Share kept in-network is the part of that downstream care your own locations deliver.
• Collection ratio is payments received divided by gross billings, also from revenue cycle reports.
• Contribution margin is what's left of collected revenue after the variable costs of care. Finance can give it to you by service line.
• Expected years retained is how long patients stay active with your network, which you can estimate from your panel data.

Leave out margin and the formula gives lifetime collected revenue. Leave out the collection ratio too and it gives lifetime billings. Bring the margin version to finance. Over long horizons, discount later years at your cost of capital.

What revenue belongs in the lifetime value of a patient for a health system?

Count a patient's own visits and the downstream care your network keeps, first as billings and then as collections.

Start from billings, then convert to collections

Collections depend on payer mix, so the same billings can bring in different revenue. In 2016 federal Medical Expenditure Panel Survey (MEPS) data, privately insured visits drew the highest median payment in most specialties². Medicaid visits drew the lowest, and Medicare visits fell between².

Add downstream care, then apply network share and margin

Credit each downstream service to the service line where the patient entered. Completed orders and referrals show how much of that care stays in-network. They're the same records that track patient leakage.

Under risk-based contracts, margin also depends on each patient's total cost of care. Medicare fee-for-service patients of physicians in the top fifth for continuity of care had 7.4% to 10.4% lower total spending than those in the bottom fifth³. That's an association across physicians³. It doesn't extend to other payers or to each patient's own continuity³.

Referred revenue here includes service line results that carry downstream care. Before you use it in a compensation or incentive plan, or in any payment to a referral source, have compliance counsel review the arrangement.

The Anti-Kickback Statute prohibits knowingly and willfully offering, paying, soliciting or receiving anything of value to induce or reward referrals of federal health care program business⁴. The Eliminating Kickbacks in Recovery Act can also apply to payments for referrals to a laboratory⁵. The same law can apply to payments for referrals to a recovery home or nonhospital treatment facility for substance use⁵. It extends to services that private plans cover⁵.

The Stark Law covers designated health services payable by Medicare or Medicaid⁴. A physician may not refer patients for them to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies⁴.

Why is the average lifetime value of a patient a misleading number?

The average lifetime value of a patient blends a few high-cost patients with many low-cost ones. In 2022, the top-spending 5% of people in the US living outside institutions accounted for 49.7% of healthcare spending, and the bottom half for 2.8%¹. Mean spending was $6,765 per person, against $374 for the bottom half¹.

That mean overstates the bottom half and understates the top 5%.

Segment by entry service line, payer and patient type

These cuts separate patients whose value differs, so calculate patient lifetime value for each.

• Entry service line. In 2016 MEPS data, the mean payment per office-based physician visit ranged across specialties from $159 in psychiatry to $419 in orthopedics, and the median from $103 to $134².
• Payer. Calculate private, Medicare and Medicaid patients separately, each with its own collection ratio.
• New versus established patients. A new patient has their whole retention period ahead, while an established patient has already used part of it.

Test retention as a range

Years retained multiplies every other input, so each added year adds another year of value. Run patient lifetime value at three, four and five years to see how far it moves.

Under risk-based contracts, physician turnover also adds cost. Medicare patients who lose their primary care physician to turnover spend an estimated $189 more in the first year⁶. The extra spending comes from more specialty, urgent and emergency care⁶.

What is one new patient worth, and why does a missed new-patient call cost more than one visit?

A new patient you keep is worth years of visits and network care. A missed call loses that value if the caller never books with you. With the illustrative inputs below, four years bring in $8,400 in collected revenue, 42 times the $200 one visit collects.

Every value in this table is illustrative, not a benchmark. Replace each with your own data.

Input (illustrative, replace with your data)ValueVisits per year, entry service line3Billed charge per visit$400Direct annual billings$1,200Downstream services billed per year$5,000Share kept in-network60%Downstream annual billings kept$3,000Annual billings per retained patient$4,200Collection ratio50%Annual collected revenue$2,100Contribution margin30%Annual margin$630Expected years retained4Lifetime value, billings$16,800Lifetime value, collected revenue$8,400Lifetime value, margin$2,520

Walk the arithmetic from billings to margin

Three $400 visits come to $1,200 a year. Add the $3,000 of downstream care your network keeps, 60% of $5,000, and you bill $4,200 a year for that patient.

For finance, a 50% collection ratio turns that $4,200 into $2,100 of collected revenue, and one $400 visit into $200. A 30% contribution margin then leaves $630 a year in margin.

Enter your own billings figure into the calculator as its annual patient billings value. It defines that value as "total billings over the patient relationship in a single year." Use one year of gross billings, before collections or margin.

The calculator only counts revenue from appointments you can still schedule, so a full schedule shows nothing to recover. Third next available appointment is one way to measure that open capacity.

Price the missed new-patient call

Multiply the margin version of patient lifetime value by the share of missed new-patient callers who never book with you. That gives the expected loss from each missed new-patient call. Measure that share from your callback and booking records, counting each caller once, and track it next to your abandonment rate.

How should patient lifetime value compare with patient acquisition cost?

Compare the margin version of patient lifetime value with patient acquisition cost, by channel and service line. To get patient acquisition cost, divide what you spent acquiring new patients in a period by the number you acquired. That spend includes marketing, referral development and patient access staff time on new-patient calls.

Lifetime value divided by acquisition cost (LTV:CAC) shows which channels return more than they cost. Work it out for each channel, because a blended ratio can hide one that loses money. The sources behind this article publish no benchmark for either figure. Each network sets its own thresholds. Compare channels with each other and with your open appointment capacity.

Before you pay an outside referral source or lead vendor, have compliance counsel review the arrangement. The Anti-Kickback Statute covers payments that induce referrals of federal health care program business⁴. Do the same before any offer of value to Medicare or Medicaid patients, which the beneficiary inducement law restricts⁴.

A new patient who calls to book may already have cost you acquisition spend. An unanswered call can leave that spend with no visit.

What do Commure AI Call Center Agents handle on the calls that start and keep a patient relationship?

Commure AI Call Center Agents handle the routine calls that start a patient relationship and keep it going. They take new-patient intake, register new patients in the EHR, and book, move, confirm and cancel visits by your provider, location and visit-type rules. They answer in English or Spanish at any hour, and complex requests go to your staff.

To see how your new-patient calls end today, ask for a complimentary call center health analysis. It reports a week of call volume by category and outcome, plus an estimate of how much could move to AI patient scheduling under your booking rules.