Before we delve into the third part of our profitability equation, I want to address some comments and questions about the first part of our equation. The questions have ranged from this is too simple, to, no one has ever explained the business of dentistry this way. Just so we stay on the same page, I want to ask each of you a question. The question challenges you to actually assess where you are and diagnose what you will need to do to improve your scoring position in dentistry. It is the attitude of incredulity that has me scratching my head and trying to logically figure out why and where some of these questions come from. You should already understand the commonsense logic of this equation and the need to keep track of your score.
PV X PEV X CP – O = P
I live on a farm, married a farmer’s daughter, own a ranch, and have animals and crops. I just wonder if you have ever heard of a farmer who planted corn yet harvested wheat? Or have you seen tomato seeds grow into watermelons? Few things in life are as certain as the agricultural principle that whatever seed you plant, that’s what you’ll reap. The same is true in technology: garbage in, garbage out. And in finance, if you don’t invest, you won’t get a return. So, even in dentistry you get back what you put into your practice. This equation defines what you must understand as well as what you must put in, to get profits out. In fact, every business needs to assume that they must always make a profit. You could even say that in casting a vision for your practice, one needs to start with the goal of Profits first. Our formula of Number of Visits X Production per each Visit X Collection Percentage Minus Overhead = Profits could be turned around to start with the Profits equal the rest of the equation. Sort of like starting with the end in mind. This is great strategy that will automatically prevent you from spending time and money on equipment, strategies, and training that will not directly increase profits. These discussions are asking you to plant common sense practice management in order to reap a bountiful supply of profit in a practice that consistently grows 15%-20% a year while seamlessly adapting to an ever-changing dental economy. Each and every one of you can do this.
Collections percentages should foster some pretty black and white understanding of business. No business operates on production. You can’t spend, pocket, or save production unless you collect it. A dental practice isn’t about production as much as it is about net collections. Too many times I see doctors bragging about production numbers in the multimillions only to find out they are talking about “gross production”. That’s not even a real number. Gross production would be you telling me you produced $1,500 for a crown, without adding that because it was an in-network insurance patient, you could only charge $800, and because you have poor financial arrangements, your collection rate was only 94%. It has never and will never be about gross production! It is all about the “net” when it comes to our equation, or any other businesses bottom line.
The average collection rate in 2022 for the average dental practice was 94%. When asked, the average dentist will tell you that 98% is the goal in collections in a really good practice. I am telling you that anything below 100% is not good. In fact, great practices consistently collect well over 100% every month by having systems and protocols that start with the foundational belief that 104% or greater is their goal. They collect the patient copay up front, always estimate the insurance coverage about 10% less than what they think they will receive and have protocols and systems that enforce a practical solution to collecting 100% plus while helping the patient afford the dentistry that they need by fitting the investment into their individual budget. It is this comprehensive approach that guarantees success in collections. One other key focal point that every practice with superior collections and no accounts over 60 days in their aged accounts receivable is that this type of practice and doctor know exactly what 1% of their practice represents in dollar bills. For a million dollar a year practice, they know that they collect an average of $83,333 a month and one percent of their collections a year is $10,000. Easy trick to help each team member and the doctor understand that every one percent not collected in these million dollars a year practices is $10,000 that can’t be added to profit sharing and profitability. This is why benchmarks and sharing fundamental data with your team is so important. If you have not gotten your copy of The Super General Dental Practice for free, go to www.supergeneralpractice.com and download you copy today. Take the time to read chapters 16 and 17 on overhead and benchmarks as well as chapter 18 on the Purpose Driven, Doctor Led, Staff Owned dental practice model. This will change your life.
Here are a few ideas on shoring up your practice strategies to score quickly and consistently.
- Accounts Receivable Policies established: Of all the areas we try to monitor and control, accounts receivable is the easiest to improve, but for most offices the area most likely to be out of whack. Aged accounts receivables and aged insurance are two areas that protocols and systems can have the most impact on. Don’t get me wrong, this is a constant challenge to train, monitor, and get the results you want and need, but it is also one of the most black and white systems we deal with. Once, again, there are hundreds of details and articles you can access for free at www.summitpracticesolutions.com/blog. Take advantage of this information to formulate solid systems for great results. Ideally, there should never be any accounts over 90 days. Even the 60–90-day area should be very small, maybe 10% at most. That means you should be collecting everything at time of visit, prepaid, and insurance reimbursement in a matter of weeks, not months. This is an easy area to let get out of control. The Standard used to be to keep at least one month’s earnings in your accounts receivable. This couldn’t be further from the truth. We averaged two weeks earnings in our accounts receivable and I would be nervous about that. Set some goals and benchmarks and create the systems that ensure the right policies for a healthy accounts receivable.
- Reduce outstanding dental claims: There are a lot of people out there offering advice on dental insurance filing and collections of those claims. Most are awesome and are worth your time to learn the ins and outs of becoming a Tarzan in a managed care jungle. While you are tracking down articles on our website, make sure you take a look at our insurance demand letter. Designed by my brother the attorney. You will love this strategy. There are a few “shoot from the hip” strategies that everyone should be doing. Any insurance claim, when dealing with patients, should be estimated with about a 7%-10% error in what they will pay in your favor. As an example, if you think they will pay $400 dollars for a procedure, lower that by about 10% or $40.00 when speaking with the patient and what their portion will be. I found early on that one of my biggest frustrations was sending out statements for anything less than $100.00. If you do the math on chasing these “tails” of unpaid insurance due to poor estimation of benefits, you will spend about $12-$15 per statement and the patients tend not to pay it because you will send another one in 30 days. They also tend to think that you and your team are idiots for not giving them the correct amount for their portion. How could you possibly miscalculate my bill? You used a computer. You are either a crook or incompetent. On the other hand, if they do pay a larger amount than your estimate, the patient is delighted to get the news that the insurance company paid more than we thought, and they now have a credit balance. You look great, you are not chasing those “tails”, and the patient is giddy. Secondly, make sure you drown the insurance companies with more information than they ever say they need: extra x-rays, photos, probing depths, before and after x-rays and photos, etc. You want to make sure that they could never ask for more data. If they deny the claim, pull out that demand letter I was talking about and spank them with it. It works great. Finally, make sure that every insurance is filed the same day the patient comes in for work. You don’t wait days or weeks. There are no exceptions and no excuses that your front desk did not have the time to do it. Lose your excuses and find your results. This has to be monitored and acted on in a consistent manner to ensure excellent results. One last thing. Everyone needs to be using Charles Blair’s book, Coding with Confidence. You can expect about a 6% increase in reimbursement when you start doing this correctly.
- Create systems to attack overdue accounts: While almost every office uses a practice management software and has done away with paper charts, too few use the technology literally at their fingertips as a force multiplier in dealing with overdue accounts. The trick on keeping your accounts receivables low, and your overdue accounts at near zero, is based on black and white systems, tracking, and the speed at which you act. Add consistency to this and you have a perfect recipe for financial nirvana. In the special forces, you hear the mantra for defeating an adversary as surprise, speed, and violence of action. I think most patients are surprised when the day after they are late on a payment or failure to do something they said they would do, they get a call. You offer a friendly reminder, ask if you can help in any way, and have a system to follow up. The speed of doing this is what makes it work. Everything you do is training your patients and creating their expectations. You are on time, you help them fit their investment into dentistry into their budget, find a convenient time for the appointment, no surprises, and then even call or text a reminder. Do this consistently and you can expect them to treat you the same way.
Next, we take a look at Overhead, or as I like to call it, the cost of doing business. This area separates the good from the great. This is where the final score is won or lost.
Michael Abernathy DDS