Know Your Facts Before You Buy a Practice
Case Study #587 – Dr. Stan Marone
Dr. Marone was a previous client of McKenzie Management. He contacted us inquiring about generalized questions regarding the purchase of an existing dental practice that was struggling financially. He wanted to know and understand if this practice had revenue potential to bring to his existing practice in order to consider this important decision. Practice transition specialists provide the value of the practice in equipment, good will, etc. But Dr. Marone wanted to know more than the purchase price of the practice. He wanted to know if there was increased revenue opportunity that he could capture to bring to his existing practice. In other words, how long would it take him to begin seeing a profit? In order for us to help him with this analysis, informational reports needed to be requested.
1. Accounts Receivable (Aging) Report – This report should be generated in two forms: one that does not include the credit balances and one that is only the credit balances. Why? You need to determine if you want to “inherit” these accounts in the purchase of this practice. Many of the debit balances may be uncollectible and all the credit balances should be refunded to the patient/insurance company.
2. Outstanding Insurance Claims Report – Look for claims that are older than one year. Chances are that you will not collect on these claims. Otherwise, this is a possible revenue stream for you. (Do not include pre-estimates.)
3. Production Report by Procedure Code – This is a very important report, as it will illustrate what types of procedures are performed more often than others. For example, if you see hundreds of fillings and not near as many veneers/crowns/inlays/onlays/bridges, this may indicate that either the doctor is not comfortable “selling” higher dollar treatment, there is not a need (especially if the restorative procedures are primarily 1-2 surfaces opposed to 3-4 surfaces) OR there is the opportunity to convert these patients to more applicable treatment options relevant to their needs.
This report also provides the number of New Comprehensive Exams the practice is seeing. Remember that all those paper charts that are on the shelves are NOT active in most cases! Even though emergency new patients produce income and may convert to comprehensive exams, they are not contributing to the growth of the practice through hygiene until they are converted. Standard in the industry would be 25 New Comprehensive Exams being seen in hygiene to support one full-time dentist.
Periodontal production should be 33% of the total hygiene production for a typical general practice. This report will also reflect the number of periodontal procedures that are being performed by the practice. If it appears that periodontal procedures are limited, this practice does not have an active periodontal therapy program. This is an indication again of another revenue stream after the patients are educated.
4. Past Due Recall Report - Many doctors are looking to sell their practice because it is not producing enough to support the practice overhead and/or the financial obligations of the practice owner. McKenzie Management has found, over our 30 year history of consulting with dentists, that the Hygiene Department will make or break a practice.
Generate this report for the past 12 months. These are patients that were seen within the previous 12-24 months and never returned, usually because there was no follow-up. Sending a computer-generated “cutesy” postcard does not qualify as a legitimate effort to retrieve these patients. A systematic 5-step process must be instituted to keep a practice’s recall retention at a minimum of 90%.
This report is important to a buyer because these patients are NOT active! Until they are seen again in hygiene, they remain inactive so be careful when the selling dentist indicates that his practice management software says that he has 3,279 “active” patients and he has one lonely hygienist working 3 days a week to maintain all these “active” patients!
5. Recall Report for Patients with and without Appointments – This report should be generated for the next 12 upcoming months. If the practice has several “types” of recalls, be sure to include all the types. THESE are your active patients! All 600 of them…because that is all a hygienist working 3 days a week can support!
6. Fee Schedule Report – What are the selling dentist’s patients accustomed to paying? Are there PPOs involved and if so, how are you going to handle the change? If he hasn’t increased his fees in 3 years, take this into consideration when negotiating your purchase.
7. Unscheduled Treatment Plans Report – Are there tens of thousands of dollars “sitting” out there waiting to be picked by you? Maybe the report shows no treatment because the treatment plans weren’t entered into the computer unless the insurance coordinator needed to submit a pre-authorization claim. Be careful that if there is treatment, that it is accurate. Many times appointments are made and not scheduled from the treatment plan. If there were changes made to the treatment, the software will leave the existing treatment in the report as incomplete.
If you are interested in working with a McKenzie Management consultant during your “due diligence” period andwould like more information on how McKenzie's Consulting Coaching Programs can help you IMPLEMENT proven strategies, email email@example.com.
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