What You Should Know About Net Production and Net Collections
Case Study #277
The doctor’s concerns: Like many dentists, the doctor in this case study called McKenzie Management because his practice was struggling and he needed to find ways to earn more income. Here’s a look at his practice statistics:
- Gross Production for the month = $76,000
At first glance, it seems that on average he made his daily production goal for the month. The problem is, statistics can be deceiving – especially if you’re not comparing apples to apples. You probably talk with your dentist friends about how much you produce each month. But to really know how your practice is doing, it’s more important to determine how much you’re collecting, specifically how much you’re collecting after adjustments, which is your net collections.
A Look at Gross Production
- Office A is a PPO participant with this patient’s insurance and posts $80
These figures are all considered gross production because the Financial Coordinator hasn’t applied any adjustments.
A Look at Net Production
Now let’s look at office B. Office B receives payment from the insurance company and the EOB shows both the submitted amount and the allowed amount to be $68. That means no adjustment is needed and the net production is still $68.
Finally we have Office C. The EOB with the insurance payment indicates the submitted amount and the allowed amount are both $80. Again no adjustment is needed and the net production is $80.
Now let’s look at gross collections for the same scenario, assuming insurance paid 100% for this procedure in their plan:
- Office A collected $68
The amounts above all represent gross collections because no adjustments have been posted to them. But let’s say office C’s family balance was only $68 before the insurance paid. Because the insurance is paying $80, there’s now a credit balance of $12 that needs to be returned to the account. Once that $12 check is written to the patient, that office’s net collections becomes $68.
OK, so you’re probably wondering why this all matters. It’s to show you that gross production means nothing, and net production is nothing more than the amount collections are based on. Gross collections mean nothing because it doesn’t take refunds and NSF checks into account. So that leaves net collections. This is the number you should be focused on.
A Word on Credit Balances
Many states require these balances to be paid within 30 days, but that wasn’t the case with this doctor. We found he owed more than $14,000 in credit balances because he only returned overpayments if patients requested them. Please note it’s very important to exclude credit balances from the Accounts Receivable Report. In this doctor’s case, the $14,000 reduced his A/R to $53,800 when it really was $67,800 or 1.01x his net production instead of .80x, which he was misled to believe.
What This Means for the Doctor
This doctor also incurred $356 in refunds for the month because a patient elected not to complete treatment he already paid for. Therefore, his NET collections for the month came to $65,144.
$66,880 net produced
$65,144 net collected = 97.4% net collection to net production percentage compared to the 86% we saw when comparing gross production and collection dollars.
This gives us a much more accurate picture of what’s going on in the practice, which helps us better determine where the doctor should focus his efforts to make financial improvements.
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