McKenzie Newsletter 365


	Hygiene Salary Survey Credit Balance Headaches Consultant Case Study

Hygiene Salaries Holding Their Own, So Far
by Sally McKenzie CEO
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The stock market may be tumbling, gold prices may be soaring, but hygiene salaries appear to be steady or increasing in spite of the economic woes of the nation. RDH Magazine’s annual salary survey results were recently released, and California and Washington rank #1 and #2 on the pay scale once again. Illinois, however, has dropped out of its third place position, and Alaska, which didn’t even make the top 15 paying states last year, moved in. The 2008 top 15 states for hygiene hourly rates are:

California $48.68 Washington $46.37
Alaska $41.94
Nevada $41.25
Arizona $39.67
Connecticut $39.53
Maryland $38.82
Colorado $38.00
New Jersey $38.00
Massachusetts $37.73
Virginia $37.73
Hawaii $37.00
Oregon $36.95
Illinois $36.00
Idaho $35.75

The lowest paying state is Alabama. The states rounding out the bottom five on the hourly pay scale are:

Alabama $18.26
Mississippi $21.50
Kentucky $27.00
Maine $28.15
Michigan $29.18

RDH reports that the average hourly rate in the majority of states (35) is between $30 and $39.

As for the economy and how responding hygienists rated the financial health of the practices in which they work, 50% reported that business is good but has slowed down somewhat. Another 34% reported that not only is business good, schedules are always full. However, 14% reported that their practice owners are very concerned about revenues, and 2% said the practice’s financial health is weak but the doctor is not concerned. Survey results were collected from August into November 2008. Although the economy has been suffering over the past several months, it is interesting to note that some 84% of practices appear to be maintaining “good business.”

Of those hygienists responding, just over 50% reported that they had received a raise in the last 12 months. However, 52% reported dissatisfaction with the intervals at which raises are given, which is an increase of 12% over last year.

Certainly, compensation is one of the most emotional and challenging issues practices face. Nonetheless, salaries should be reviewed annually. I wouldn’t encourage practice owners to forego salary hikes unless they have to, but pay should never be increased—no matter what the economic condition of the country—until a Salary Review is conducted. This mathematical tool enables practices to quickly and clearly determine how much of a raise they can afford while keeping total salary overhead in line with the industry.

In addition, remember that raises must be based on individual ability or achievement. This is the most effective compensation system because it is contingent upon demonstrated results. Moreover, it enables every team member to understand that individual job success equates to practice success, which is linked to increased compensation.

Employee salaries should account for no more than 22% of total overhead, not including employee benefits, which will run an additional 3–5%, or the doctor’s compensation. For example, if your staff salaries for January are $14,300 and your average monthly collections are $65,000, you are within the recommended industry range of 19–22% of monthly collections (albeit at the top of the recommended range).

Spell out exactly how the compensation system works in the practice, what is available, what formulas are used, what it takes to earn more money and how much more an employee can earn in a position. Employees must understand how compensation is established, including benefits, bonuses, special perks and their role in influencing their pay. Once you have an established system, follow it. As one hygienist reported in the survey, “Annual increases are based on increased production, [but we] always have to ask; they are never just offered.” Don’t make compensation promises you don’t intend to keep.

Next week, is hygiene pay outpacing hygiene production?

Interested in speaking to Sally about your practice concerns? Email her at sallymck@mckenziemgmt.com.

Interested in having Sally speak to your dental society or study club? Click here.

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Belle DuCharme CDPMA
Instructor/Consultant
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Credit Balances Unbalance Your AR

As of late, I have been noticing large credit balances on the Accounts Receivable reports of dental practices that come in for Advanced Business Training. Unmanaged credit balances on accounts distort your profitability and misrepresent your AR percentages. Difficult to identify and easy to ignore, credit balances are often left on accounts because of the time needed to justify and resolve them. “The doctor is more concerned with people who owe us money,” said one trainee. “We have thousands of dollars in credit balances on accounts and the way the economy is, the Doctor doesn’t need to know he has to return most of that money.” The truth be known, most dentists are not aware of the amount of money sitting on their accounts that may not be theirs to keep.

What is a credit balance? A credit balance is an amount on a provider’s accounts receivable (AR) that has payments and allowances exceeding total charges. For example, if you charge patient Tom Jones for a two-surface resin $250.00 and he pays you $100.00, the total AR is $150.00. Then patient John Wheel is charged $200.00 for a cleaning and exam and his insurance pays $210.00. Your total AR is now showing $140.00 reflecting the credit balance of $10.00 on John Wheels’ account. The real AR balance is $150.00. Multiply this by many accounts and you can see how the accounts receivable will be off by hundreds or even thousands of dollars.

What causes credit balances? There can be many reasons for credit balances on accounts, including billing and payment errors, overpayments on insurance claims or duplicate payments from insurance companies. Receipts of “down payments” from patients prior to treatment being charged out, such as orthodontic cases or prosthodontic cases, will show an inflated credit balance report and subsequent lower AR percentage. Misposted allowances from PPO plans need to be carefully checked to make sure that credit balances are not errors that need to be adjusted to a zero balance. We don’t want to return money that is not owed. A good collection policy of estimating and collecting co-payments and deductibles at the time of service can result in higher than normal credit balances. Inform the patient as soon as insurance payments are received with a statement to show the credit and a note asking the patient if you should return the money or leave it on the account for the next visit to the office. Often patients opt to leave the balance on their accounts to cover future co-pays or deductibles.

Why do we need to know the AR balance? The normal total accounts receivable should not be more than 1 X the previous monthly production. A healthy AR should not have more than 10–12% in 90 days past due. To understand the AR aging report, generate an accounts receivable aging report (without credit balances if possible) and a separate Credit Balance Report at the end of the month. Otherwise, the credit balances have to be added back into the Current Amount and the Total Amount of AR listed on your report to get the accurate amount of money owed to the practice. There should be no insurance claims outstanding more than 31 days. The aging report is used to identify the health of the AR department and to control the amount of monies owed to the practice. When numbers are thrown off by aging credit balances on accounts, it is difficult or impossible to know if the practice numbers are healthy or not. One of the best ways to measure the performance of your business staff is now null and void when convoluted with credit balances.

Clean up the credit balance mess. A common mistake in practices is to not check the account balances of patients as they come into the practice for recall or follow-up treatment. Collecting the amount charged today without subtracting out the credit balance allows the credit to remain on the books for longer periods of time. If patients discover their credit balances before you inform them, you are creating an atmosphere of mistrust that could result in the loss of patients. If you discover that you have thousands of legitimate credit balances on your books, start to remedy the matter by contacting a few patients at a time, budgeted into what you can afford to pay out and still make your overhead obligations. Check to see if these patients need treatment and suggest that the credits be applied to future services.

Want to improve the business systems in your practice? Call us today and we will help you organize your business to be more profitable.

For more information about McKenzie Management’s Advanced Training courses, email training@mckenziemgmt.com, call 1-877-777-6151 or visit our website at www.mckenziemgmt.com.

Interested in having Belle speak to your dental society or study club? Click here.

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Nancy Caudill
Senior Consultant
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Need Money? Look Here

Dr. Greg Williams—Case Study #531

It is interesting to note that when times are good, a dentist owner can fall short when it comes to being a business owner.

A smart business owner knows where dollars are going and what percentage of those dollars is going to specific areas of overhead.
A smart business owner carries enough employees to work efficiently and profitably.
A smart business owner conducts a yearly strategic planning session to establish goals in order to continue profitability AND tracks the results to determine if the goals are being met. If they are not, a smart business owner involves his team when determining which areas are falling behind in the business so his team feels involved in the decision-making.
Most of all, a smart business owner never lets the opportunity to increase cash flow slip away. Every rock is turned over to confirm that all income streams are being tapped into. This business owner never sits back and allows the business to run its own course. A smart business owner directs the business on a specific course.

Dr. Williams now understands what a poor business owner he has been. His practice ran on automatic, but it worked fine for eight years because times were good—even great!

What Dr. Williams Had to Learn:

how to read his P&L monthly to properly manage his overhead
how to properly evaluate his team for efficiency by incorporating job descriptions
how to establish yearly, monthly and daily production goals for his hygienists and himself
how to run specific reports from his practice management system in order to make sure that the “rocks were turned over” every month
most important—how to empower his team to work with him in order to keep the practice profitable and to enjoy what they do

What Dr. Williams Discovered about His Practice:

His Accounts Receivable Report revealed that the ratio of A/R to Net Production was close to 2x his net production. Industry standards are 1x or less. Interestingly enough, he was given an A/R report each month that revealed his A/R ratio was 1.3 and he was okay with that. The fact was that his true A/R was 1.8 because the A/R report that was being generated by his Financial Coordinator included $35,000 in credit balances. This was reducing his true A/R by $35,000! She didn’t know any different and he didn’t either.

How Dr. Williams “Turned over Rocks”:

1) $20,000 in outstanding insurance claims is an example of cash sitting on a tree ready to be picked. All it takes is someone to pick it. The Financial Coordinator should be making telephone calls to the insurance companies at 15–20 days past due if the claims are submitted electronically and still outstanding.

What should the doctor do? Review the “Outstanding Insurance Claims Aging Report” monthly to confirm that the claims over 60 and 90 days are minimal. No days overdue would be the goal, but at minimum the Financial Coordinator should know exactly what the delay is on each claim that is not paid.

2) Accounts Receivables over 90 days should be addressed in the following manner:

Two phone calls should have been placed to the account holder regarding the unpaid balance.

A letter should be sent to the account holder offering a __% “bookkeeping adjustment” to pay the balance in full by a specified date. The collection agency is going to charge you a fee to collect it so you should consider offering an adjustment as well. It is all about cash flow, and the longer the account is outstanding, the harder it is to collect.

If there isn’t a response by the due date, the account should be written off as bad debt and passed on to a collection agency.

What should the doctor do? Ask for a copy of the Accounts Receivable Aging Report each month and take a few minutes to review it with the Financial Coordinator. Discuss where the breakdown was that caused any accounts to become delinquent. Unless the patient gives you a bad check or credit card, the responsibility falls on the Financial Coordinator. About 2% of all net production should be written off as bad debt. Any more than that is a sign of breakdown. Be sure to review your Adjustments Report along with the Aging Report to see how many dollars are indeed being written off to bad debt.

Need extra cash for the practice? Contact McKenzie Management to learn about turning over rocks in your practice.

If you would like more information on how McKenzie's Practice Enrichment Programs can help you IMPLEMENT proven strategies, email info@mckenziemgmt.com.

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Hygiene Salaries Holding Their Own, So Far by Sally McKenzie CEO Printer Friendly Version

Credit Balances Unbalance Your AR

Need Money? Look Here

Hygiene Salaries Holding Their Own, So Far
by Sally McKenzie CEO
Printer Friendly Version