PLEASE, Watch Your Practice Scoreboard
Case Study #421
Dr. Martin called me. He was a previous client of McKenzie Management six years ago and we have stayed in touch over the years from time to time. He expressed two concerns – cash flow over the past four months and the training of an “Office Administrator.” This article is about an area that concerns all dentists at many times in their careers – cash flow. Or more specifically – the lack of cash flowing through the office. Upon my revisit to Dr. Martin’s office to address both of his concerns, here were my findings:
So, what should these scores be for a healthy practice to have a healthy cash flow?
The Accounts Receivables should never be more than 1x the monthly NET production. It is also VERY important to exclude credit balances from the total, as this reduces the true balance owed by your patients.
Net Collections should average 98% of net production. 2% written off to bad debt is unfortunately standard in the industry, no matter how good your systems are.
A/R over 90 days should be no more than 10% of the total A/R. Anything more than this should be reviewed to determine if these balances should be turned over to collections because the Financial Coordinator has done all she can do (letters and phone calls) or maybe all these patients are making monthly payments. If that is the case, I would suggest that you re-construct your Financial Arrangement to only extend monthly payments for 3-6 months with a credit card authorization. Even this is risky, and should not be offered unless the patient is long-standing in the practice and has a good history of paying their statements.
Outstanding Insurance Claims over 60 days should be ZERO! I actually visited an office recently that had no claims over 30 days. I thought I had generated the report incorrectly. Upon further inquiry, I discovered that they are calling at 15 days past due. Good for them!
Over-the-Counter Collections should average around 45% of net production. There are exceptions to this, such as specialty practices. You can easily determine what percentage of your practice’s income is coming from insurance companies by reviewing your Payment Summary Report/ADA by Production Code Report/etc. Every dollar that is not insurance should be from the patient at the time of service (over the counter). This is assuming that your practice is collecting around 98% of the net production and your insurance claims are under control.
So what happened to Dr. Martin? He stopped looking at the scoreboard! He admitted that after years of reviewing the practice statistics, he had become bored of looking at the “same old, same old” information. For the past 4 months, he did not review them at the monthly meeting. Since he wasn’t asking for the statistics, his Financial Coordinator wasn’t sharing them with him. When I revealed them to him, he was shocked! Just seeing over $40,000 in outstanding insurance claims was enough to help him understand what happened to his cash flow, let alone the other facts that we reviewed.
The Importance of Watching Your Scoreboard
For all the dental practices out there that don’t have a scoreboard in the practice, shame on you! How do you even know how your team is doing if you don’t look at the score? Your guide is the fact that you can cover your payroll without your payroll checks bouncing, right? You can pay all your bills and fund your retirement… that is your scoreboard. That still doesn’t mean that you are winning the ballgame.
I worked with a practice recently where the doctor felt that his business team was not doing as good a job as they should. It appeared that they were always happy and having a good time, but he was concerned and worried about their performance. He had no idea what the score was because he didn’t have a scoreboard. Once we hung the scoreboard and taught everyone how to read the score, he discovered that they were winning the game, and enjoying it at the same time. What a great way to play!
Please – hang your scoreboard and keep score. Be an informed coach instead of a backseat cheerleader and take your team to victory every month.
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