6.25.10 Issue #433 Forward This Newsletter To A Colleague

Nancy Caudill
Senior Consultant
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Why Are ‘Net’ $ So Important?
By Nancy Caudill, Senior Consultant McKenzie Management

Case Study #443
Dr. Brian George

Dr. George contacted McKenzie Management for the same reasons that so many of our wonderful clients do – he needs more income! It is as simple as that. Obviously, the solution is not as simple and involves every aspect of the practice. This article is written to shed light on the word “net” - as in production and collections.

Dr. George’s practice statistics:

  • Gross Production for the month = $76,000   
  • Gross Collections for the month =  $65,500
  • Gross Production to Gross Collections % = 86%

At first glance, you would say that he made his daily production goal for the month on average. However, statistics can be deceiving if you are not comparing apples to apples. How many of your dentist friends comment to you about how much they are producing a month? It is always a topic of discussion. What is more important is how much are they collecting?  And to take it a step further, how much are they collecting after adjustments?

Gross Production
Gross production can be different between offices because some offices post the already-adjusted PPO fees as their gross production. Other practices post their “office” fees for patients where PPO contracted fees are not applicable. An example of this would be a D1110 ADA Code where the “office” fee is $80 and a contracted PPO fee is only $68.

  • Office X is a PPO participant with this patient’s insurance and posts $80
  • Office Y is a PPO participant with a similar patient’s insurance and posts $68
  • Office Z does not participate with a patient’s insurance and posts $80

These figures are all considered “gross” production because an adjustment has not been applied to it by the Financial Coordinator.

Net Production
Office X receives the insurance payment and the EOB (Explanation of Benefits) and now must post the adjustment of $12 because the EOB reveals that the submitted amount of the claim was $80 but the “allowed” amount is only $68, so the difference must be adjusted in this case. Therefore, the NET production for this office is $68.

Office Y also receives payment from the insurance company and the EOB indicates that the submitted amount was $68 and the allowed amount was $68.  Therefore, no adjustment is posted.  In this case, the NET production for this office is still $68.

Office Z’s EOB with the insurance payment indicates that the submitted amount of $80 and allowed amount is the same so there is no adjustment made.  The NET production is $80.

Now let’s look at the gross collections for this same scenario. We are going to assume that the insurance paid 100% for this procedure in their plan.

Net Collections

  • Office X collected $68
  • Office Y collected $68
  • Office Z collected $80

The above collection dollars are ALL gross collections. No adjustments have been posted to them. However, let’s say that office Z’s family balance was only $68 before the insurance paid. Now the insurance is paying $80 and there is a credit balance of $12 that needs to be returned to the account. A check is written for $12 at the end of the month, bringing Office Z’s net collections to $68.

What does all this mean? Gross production means nothing!  Even net production means nothing other than this is the amount that the collections are based on. Gross collections mean nothing because the refunds and NSF checks have not been factored in yet. It is all about NET COLLECTIONS!

Credit Balances
During my visit with Dr. George, I reviewed his credit balances. This is the amount of money that he owes his patients due to the differences between what the patient paid versus what the insurance paid. It does not indicate that the insurance paid too much!  It just indicates that when the patient’s portion was “guestimated,” the insurance company paid more than anticipated, leaving the patient with a credit balance.

In many states, it is required by law that this credit be returned to the patient within 30 days. Unfortunately for Dr. George, he had over $14,000 in credit balances that had accrued over the 18 years in practice and had not returned these overpayments unless the patient requested it.

As a side note – it is VERY important that credit balances be excluded from the Accounts Receivable Report. In Dr. George’s case, this $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.

Bottom Line for Dr. George
His practice incurred production adjustments equivalent to 12% of his Gross Production.  Therefore, his NET production = $66,880. Production adjustments are any adjustments that reduce the original fee. Examples would be senior citizens courtesy, professional courtesy, PPO adjustments, bad debt write-offs, small balance write-offs, employee courtesy, family courtesy, incomplete treatment, etc. All of these adjustments reduce the patient’s original fee that was posted. None of these are collection adjustments, which only include refunds and a recharge of an NSF check.

He also incurred $356 in refunds for the month because a patient elected not to complete treatment that was already paid for. Therefore, his NET collections for the month were $65,144. 

$66,880 net produced
$65,144 net collected =
97.4% net collection to net production % compared to 86% when comparing gross production and collection dollars.

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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