5.23.14 Issue #637 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Nancy Caudill
Senior Consultant
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Your Adjustments Can Break Your Bank!
By Nancy Caudill, Senior Consultant

Your first question may be: “what is an adjustment?” And a reasonable question it is! Let’s briefly review production and collection adjustments that may take place in your office every day.

Collection Adjustments
There are only three types of collection adjustments; refunds to patients or insurance companies, a returned check, or an incorrectly posted payment. Why are these “collection” adjustments?  Because they affect the monies that have already been placed in your bank account and now the monies are being adjusted. An example of a collection adjustment would be as follows: A patient makes a payment on their account for $100.  The insurance company payment pays more than anticipated on the patient’s account and now the account has a $100 credit balance that is owed back to the patient.  When the initial payment was made by the patient, your bank account balance was increased by $100. Now you are sending a refund to the patient, so your bank account is lowered by the $100 check that you wrote from the account. The two transactions are a wash, more or less.  Your “net” income from the patient payment is $0.

Production Adjustments
The majority of adjustments that are posted to the patients’ accounts are production adjustments. These adjustments affect the original fee that was charged to the patient.  Some examples of production adjustments would be senior, cash, professional, employee and family discounts - or “courtesies” as I would prefer to call them. These adjustments reduce the original charge that was made on the patients’ accounts (unless the original transaction charge for the treatment was reduced initially by overriding the default charge from your practice management software). This is not recommended for several reasons - it is important for the patient to see the original fee along with the reduction, as well as for the practice to monitor the courtesies that are being provided by the practice to the patients.

There is also the dreaded but accepted “PPO” adjustment, but I won’t go into detail about that one here. Other production adjustments come in the form of a “bad debt” write-off, “small balance” write-off, “uncollectible” write-off, etc. I would like to focus on the “bad debt” and “uncollectible” adjustments below.

Net Production
Net production is the amount remaining that the patient owes after an adjustment has been posted. You collect on the “net” amount that is adjusted and not on the “gross” amount before adjustments except in the case of the “bad debt and uncollectible” adjustments. These adjustments are posted when an account is not collectible and may be turned over to a collection agency. Industry Standards indicate than an acceptable “net collections to net production” percentage would be 98% or higher. I would propose that after the uncollectible adjustments, it should be 100%! 

Without proper training as well as the “rights” from the practice management software, production adjustments will have a major impact on how much your practice is collecting. Remember that you collect on adjusted production! What does this mean to you? A simple example follows:

You just hired Susie, who has never worked in a dental office before. She is unfamiliar with how PPO adjustments are handled, besides being told that the patient doesn’t pay the difference between the practice fee and the allowable fee. Your fee for a service was $100, and the PPO allowable fee was $80 and covered at 80%. Susie, not knowing any better due to lack of proper training, receives the insurance check for $64 (80% of the $80 PPO fee). She proceeds to adjust the remaining balance of $36, leaving the patient with either a $0 balance or a credit balance of $16, which was the 20% patient portion of the reduced fee of $80 IF it had been collected at the time of service. You are given a request for a refund for $16, at which time you send a refund check.

Another example is an inexperienced business coordinator, having not been taught how to make collection calls to delinquent accounts, sees an adjustment code called “uncollectible” and feels that it’s appropriate to write this balance off. She has sent five monthly statements with no response so it must be “uncollectible” at this point. In this scenario, the posts could add up to thousands of dollars a year.

Every month, sit down with your business coordinator and review the production adjustments that are posted to the accounts. There should be a report that is generated daily with the charges, payments and adjustments posted. Review these daily for accuracy. Question large adjustments and encourage your business coordinator to post “notes” with explanations regarding the adjustments.

It is also suggested that if your practice management allows, set up an adjustment code that more accurately describes the adjustment that is being posted. Examples would be:  10% Cash Courtesy, Employee Family, Employee, Posted in Error (Credit), Posted in Error (Debit), Small Credit Balance Adjustment, ABC Insurance Adjustment, Small Uncollectible Adjustment, Finance Charge Adjustment, Old Balance over 1 Year Adjustment, etc. The more categories there are, the easier it is to review the adjustments for accuracy.

Keep your production adjustments to a minimum. Monitor the percentage of adjustments compared to your gross production monthly. It should not vary much from month-to-month if properly posted.

For more information about receiving an analysis of your Business Operational Systems, contact McKenzie Management today.

If you would like more information on how McKenzie's Consulting Coaching Programs can help you implement proven strategies, email info@mckenziemgmt.com

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