11.25.16 Issue #768 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Nancy Caudill
Senior Consultant
Printer Friendly Version

What You Should Know About Net Production and Net Collections
By Nancy Caudill, Senior Consultant

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   
- Gross Collections for the month = $65,500
- Gross Production to Gross Collections % = 86%

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
Gross production is different for different offices. Some offices post the already adjusted PPO fees as their gross production, while other practices post their office fees for patients where PPO contracted fees are not applicable. As an example, let’s look at a D1110 ADA Code where the office fee is $80 and the contracted PPO fee is only $68 and what that means in three different practices.

- Office A is a PPO participant with this patient’s insurance and posts $80
- Office B is a PPO participant with a similar patient’s insurance and posts $68
- Office C doesn’t participate with the 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
Let’s take the same numbers from the above example to illustrate net production. Office A receives the insurance payment and the Explanation of Benefits (EOB) and now must post an adjustment of $12. Why? The EOB shows the submitted amount of the claim was $80, but the allowed amount is only $68. The difference must be adjusted, making the new production for this office $68.

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
- Office B collected $68
- Office C collected $80

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
As I worked with this particular doctor, I also reviewed his credit balances, which is the amount of money owed to patients because of the difference between what the patient paid and what the insurance paid. This just means the insurance paid more than anticipated and you owe the patient money.

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 incurred production adjustments equivalent to 12% of his gross production, bringing his net production to $66,880. Production adjustments are any adjustments that reduce the original fee, whether it’s senior citizen discounts, family courtesy or bad debt write-offs, to name a few. None of these are collection adjustments, which only include refunds and a recharge of an NSF check.

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.

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

Forward this article to a friend

McKenzie Newsletter Information:
To unsubscribe:
To discontinue receiving the Sally McKenzie eManagment newsletter,
click on the link at the very bottom of this page for instant removal,
To report technical problems with this newsletter or to request technical help,
please send a descriptive email to: webmaster@mckenziemgmt.com
To request services, products or general inquires about The McKenzie Company activities
please send a descriptive email to: info@mckenziemgmt.com
If you would like to have any of your dental practice concerns answered personally by Sally McKenzie,
please send a descriptive email to her at: sallymck@mckenziemgmt.com
Copyrights 1980-Present The McKenzie Company - All Rights Reserved.