8.4.17 Issue #804 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Nancy Caudill
Senior Consultant
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Production Adjustments Out of Control? Here’s How to Fix It
By Nancy Caudill, Senior Consultant

Dentist Case Study #367

The doctor’s concerns: “Production adjustments in my practice are out of control and hurting my revenues. I need to find a way to reduce the adjustments so I can start bringing in more money.”

This dentist had no idea how he got into this situation or how to fix it, which is why he called McKenzie Management for help.

Let’s take a look at the practice facts: 
-Monthly gross production was at $83,000 and monthly net production was at $45,650. Remember production adjustments reduce the dollar amount of gross production. A practice collects money based on net production.

-These numbers equated to production adjustments of $37,350, or 55% of gross production. 

-Collections were at $44,737, or 98%. Seems pretty good, right? Not so fast. The large amount of production adjustments the practice was experiencing served as a tell-tale sign the doctor had a problem that needed to be addressed.

OK, so how did he get here? To start, this doctor was posting more than 7% of his gross production to doctor courtesy – which means he was giving away 7% of his production to family, friends and anyone else he deemed worthy of a discount. That might not seem like a huge number, but it added up to nearly $6,000 a month! 

This doctor’s bad debt and collection adjustments sat at 3% of gross production, or $2,500 a month. They should only be 2%. So while collections reached 98%, the Financial Coordinator was writing off 3%. That works out to more than $800 a month over the acceptable amount. The culprit? Unclear patient financial arrangements and a lack of systems in place to collect unpaid balances.

Now let’s look at PPO adjustments. Those made up 42% of the doc’s gross production, or $34,860 a month. That’s a lot of lost revenue. When we took a closer look, it became clear the Financial Coordinator wasn’t posting insurance adjustments correctly. To make matters worse, the doctor opted not to request the additional payment due from his patients. Why? He was afraid it would upset them enough to start looking for a new dentist. So that money was never collected, hurting the practice’s bottom line.

There is no industry standard for PPO adjustments. Some offices reduce their gross production for each PPO plan, therefore requiring very few adjustments. Others post their fees and require a much higher PPO adjustment when the insurance check is received. Either way, it’s important to train your Financial Coordinator to properly post adjustments and collect the accurate amount from each patient.

The Fix
Dental software programs are set up with basic adjustment codes, such as credit and debit adjustments, miscellaneous adjustments, refunds and insurance adjustments. That’s exactly how our doctor’s system was set up. To improve his use of production and collection adjustments, we suggested he establish more specific adjustment codes. Here are a few examples:

Production (Credit) Adjustments
Employee Courtesy for Dentistry
Family Courtesy for Dentistry
Senior Courtesy
Cash Courtesy
PPO Adjustment
Bad Debt Write-Off (smaller balances that are uncollectible but not turned over to a collection agency)
Collection Write-Off (accounts that are turned over to a collection agency)
Small Balance Write-Off (used when patients don’t return and their balance is less than $10)
Collection Agency Fee
Doctor Courtesy (used when the doctor elects to reduce the patient’s fee)
Transfer Credit to another Account/Family Member
Corrected Post-Credit

Collection (Debit) Adjustments
Refund to Patient
Refund to Insurance
Refund, No Check Issued (used when the credit balance is small or the patient’s mailing address is incorrect and the patient can’t be contacted)
NSF Check Recharge (used when a check is returned from the bank because of insufficient funds)
Recharge Collection Write-Off (used when the collection agency collects on an account that was written off when turned over)
Transfer Debit to Another Account/Family Member (should equal the “transfer credit” totals)
Corrected Post-Debit  

Beyond that, we also created a monthly monitor for the doctor that included all the codes. Our goal? To reduce what I call “red flag adjustments” over the next few months, allowing for increased collections based on higher net production. We also encouraged the doctor to stop giving away dentistry to family and friends. Once he realized how much he was losing each month in free dentistry, it was an easy sell. The good news? Because he provides high-quality dentistry and a top-notch patient experience, family and friends still come to see him, and are happy to pay full price.

The Financial Coordinator received additional training, and spent time speaking with various insurance representatives to learn how to properly adjust patients’ accounts and determine what portion of the payment they’re responsible for. This team member also started working with patients who owed money to the practice, and established protocols to reduce bad debt and collection agency adjustments.

After six months, the doctor reduced total adjustments to 32% of gross production. That led to a new net production of $56,440. With collections increasing to 99%, average collections came to $55,876. This improved cash flow by $11,139 a month or $133,668 a year. Not bad!

If you’d like to see revenue increases like this in your practice, give McKenzie Management a call. We’ll help you get started.

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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