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Nancy Caudill
Senior Consultant
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Improve Cash Flow in Your Practice
By Nancy Caudill, Senior Consultant

Dentist Case Study #412

The doctor’s concerns: “Collections are down in my practice and I have no idea why. I’m really struggling with cash flow and need some guidance to get my practice back on the right track.”

This is a common problem for dentists who contact McKenzie Management for help. Let’s take a look at his practice stats:

Average monthly net collections: $76,000
Average monthly net production: $87,500
Accounts Receivable (not including credit balances): $143,000
Accounts more than 90 days old: $28,600
Over-the-Counter collections: $23,625

Breaking Down the Numbers
First, let’s define net collections and net production. Net collections is the total revenue paid from the insurance companies and the patients, less any refunds or NSF checks that are uncollectible, while net production is total charges to patients less any adjustments that affect these charges such as courtesy adjustments, insurance adjustments and bad debt write-offs.
When this doctor came to us, his net production was at 87%. A healthy practice collects 98% of net production.

That wasn’t the only bad news for our doctor. The Accounts Receivable to Net Production Ratio should be 1:1 or less (this report should NOT include credit balances, as it reduces the balance and gives a false total). So Accounts Receivable / Net Production = 1.0 or less. His was at 1.63.

Now let’s look at the percentage of accounts more than 90 days old. At a healthy practice, this is less than 12%. His number? 20%.

Over-the-Counter collections (the revenue collected at the time of service for a family practice that accepts insurance assignment) should be about 45% of net production. To better determine where this doctor’s collections actually should fall, we divided his total payments less the insurance payments by total net production. So $23,625 / $87,500 = 27%, which is well below the 45% benchmark. Bottom line: The doctor is not collecting enough money at the time of service, which negatively impacts all the other numbers.

Here’s how McKenzie Management helped him correct this problem and improve cash flow in his practice:

Because this doctor accepts “assignment of benefits,” it’s important that his Financial Coordinator is trained to determine, as closely as possible, how much insurance will pay for treatment – without spending time getting the pre-authorization. Why? Waiting on pre-authorization delays the scheduling process, and if patients have to wait a few weeks to schedule, there’s a chance they may opt not to go forward with treatment.

The doctor trained his Coordinator to place calls or request information from the insurance company’s website to determine the patient’s deductibles, limitations, waiting periods and maximum. If the plan is a PPO, knowing this information, along with the fee that is allowed, makes it possible for the Coordinator to pretty closely estimate how much of the bill insurance will cover. That means the balance can be collected from patients at the time of service, improving the practice’s collections rate and increasing cash flow.

The Financial Agreement Form
To ensure patients are prepared to pay when services are rendered, the Financial Coordinator now has them fill out a Financial Agreement Form when they schedule an appointment. The form includes:

-The patient’s name
-Services to be completed at the appointment
-Total fee for the appointment
-Patient’s expected payment at the appointment
-Patient/Parent signature and date

The form goes in the patient’s record, along with an appointment note that indicates how much the patient has agreed to pay. This also should be included in the Guarantor/Account notes in the computer for reference, as well as on the back of the appointment card. This serves as another reminder to the patient.

The form only takes a few minutes to fill out, but ensures patients know exactly how much they’re expected to pay at the time of service. There’s no surprises or confusion. Just remember it’s also important to make it clear that the number is only an estimate; once insurance remits payment, the patient will be expected to cover any additional balance. Patients should also leave the practice knowing that if the insurance company pays more than expected, they’ll receive a refund check.

The Results
After incorporating these changes, it took about six months for this doctor to reduce his Accounts Receivable to 1X his net production. His more than 90 days past due accounts fell to 11%, while his over-the-counter payments increased to 42%. And because his Financial Coordinator began collecting past due balances as well as the right amount from patients at the time of service, his collections to production percentage is now over 100%. What an improvement!

The truth is, many dentists struggle with cash flow. If you’re one of them, feel free to give us a call. We’ll give you even more guidance so you can achieve the same success.

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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