Dental Production vs Collections KPI: Keeping Healthy Financial Ratios

Posted by Michael Martinez on Jul 23, 2020 7:47:28 AM

To keep your practice finances in order, you should be working within your budget. If you haven't taken the time to create a budget, we highly recommend hiring a dental specific CPA and creating one. You should be basing your budget off of your collections, because your collections are the direct payments from the patient to the practice. If you aren't sure what your total collections are, it's important that you begin monitoring your dental KPI's.

 

Collections vs. Dental Productions

DentalProductionProduction is the amount that you charge. Collections is the amount used to calculate your profit margins because that is the amount that actually reaches the bank. There are two types of production: gross and net. Gross production feeds your numbers and net production feeds your practice. Net production, or commonly referred to as adjusted production, is gross production minus adjustments and write-offs. Essentially, adjusted production should be the amount available to be collected, a.k.a. feeds your practice.

 

Collections vs Production Percentage

Adjusted production divided by the collections amount provides the practice collections percentage. The generally accepted percentage of collections is a minimum of 98%. Depending on your scenario, you could be adjusting beyond the 2% variance of collections which will mean that on the best day, you could never collect above 98%. A better percentage to track is based off of the adjusted production and not the gross production.

If there is such a large variance between gross production and adjusted production, that must be addressed. That is not a collections percentage issue, that is an adjustments and write-offs issue. When focusing on collections, we want to compare apples to apples and oranges to oranges. We believe that a practice should compare collections to adjusted production (what you actually collect).

What are some ways we can raise the collections ratio? We've listed some suggestions below:

  • Collecting at the time of service
  • Making it clear that the patient portion is not the co-pay
  • Every visit patients are required to pay a $20 co-pay, which goes to the practice
  • Understanding the patient portion that's due upon services being rendered and collecting on the day of services
  • Understand insurances and preparing before a patient's appointment
  • Make sure you're doing e-claims and that you are tracking it
  • Run aging reports - run one every month at a minimum

Have patients pre-pay their co-pay amounts or have other financial means available to them that ensures the practice is paid prior to services rendered. We understand that we pay for our meal at McDonalds prior to receiving our meal. Why should it be any different in the dental industry? The normal procedure should be to get paid either prior to or at the time of service.

If the patient owes money, have them settle that debt prior to completing more services. If a tire shop can sell me a credit card for new tires, a dental practice should be able to provide an opportunity for the patient to pay the debt owed to the practice. If the practice designates that scenario as a charity case; wonderful, but since that money was never expected to hit the bank, that would be an adjustment to production, not collections.

Collection to Production Ratio: Bottom line, in order to have a healthy practice, it should not be less than 98% of the adjusted production.

 

Final Thoughts

Compensation models should be based off of gross production...especially if it's an associate dentist. Normally, a dentist is not in charge of marketing, insurance contracts, write-offs, adjustments, and collections. Their performance can alter the practice's gross production and must be accounted for.

Balancing the care of your patients and ensuring you get paid can feel tricky. We believe you can have both! Give your patients the best care and charge them what their health is worth. Explain clearly to them why they need to get work done and offer financial solutions so they can get it done.

 


balanced scorecard for dentistry

 

Topics: Grow Dental Practice, Dental Practice Goals