by Roger Levin, DDS, MBA
A practices' financial health depends on consistent evaluation of income, production, and collections. Developing a system of Key Performance Indicators can help dentists effectively monitor these fundamental statistics.
Effective practice management requires dentists to evaluate their offices consistently and systematically. Awareness of practice operations is the first step to proactively secure its future. The financial health of a practice depends on careful monitoring of fundamental statistical measurements. The figures that must be collected, analyzed, and acted upon are known as key performance indicators (KPI's).
To maintain accuracy, it is important that the dentist select the appropriate KPI's. The entire team's attention will focus on the variables that are measured. It is important to make sure the KPI's that the dentist chooses cover all critical areas of operations that impact productivity and profitability.
The importance of income
Dentists often focus significant attention on production as a central measurement of success. Interestingly, it is income and not production that determines the financial health of the practice. Two variables determining practice income are production and collection.
Modern practice-management systems make the measurement of production relatively easy. A detailed measurement of production KPI's affords dentists the opportunity to assess the efficiency and productivity of their practices. The higher a practice's efficiency, the higher its income and profit potential. Three distinct groups of production KPI's to consider are:
• Productivity — Restorative and hygiene department productivity can make or break the practice. The dentist needs to track performance indicators that measure the effectiveness of each employee when using available resources. KPI's to consider are dentist and hygienist average production per hour, production per patient, and production per chair.
• Case presentation — This measures how well the practice capitalizes on production opportunities. KPI's to consider are the number of cases presented in restorative and hygiene departments as well as average case presentation for each producer.
• Case acceptance — This includes tracking the practice's ability to effectively educate and motivate patients to pursue oral health. KPI's to consider include percentage of case acceptance for each producer and average production per case accepted.
To have the highest possible total production, it is necessary to increase the number of cases presented, grow case acceptance ratio, and schedule effectively in order to maximize the usage of practice resources.
Empirical research indicates that cost considerations directly impact practice production. Incorporating an effective patient financing system facilitates treatment decisions by making dental care more affordable. Successful financing systems provide patients with several payment options, including external services such as CareCredit (800) 300-3046, Dental Fee Plan (877) 337-7526, HelpCard (800)945-4357, or a local credit source.
High production guarantees practice profitability and income only when effective systems are in place to secure collections. It is critical to track three distinct collection KPI's to gain a complete understanding of the practice's financial performance:
• Total practice collections — Measures availability of cash to cover operating expenses. Sufficient cash flow is essential for practice survival.
• Collection ratio — Quantifies the practice's ability to effectively convert production into income. (Levin Group recommends a practice collection ratio goal of 98.5 percent.) A practice will normally lose $1,500 of every $100,000 of production due to bad debt adjustments. If you can't see the gravity of having a lower collection ratio, think of it this way: If you have a collection rate of 95 percent, you are actually working three weeks of the year without being paid for it!
• Practice accounts receivable — Accounts receivable represent the portion of patient services rendered but not yet paid for. Many of our clients start with approximately 10 to 20 percent of accounts receivable in the "over 90 days" category. This is dangerous, as our data demonstrates that accounts past 90 days have less than a 50 percent chance of collection.
Collection KPI's are heavily affected by a patient's ability to accept and pay for treatment. It is important to recognize that the practice is a dental care service provider and not a financial institution. As such, practices need to focus resources on patient care rather than patient collections. An effective way to improve collection KPI's is to offer patients attractive financial options and flexible payment programs. This is readily achieved by using an outside dental-oriented patient financing company such as CareCredit, Dental Fee Plan or HelpCard. External patient financing companies provide excellent customer service to patients with fast authorization and credit approval while the patient is still in your office.
Doctors must establish goals in all KPI practice areas and develop the appropriate systems to achieve those performance targets. When the practice fails to meet production and collection KPI goals, income suffers. Key Performance Indicators represent the financial report card of your practice. External patient financing options positively impact production and collection KPI, resulting in higher practice income.