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Key Performance Indicators

May 1, 2004
Key Performance Indicators are strong predictors of how effectively, efficiently, and profitably the practice is operating.

by Roger P. Levin, DDS

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While it can be argued that statistics can be used in any way to fit any scenario, when it comes to the financial health and profitability of your dental practice, the numbers don't lie. A dentist under the impression that his or her practice is strong because it has a high volume of patient flow could be surprised at the true health and additional growth potential of the business when it is evaluated using a number of Key Performance Indicators (KPIs). Office managers should measure KPIs that are particularly strong indicators of how effectively, efficiently, and profitably the practice is operating. Failure to measure and analyze KPIs significantly undermines your practice's potential to maximize long-term profitability.

What to measure and why

There are 15 to 20 KPIs within your practice that provide a picture of how your practice is performing. The doctor should fully empower the office manager to track these practice numbers. Your office manager benefits from this because he or she can provide a more valuable contribution to the practice's overall success. Through tracking these important KPIs, your office manager has the information necessary to keep practice performance on target. Three specific, critical KPIs that the office manager should track and analyze are:

1) Average production per patient
2) Collections
3) Accounts receivable

These three related KPIs are easy to track, yet they represent the most important measures in your practice. Tracking the average production per patient KPI requires documenting all production performed on patients each day and calculating an average production per patient visit. The collections KPI measures the ability of the practice to be paid for this production by analyzing the collection ratio. I recommend a 98.5 percent collection rate for any successful practice; this is the goal the office manager should strive for. The KPI for accounts receivable tracks uncollected production, which not only impacts your collection ratio and revenue, but, in the end, affects your practice's overall profitability. As you can see, these are three very important and interrelated numbers. Let's take a closer look at these three KPIs and present three steps your office manager and dental team can implement to improve performance in these areas:

KPI No. 1: Average production per patient

A busy practice is not necessarily a profitable practice. A dentist who comes to the practice each day and sees a full lineup of patients from the beginning to the end of the business day may feel successful because the practice cannot handle any more patients. But if the office manager does not track average production per patient, it is difficult for the dentist to know whether the practice is as profitable as it should be.

A practice is most effective when it is producing the maximum dentistry it can for each individual patient. A practice that sees 30 patients per day and averages only $150 of production per patient ($4,500) is not nearly as profitable as a practice that sees 20 patients a day, but averages $350 of production per patient ($7,000). This kind of daily difference ($2,500) can mean an additional $500,000 per year for a practice scheduling patients four days a week. The dramatic difference in revenue and profit is due to the fact that the "slower" practice has the time to present, sell, and deliver more comprehensive dental care. The "slower" practice also will run more efficiently with less stress because the office manager has more time to focus on the most important tasks in the practice. Here are three steps office managers can implement to increase average production per patient.

1) Assure that a comprehensive oral health exam is scheduled for every patient, including periodontal probing, oral cancer brush biopsies, cosmetic dentistry evaluations, and potentially appropriate elective procedures. This will help dentists identify more dentistry that could benefit patients.

2) Develop effective scripts for case presentation for the dentist, treatment coordinator, and office manager. These scripts will focus patient attention on treatment benefits.

3) Offer patients the ability to have multiple procedures done in a single appointment (where possible). Patients generally like having as much dentistry performed in a single visit as possible because it's more convenient.

KPI No. 2: Collections

You may be surprised at the high number of dentists I come in contact with who have a collection ratio that is below 98.5 percent — far below in some cases! Why is this KPI so critical to the financial health of your practice? When you schedule a patient for treatment, you block out a set amount of time, be it 30, 60, or 90 minutes, for that patient. At the time of service, the practice incurs all the labor and overhead costs associated with treatment delivery. When the fees for the procedure go uncollected, you lose the revenue for that procedure, the costs of providing the service, plus the revenue you could have made by delivering dental services to a paying patient.

In essence, the loss of revenue from dentistry that goes uncollected is far more detrimental to the practice than the amount of the lost fee. When a patient does not pay all or part of a fee, it requires collection efforts that limit practice profitability. Levin Group client research shows that the average cost of sending a bill to a patient is $4.50 when you combine staff time, mailing, and supply costs. If a patient becomes significantly delinquent on his or her account for a period of 90 days and your practice sends bills monthly, that is a further $13.50 cost per patient just in billing — not taking into account the high cost of preparing the letter and the time of your administrative team. These expenses get added to the original loss in delivering the dentistry.

Collection issues can be particularly frustrating for the office manager, as the added collection efforts take his or her time away from other, more productive tasks. Three steps your office manager and dental team can take to increase your practice's collection ratio are:

1) Make information available that educates patients on the benefits insurance can provide for particular treatments. Train your staff to be knowledgeable about these benefits so patients have a clear picture of what portion of a fee is covered by insurance and what is not.

2) Make sure patients are aware of the fees they will be responsible for before a treatment is performed. This prevents any misunderstandings and allows a payment schedule to be worked out, if necessary.

3) Offer third-party patient financing through an external finance company. Such a company can often preapprove patients for financing before the treatment even begins. This allows the practice to be reimbursed immediately for the dentistry performed.

KPI No. 3: Accounts receivable

We recommend that 95 percent of your patients pay all fees to the practice within 60 days. We recommend this because our research has shown that you only have about a 20 percent chance of collecting accounts once they go past due for more than 90 days. A good goal is to have 70 percent of your patient receivables be at or below 30 days. Unfortunately, a high number of dental practices that I have dealt with have more than the 5 percent recommended number of patient receivables that are more than 90 days overdue. These accounts receivable significantly impact the ability of the practice to reach profitability. To retain practice financial health, we suggest accounts receivable not exceed one month of average production.

If your practice is suffering from exorbitant or out-of-control accounts receivable, your office manager can implement three steps to relieve this problem:

1) One system that patients will appreciate and take advantage of is a 5 percent courtesy reduction on complete treatment fees when they pay in full upfront, at least 48 hours prior to the time of the treatment. This saves the patient money (which, depending on the procedure, can be a significant amount), while saving money for the practice because revenue is already collected and there is no overhead needed for billing.

2) Allowing patients to use credit cards for payment is almost a must in practices today. Very few patients have the ability to pay out-of-pocket for significant dental procedures, but credit cards allow them to pay in full upfront. They also have the option of preauthorizing automatic payments that are charged on a certain date every billing cycle. Again, this causes minimal overhead for the practice in terms of collections, and makes payment for dentistry more comfortable for patients.

3) Some patients who cannot pay the total amount upfront are willing to pay half of the treatment fee when it is agreed upon and the other half before the treatment is completed. The second half of the payment is collected at the beginning of the patient's final treatment appointment, meaning there is no overhead required for billing or collections.

KPIs measure performance and success

Measuring and constantly analyzing all the key performance indicators is the only way to accurately understand how your practice has performed in the past and predict what it will do in the future. It also is the best way to keep your office manager involved in one of the most significant management systems of the practice. Tracking KPIs allows the office manager to be a critical contributor to the success of your practice.

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