Benchmarking Payment Goals

May 1, 1997
Benchmarking is a popular term used in business circles today to refer to establishing team-oriented performance objectives. After all, your team can`t help you achieve goals if they don`t know what the goals are.

Gary Takacs

Benchmarking is a popular term used in business circles today to refer to establishing team-oriented performance objectives. After all, your team can`t help you achieve goals if they don`t know what the goals are.

Set Clear Payment Goals

When I am visiting dental offices as a consultant, I often discover that there are no clear goals regarding payment performance. I`ve heard the doctor say, "As long as I have money in the checking account, I`m OK." Well, this may have worked at one time, but today`s demanding business climate requires establishing clear payment goals for the office. Below are four specific benchmark goals I suggest for measuring your payment performance:

99 Percent Collection Percentage: A healthy dental practice will collect 99 percent of production, measured over a one-year period of time. It is important to measure this percentage over a one-year period, as there will be monthly fluctuations due to insurance receivables and other payment cycles. A one-year period provides enough time for proper measurement.

An important detail in measuring your collection percentage is to make any adjustments to your production prior to figuring your collection percentage. For example, if you provide the occasional charity case to clergy or others in your community, adjust this in your production, since you never intend to collect these fees.

Accounts-Receivable Ratio of 1.0: In my opinion, this goal is the most important one to use in measuring your payment performance. A healthy dental office will have an accounts-receivable ratio of 1.0, meaning your total accounts receivable are equal to your average monthly production. This accounts-receivable ratio is figured by dividing your total accounts receivable by your average monthly production. For example, an office producing an average of $40,000 per month, with total accounts receivable of $60,000, would have an accounts-receivable ratio of 1.5 ($60,000 divided by $40,000). Our goal is to have your total accounts receivable equal to your average monthly production.

No More Than 20 Percent of Your Accounts Receivable Should Be Aged 60 Days or More: Your aging report will provide a snapshot of whether patients with outstanding accounts are paying or not. Ideally, no more than 20 percent of your receivables will be aged 60 days or more. This means that 80 percent (4 out of 5 accounts) are performing and paying in a timely manner.

Most computer programs age your accounts receivable from the date of service. This is the proper bookkeeping format, but only provides partial information. In addition to knowing the date of service, I also want to know when the last payment was received. By knowing when the last payment was received, I can determine if the patient is sticking to our payment arrangement. This "date of last payment" detail is important to properly analyze your accounts-receivable aging report.

Set a Goal of Reducing the Number of Billing Statements You Mail Each Month: The cost of billing is staggering. A recent report identified the actual cost of mailing a billing statement in the dental office at $7.26 per statement. Dr. Tom McDougal of Richardson, Texas, has reported that it costs the dental office $10 to manage each active account per month. I think Dr. McDougal might actually be closer to the truth, but whichever statistic you accept, we can agree that these costs are significant. With some offices mailing out hundreds of billing statements each month, it is no wonder practice overhead is out of control! I encourage you to set a goal of reducing the number of billing statements you send out monthly. Be aggressive. Set a goal of cutting your monthly billing statements in half.

An Action Plan for Success

Now that we have established some clear goals, the next step is to create an action plan for achieving these benchmarks. Begin this process by measuring your existing performance against the established benchmarks. It is important to know where you are now, so that you can see where changes are required. Next, communicate your new goals to each team member. If you do not already have a reporting system, develop a simple, monthly reporting form to measure each objective. Post these forms in the team lounge or other private area in your office, so that team members can access the information easily.

Create some excitement around this project! Consider setting up a simple incentive program involving each team member. The program should provide a reward when certain objectives are met. The reward could be a trip, or a gift certificate to the best department store in town, a cash incentive, time off, or anything else meaningful to your team members.

Understand that the payment benchmarks I have established are challenging. I would compare my benchmarks to a .300 batting average in baseball or a single-digit handicap in golf-challenging, but entirely possible. As further motivation, I can point to many offices that are able to meet these criteria today. These are thriving, growing, profitable, patient-centered dental offices that are able to control their accounts receivable at a manageable level. As Dr. Omer Reed says, "If it has been done before, it must be possible."

The author is a noted authority and frequent speaker on payment issues in dentistry. He may be reached at (602) 951-1652.

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