On the verge of financial ruin

July 1, 1998
Case Profile: Pretty as a picture ... or is it just a mirage? The setting is a charming New England home, converted into a dental office, complete with a wood-burning fireplace in the reception room and all the comforts of home. Yet, despite its schedule filled with happy, loyal, fee-for-service patients, this practice is quietly on the verge of financial ruin.

Sally McKenzie, CMC

Case Profile: Pretty as a picture ... or is it just a mirage? The setting is a charming New England home, converted into a dental office, complete with a wood-burning fireplace in the reception room and all the comforts of home. Yet, despite its schedule filled with happy, loyal, fee-for-service patients, this practice is quietly on the verge of financial ruin.

Symptoms: Cash flow has slowed to barely a trickle ... no surprise that accounts receivable is running at almost four times monthly production.

Observations: This practice illustrates a situation we see time and time again. Dr. Goodbuddy, who`s been practicing in the same office for over two decades, is part of a mutual admiration society with his patients. He`s watched their children grow up, marry, and have kids of their own. And as their families grew, so did his practice. Although this gives the doctor great personal and professional satisfaction ... financial rewards are another story.

Here`s how the story goes. For more than 20 years, the doctor and his receptionist have inadvertently made payment a nonissue. Mom, Dad, and the kids have been allowed to come back every six months, add another $500 on to the bill, and continue paying $50 a month. Payment isn`t expected at checkout and delinquent account calls aren`t made. Get the work done, pay what you`re comfortable with, and put the rest of the tab on the house ... to be paid out over time. We found a number of patients, in fact, who`ve had running balances for as long as three years. No wonder production averages $35,000/month and accounts receivable is at a staggering $122,000!

Discussion: Dr. Goodbuddy and his sidekick, Sunny - with their down-home warmth and friendliness - are at the root of the problem. While the doctor OKs extended payment terms for high-ticket procedures, Sunny has trouble asking patients for money because they`re like family. As far as past-due-account phone calls are concerned, there`s been no uninterrupted time to make them ... and besides, Sunny will do anything to avoid confrontation.

Although this appears to be a stress-free environment, it`s the silent stresses like not having adequate monies to pay bills that are wreaking havoc with the well-being of this doctor and his practice.

Treatment Plan: An immediate infusion of cash was the first order of business. Therefore, my initial recommendation was to establish a relationship with a patient financing company. Letters would be sent to patients whose account balances were over 90 days. By the way, this amounted to $40,000 in revenues. The letter would inform patients that effective 30 days from the date of mailing, their balance would be transferred to Company X. They were asked to, "Please complete the enclosed form and return it to our office by (date). Should you wish to pay off your balance prior to (date), please furnish your VISA or MasterCard information, or your check payable to Dr. Goodbuddy." No explanation was needed, just a matter-of-fact statement of policy.

An analysis of patient flow per day had revealed that another full-time individual was needed in the business area. While Sunny would continue on with phones, scheduling, and greeting patients, Purse-Strings Patty was brought in to collect monies at checkout and make past-due phone calls at 31 days. Two months later, there was an extra $58,000 on the bottom line! No longer a banker giving loans with no interest, the doctor can look forward to treating yet another generation.

Sally McKenzie is president and chief operating officer of Dental Partners, Inc., a full-service, in-office dental management and practice-acquisition company. She continues to serve as president of McKenzie Management, a division of Dental Partners, Inc. She can be reached at (800) 288-1877; e-mail [email protected]; or visit her web site at www.dpi-mckenzie.com.

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