Th 211515

Are your receivables an asset or a liability?

May 1, 2006
“Would you like to take care of that today?” In most practices, those words do not elicit the desired response.
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Would you like to take care of that today?” In most practices, those words do not elicit the desired response. While we train our staffs and attempt to educate our patients to the fact that “payment is due at the time of service,” many of us have difficulty making that policy a reality. When patients do not pay at the time of service, the best we can hope for is that they will send payment in full when they receive their monthly statement. As a consequence, our receivables grow and our collection ratio shrinks. If your accounting professional is to be believed, this is not a bad thing. After all, they list accounts receivable as an asset on the balance sheet. Assets are good things, and so this must be good, right?

The reality of the situation is that accounts receivable represent unrealized profit. In fact, most accounts receivable are 100 percent profit! Does that surprise you? Assuming that all of your bills and expenses continue to be paid and that you generate enough revenue to produce a profit, you continue to operate and your doors stay open.That being the case, then all of your accounts receivable, if collected today, would be additional profit. It’s that simple!

There are few opportunities in the “real world” where consumers can obtain goods and services on the assumption that the indebtedness eventually will be settled. By and large, the medical and dental fields remain the only areas where consumers are able to enjoy this accommodation. While many patients have some form of insurance which will cover a portion of the costs, dentists often are left “holding the bag” when push comes to shove.

Unless a pretreatment agreement exists, providers are left hoping that patients will forward payment or reimbursement once the claim has been settled. If no incentive exists, patients really have little reason to settle their account in a timely fashion. In fact, without a “penalty” of some sort, patients actually make money by not paying the bill! Funds that remain with the patient accrue interest to their benefit. If those monies were collected, they could be accruing interest to the dentist’s benefit.

In most business or retail settings, incentives exist to repay your debts in a timely fashion. Miss a mortgage payment and you can expect to pay a contractually-mandated late charge. Fail to pay your credit card balance in full and you can pay up to 17 to 22 percent on the unpaid balance. Fail to pay your electric bill and you can expect to find your house dark in the near future. Those are significant incentives that encourage payment.

What incentives do dentists offer to encourage payment? A smiley face on the monthly statement? A dunning call from the financial coordinator after the account has gone 90 days with little or no payment? The risk of withheld treatment? Most of us know from experience that these “incentives” are weak and generally ineffective.

I would suggest that we in the health-care professions need to offer our patients more choices and that these choices should include incentives that promote timely payment. When asked, my patients have always indicated that they would like to have choices about when and how to pay their bills. Additionally, my patients have always supported my feeling that those who request special accommodations should bear the costs associated with these accommodations. In my practice, this has translated into several payment alternatives that have proven to be fair, effective, and simple to administer.

Today, many consultants propose that we become “insurance-free.” I won’t suggest how you should react to that idea, but I firmly believe that our patients expect us to work with them in the area of insurance and I further believe that if you don’t, the competition will! In my practice, “insurance free” equates to educating patients to the fact that many needed and necessary services are simply not covered by conventional dental insurance and that when extensive treatment is proposed, insurance will only cover a small portion of the fee.

We still accept assignment of benefits for established patients and we still file claims (electronically) as a courtesy to our patients. What we don’t do is accept “proof of insurance” as a guarantee of payment. The first step to effectively managing your receivables and turning them into an asset is a well-thought-out and well-communicated financial policy for your practice. Every new patient entering your practice needs to know your expectations regarding payment before they ever visit your office. If you do not communicate your financial policy, I guarantee you that the patient will introduce you to theirs ... and you will be left to live with it!

You notice that I said before they visit your office. It is essential to inform patients of your financial expectations before they arrive for their first visit. Sadly, many people believe that dentists still offer free and open credit lines to all customers. If uninformed, many patients will arrive claiming no means to settle their accounts other than perhaps an insurance wallet card! We send every new patient a “Welcome” packet that includes a statement of our expectation that first visits are paid for at the time of service, regardless of third-party involvement. We explain that we will electronically submit their claim at no charge to them and that they should be promptly reimbursed by their provider. This one policy “sets the tone” regarding financial responsibility and obligation.

Our patients understand, from the beginning, that we do not treat or base treatment on the expectation of payment from a third party. Equally important, every staff member understands and is prepared to explain the office’s financial policy. This includes the clinical staff members, as well as the people “up front.” Imagine shopping at Nordstrom’s, finding an expensive pair of shoes that you simply cannot live without, asking the salesperson how you can pay for them, and hearing her say, “Gosh, I have no idea. I’ll find my manager and see if she knows.” Every team member should understand and commit to your financial policy. Your team members expect to be paid in a timely manner; therefore, they must be part of the mechanism that gets you paid in a timely manner.

Please don’t misunderstand. I do not operate a “cash” practice. While we will always accept payment at the time of service, many of our patients-of-record leave the office knowing that most or all of their charges will be taken care of by their insurer. Yes, we do accept assignment of benefits for patients-of-record where we have a proven track record of payment. We also routinely accept assignment for “larger” cases where we have a pretreatment estimate in hand and a commitment from the patient regarding the balance.

The single most important change I made to my financial policy was in 1996 when I stopped offering “free” and open credit to anyone who chose to use it. At that time, I informed all of my patients that I would impose a finance charge of 1 percent per month on accounts not settled in 60 days. I believe this is a fair and equitable solution to an age-old problem. It allows our patients a “grace period” during which they will receive one monthly statement as a courtesy reminder. It also provides enough time for their insurer to process their claim and forward whatever portion of payment they are obligated to provide.

Today, with electronic filing, it is routine to receive reimbursement in 30 days or less. Having such a policy also assigns the costs associated with borrowing to the appropriate “cost driver” - in this case, those who choose to “borrow.” As stated earlier, time and again my patients have expressed an interest in paying only for those goods and services that they personally use. A carefully instituted and fairly applied use of finance charges does just that.

In the beginning, I began by having only my new patients subject to the finance charge. This may seem “unfair” and cumbersome to administer, but I found it to be neither. Existing patients-of-record were simply “grandfathered” for the first year or so. After my staff and I became comfortable with the new policy and found there was little resistance from our new patients, we sent a notice to all “noncovered” patients that as of such a date, this policy would apply to everyone. (There was little outcry and the only patients I lost were those few who never found a way to bring their account balances to zero. They owed me money year in and year out - money that was earning interest for them instead of me!) Most software programs today allow you to assign a different billing “status” to different patients. As our patients were “enrolled,” (a truth-in-lending statement should be used), they were assigned to a category that had finance charges applied monthly by the software. The application and computation of finance charges is as simple as one click of the mouse!

In the first year of universal application, my accounts receivable dropped from over two months of production to under one month of production. Today, my accounts receivable routinely run at about 75 percent of monthly production, with only about 15 percent of those over 90 days. Reducing accounts receivable just makes good sense. Remember that accounts receivable are basically 100 percent unrealized profits! Can you give me one good reason why you should not collect them? You do the math! What does it cost to borrow $50,000 each month, month after month, year after year?

History and human nature suggest that consumers will delay or postpone payment when there is no penalty for nonpayment. If they are given incentives to reduce their debt, most consumers will react favorably. After all, who doesn’t like to save money?! I would suggest that you consider offering your patients an incentive to settle their accounts today. Whether it is an “adjustment” for payment at the time of service or a “penalty” (finance charge) for delayed payment, you deserve to be paid or to be compensated for waiting to collect your fee.

Martin A. Dettmer, DDS, MBA, has practiced dentistry in Wheaton, Ill., since 1972. His business speaking credits include the Holiday Dental Conference in Charlotte, N.C.; the CDS Midwinter Meeting in Chicago, Ill.; and many local and regional dental societies. He has taught restorative dentistry at Loyola (Chicago), serves as both volunteer dentist and board member at the DuPage Community Clinic, and mentors several new dentists in his area. He can be reached at (630) 665-5550, or via e-mail at [email protected].

Establishing a financial policy 1) Get the staff to “buy in” to your financial policy before you make drastic changes.2) Insist that every staff member be able to articulate your policy.3) Track your numbers carefully. What isn’t measured isn’t being managed.4) Use a written “truth-in-lending” document if you impose finance charges.5) Know your state’s “usury” laws.6) Add the word “How?” to the question “Would you like to take care of that today?”7) Offer payment options: Personal checks, credit and debit cards, in-house financing for up to one year, third-party financing for more than a year.8) “Inform before you perform.” The total fee and the payment arrangement should be finalized before treatment is started.9) Send a new-patient letter and welcome packet that includes your payment expectations.

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