# The Case of the Malfunctioning Practice:Test your powers of deduction

June 1, 2004
Modern dentists need the detective talent of Sherlock Holmes. Critical in running today's dental practice is a Sherlockian ability to recognize vital facts in a sea of data — and to interpret them skillfully.

by Amy Morgan, CEO, Pride Institute

Modern dentists need the detective talent of Sherlock Holmes. Critical in running today's dental practice is a Sherlockian ability to recognize vital facts in a sea of data — and to interpret them skillfully. Software programs give dentists tremendous access to their numbers with bar graphs, financial statements, projections, etc. This data, however, is meaningless if the doctor and staff cannot analyze the numbers, recognize the performances they flag, reinforce good outcomes, set priorities for correcting problems, and grow the practice based on vision, values, and strategies backed by numbers.

How many of you have pages of statistics piled on your desk accumulating dust? Your numbers should be enlightening — not overwhelming. By understanding them, you'll exercise greater control over your practice than you ever imagined. We'll explain how. Welcome to Pride's School for Dental Sleuths.

For lesson one, you'll need a calculator, pencil, highlighter pens, your statistics, and an open mind. We'll guide you in interpreting the statistics in the case study of an actual practice, then you may apply the same investigative methods to your own numbers. But first, some ground rules:

#### Rules for analyzing the numbers

Step zero: All numbers need to be statistical interpretations of how well you are achieving your vision and goals.

1) Know your numbers — daily, weekly, monthly, and yearly. Collect your numbers routinely. We gather a range of statistics from dentists studying with us because these numbers are the foundation for understanding and improving the practice. Our dentists easily capture these numbers with a spreadsheet program we provide. When other dentists call us to say, "I feel I'm not doing well," and we ask, "What do your statistics say?" too often the reply is, "I don't know." Not knowing your numbers leads to feeling helpless, frustrated, and to making uninformed decisions based on subjective judgment.

2) Don't take action based on one number. It's the relationship of one number to the others that counts. No one number means anything by itself. Often dentists have certain comfort numbers that make them think they're successful. But unless they're seeing the big picture — comparing that one number with others — it can give a false sense of security. For example, let's say a high collection percentage is your comfort number. One of the easiest ways to get a high collection percentage in one month's time is to have lower production than in the prior month. Therefore, a statistical private eye needs to interpret all of the numbers as a coherent story about the practice.

4) Share your numbers with your team. This is called open-book management. Sherlock Holmes never would have succeeded without Dr. Watson, just as a dentist can't function without a staff. Therefore, it's not enough for you to interpret the numbers; your staff must interpret them, too. Sharing the practice statistics — but not individual salary figures — is a sign of trust and the only way to empower your staff to be self-directed.

5) When the statistics are up, discover why so you may repeat the good performance. When the private eye is negative by nature, there can be too much emphasis on rolling the newspaper for puppy training. No one likes to be hit. It's more important to reinforce the staff with good news when they meet or surpass your goals because what gets acknowledged gets repeated. Be ready to celebrate successes with your staff.

6) When the statistics are down, find out why and do something about it. Insanity has been defined as repeating the same behavior but expecting different results. Once you have a statistic indicating a problem, you need to correct it. Most of the staff's frustration with statistics arises when the dentist complains about a number, but no one does anything to fix it. Conversely, everyone gets a sense of accomplishment from pinpointing problems, discovering the causes, and finding solutions to implement immediately.

7) Base management decisions on your statistics. Management by supposition is like walking across the street blindfolded. You might not get hit by a car, but isn't it better to open your eyes? Management by statistics removes the blindfold so you can walk confidently toward your goals. The ultimate result of statistical analysis is to discover the first-priority issue of your practice and thoroughly address it.

8) Don't be allergic to production and profitability. Don't think that emphasizing the numbers — or profit — is "lowly." Profit is the healthy, desirable, and necessary state of any business, and it makes the best quality care, staff compensation, and return on investment possible.

Do you accept the rules? If so, you're ready to manage by the numbers to improve your practice.

#### Test detection skills through our case study

The statistics for the practice you'll analyze are in the accompanying table. The numbers come from the actual practice of a young couple. When these numbers were collected, Doctor 1, the husband, had been in the practice for seven years. Doctor 2, the wife, had just graduated from dental school and was phasing in as an associate. These numbers were collected by the staff and in some cases rounded off or omitted.

The goals of this couple — and a strategy for achieving them — were set carefully based on a forecast of their expenses and schedules. These objectives represent success for the couple, so don't judge the goals, but accept them as the given for the exercise. The couple were successful, and the numbers show more strengths than challenges. Nevertheless, buried within the statistics is a neon sign that a system is busted and needs fixing. Can you find it?

As a private investigator, your job is to look at areas that need improvement, according to the numbers, to find what is arguably the most important thing to fix to reduce stress and increase efficiency. No one can fix everything at once, so we'll try to identify a single priority that will have the greatest impact.

The statistics shown in the table are "actual" and "goal" numbers, year-to-date, and for May — five months into the couple's annual plan. You may want to use different colored highlighters, as our doctors do, to distinguish the numbers that are at or above goal from those below.

Here are some observations for starters:

• Line 1 — The couple's YTD production goal was \$326,033. Their YTD actual production is a bit higher at \$333,020.

• Line 3 — They were targeted to work 188.5 doctor days, but they actually worked only 178. Their production is slightly above goal, working 10 fewer days.

• Line 21 — Collections YTD are at 99 percent of production, which is 5 percent above goal.

On the face of it, production and collections seem fine. Does that mean everything is OK? There's a significant problem, but you have to look deeper to find it. Let's examine other statistics:

• Lines 7 and 12 — Doctor 1 is above his YTD production goal of \$185,650 with actual production of \$216,282. Nevertheless, Doctor 2's production is significantly below goal with \$54,988 YTD actual vs. a goal of \$78,381.

• Line 17 — Hygiene production is on target. Is the low production of Doctor 2, our new associate, the main challenge? Let's look further:

• Lines 32 and 38 — The couple saw 133 new patients YTD, above their goal of 100 to 125. Their case acceptance for new patients is 100 percent.

• Line 39 — The average treatment diagnosed for new patients is \$407 for the month and \$700 YTD, well below the goal of \$1,500, set as an average first-phase treatment plan for the ideal patient targeted by the doctors.

• Line 40 — Treatment accepted — \$407 for the month and \$700 YTD — is significantly below the goal of \$1,275, or 85 percent of treatment presented.

• Line 43 — Case acceptance of patients of record needing significant treatment is only 63 percent for the month and 73 percent YTD, well below the goal of 90 percent.

Ask yourself what this combination of statistics means. Any ideas? Another area to analyze is the couple's receivables:

• Line 21 — The dentists targeted collections of 94 percent. They are instead collecting YTD at 99 percent and 106 percent for the month. Is this good or bad? The national range norm for collections is 98 percent, so why was the goal for this couple set at only 94 percent?

• Line 23 — Their total accounts receivable ratio, which is the receivables divided by the monthly production, is 1.1 for the month. This ratio is barely 1-to-1 when the goal was to allow more outstanding receivables — 1.5 to 2.5 times monthly production. Is it better to have as little receivables outstanding as possible? If so, why was the couple targeted to have more?

• Lines 28 and 29 — Only \$3,287, or 6 percent, in accounts receivable is money more than 90 days due. This is well below the goal of having 18 percent to 20 percent in receivables more than 90 days. This figure does not mean that money is delinquent by 90 days; it might simply indicate that money is scheduled on a payment plan to be paid after 90 days.

These are the statistics you need for discovering the priority issue we are directing you toward. Try finding it on your own before you read further.

#### Our Analysis

There are many areas in which the couple may improve. One stands out to us as the first priority because it will make a big impact and indirectly improve other weak spots. Here's our analysis, which helped the couple overcome a key obstacle and substantially improve their growing practice.

Because the overall production numbers meet the goal, they are strong and therefore would not be the first priority to address, even though there is room for improvement in Doctor 2.

Something interesting is happening with new patients. It's nice to have new-patient case acceptance of 100 percent; nevertheless, this is easy to achieve if you don't diagnose comprehensively. The treatment presented in line 39 of \$407 monthly and \$700 YTD means that for the targeted patient profile, the doctors are not diagnosing much dentistry. We also see that only 73 percent of treatment presented YTD to patients of record in line 43 is being accepted. When patients decline comprehensive treatment or dentists only diagnose the chief complaint, what's commonly the reason behind this? The most common reason we find is a concern about the patients' wallets. This might point to a lack of financial arrangements to make treatment affordable. The numbers indicate the doctors are collecting more than their goal with little accounts receivable and virtually none past 90 days. The combination of all these factors — the treatment diagnosed and accepted combined with the cash-flow statistics — leads us to conclude that the first priority for improvement is to loosen financial arrangements while maintaining good cash flow and profitability for the practice so the doctors may diagnose comprehensive care and the patients may accept it. This is exactly what was done — and with great success.

If you obtained a different answer for the case study, it doesn't mean you were wrong. It might mean you didn't find a key priority based on the story told by all the numbers. Doing something is better than doing nothing, but focusing on a key priority based on a complete statistical understanding often is the deciding factor in significantly improving the practice.

As a result of this analysis and action plan, the couple started diagnosing more, with new financial systems established to support them. This dramatically increased Doctor 2's production and also improved Doctor 1's. By year end, the doctors were so far ahead of their goals that they and their staff took an additional 10 paid days off, with the doctors free to pursue their other passion — extreme skiing. They were able to reward themselves and their team because the numbers set them free.

These statistics were taken from the practice eight years ago. Since then, our couple continued solving problems through analyzing their numbers. They're now thriving, well on their way to financial independence at a young age. They're ready to work part time, earning more than they did working full time. They have more freedom of choice than they ever imagined because of understanding and acting on their numbers.

Can you control the numbers — and the "destiny" — of your practice? Can you identify and solve one problem after another, carving a path to your highest goals? It's elementary, my dear Watson.

This case study comes from Pride Institute's seminar, "Staff, Systems & Numbers." See our ad for upcoming dates and cities, or call Pride at (800) 925-2600. Join us for a lively course on how to become the Sherlock Holmes of your practice, or call to arrange an economical analysis of your numbers by our expert dental sleuths.

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