Record high production and record low collections can this be happening? Part 4 of 6
The link between Pride Institute management techniques and their direct effect on production, collections, and practice success
The link between Pride Institute management techniques and their direct effect on production, collections, and practice success.
by Dr. James R. Pride and Amy Tuttle-Morgan
Photo: Gary Buss at FPG International
This group of articles chronicles the year-long, true story of a practice undergoing management improvement. So far, we've seen how preblocking the schedule to meet production goals boosted doctor production. We also saw how a game we call the "shopping spree" honed the new scheduling skill and made learning it fun — and profitable — for the staff and the doctor. Then, the team became angry with the dentist for his habit of socializing with patients and losing control of the schedule, causing staff members to work through lunch breaks and stay after hours to complete the day's schedule and meet higher production goals. One day, this conflict reached a peak with the two sides at war. However, with a little give and take, Dr. Johnson and his staff were able to resolve the matter and discover new and improved skills for communicating with each other. Lo and behold, during that month of team/doctor frustration, Dr. Johnson's production reached a record high!
During this time of frustration — six months into the management program — collections plummeted to 75 percent, down from the customary 96 percent to 98 percent range. Because of the spike in production, we had expected collections to lag behind, but 75 percent was unacceptable. Also at this time, one of the practice's major insurance carriers was having a technical problem that resulted in delayed payments. The spike in production, combined with delays in insurance payments, made it easy to believe that there really was no problem with collections. But Dr. Johnson's consultant wanted to be sure. Because we had focused on scheduling thus far, the staff had not yet learned the proper systems for making financial arrangements.
Dr. Johnson believed that doing all of the treatment a patient needed and wanted was the ethical approach. He also wanted to do more cosmetic dentistry, which meant more complex treatment plans and larger fees. While the doctor wanted all or most of his fee upfront, he realized that most patients do not have an extra $5,000 to $10,000 lying around the house. To accomplish his goals, Dr. Johnson needed to allow some patients to pay for larger cases over time. This required some new financial systems to be implemented.
Since our approach is to take small steps to achieve powerful results without overwhelming the doctor and staff, we first taught Dr. Johnson's team just two common-sense guidelines for collections. We asked the staff to make sure:
- that all financial arrangements were in writing
- that the dentist was not performing treatment until a fee had been quoted to and accepted by the patient.
Next, we examined the office's accounts receivable. We examined what we call the "A/R ratio," which is total monies owed to the practice divided by one month's production. For various reasons, we had set the goal for Dr. Johnson's A/R ratio at 1.5. With his monthly production up to $50,000, this meant that a healthy accounts receivable for his practice was $75,000. Dr. Johnson's actual A/R ratio was 2.1, which meant he had $100,000 outstanding rather than the targeted $75,000. This concerned his consultant. We had targeted Dr. Johnson's accounts receivable over 90 days to be 30 percent of his total accounts receivable. Six months into his management program, it actually was 33 percent, another indication that we needed to tighten up the collections system.
Were the accounts receivable actually stemming from delayed insurance payments, as we were assuming? To find the main source of the outstanding accounts, Dr. Johnson's consultant asked his front office to run an accounts receivable report, highlighting in four different colors the following sources:
First color: Insurance claims under 60 days and processing normally
Second color: Insurance claims over 60 days, where there might be some glitches that need to be addressed
Third color: The patient's portion of a written financial arrangement in which the patient is making payments on time
Fourth color: The patient's portion of a financial arrangement that the patient is not complying with and that is outstanding over 60 days
We also asked the financial coordinator to write a brief bullet note on any entries falling under the second and fourth color (outstanding accounts of more than 60 days from both insurance and patients). With the color-coding, we could quickly zero in on the problem. To everyone's surprise, we found that it was the patients' portion of the fee that constituted the bulk of the outstanding accounts receivable. Therefore, our assumption about insurance payment delays being the culprit proved incorrect.
Now that we had gotten to the root of the accounts receivable problem, we could readily design a strategy to correct it. The strategy was geared to preventing the problem from occurring in the future, as well as collecting monies now overdue. We asked the dentist and staff to do two things:
- Stop extending financial arrangements for balances under $500. Such balances must be paid with three or fewer payments.
- Select five names a week from the list of patients behind in payments, starting with the highest balance outstanding and working down. Each week, the dentist and the financial coordinator can brainstorm about how to handle these patients. We find that addressing outstanding accounts on a case-by-case basis is more effective than trying to handle all of the delinquent accounts at once.
During the seventh month of the management-improvement program, collections jumped to 141 percent, which brought the year-to-date figure up to 93 percent — a big improvement attributable to collections catching up with production and to the special efforts made to collect late payments.
A short time later, we coached the doctor and team in developing effective financial policies regarding students, new patients, credit card payers, no-shows, cancellations, pay-at-time-of-appointment cases, charging interest, using lending companies, and other situations. Team members began to develop the systems needed for sound financial management. Notice that the consultant did not set the policies for the practice, nor did the dentist do it unilaterally. Developing systems as a team effort empowers the staff, with the dentist leading, rather than doing, the tasks of practice management. At the end of the 12-month program, collections averaged 97 percent for the year, just short of the 98 percent goal.
While the focus in this part of Dr. Johnson's learning experience was primarily on handling in-office financial arrangements, it is important to note that dentists should use all available resources — such as lending companies, credit cards, banks, etc. — in providing affordable options to patients. This was an issue that Dr. Johnson's consultant planned to revisit at a later time.
Pride Concepts from the crisis in collections:
- Don't be afraid to extend credit; just be sure you're controlling it. Know what a reasonable goal is for accounts receivable and run the numbers to be sure you meet it.
- Develop sound financial policies with written financial arrangements.
- To pinpoint the nature of a collections problem, prepare a panoramic X-ray of your accounts receivable by color-coding the various payment sources and seeing which ones are the culprits.
This is the advice that helped Dr. Johnson's practice manage accounts receivable. With the practice exceeding its production goal and collections now coming under control, it's time for the salary increases we budgeted for the staff. In the past, Dr. Johnson had never felt in control of raises; he just gave them out "seat-of-the-pants," as he says. Next month, we'll see how Dr. Johnson handled salary increases in a completely new way.
For more information on improving your practice using these methods, call Pride Institute at (800) 925-2600.