December 1, 2005
by Roger P. Levin, DDS
While it can be argued that statistics can be used in any way to fit any scenario, when it comes to the financial health and profitability of your dental practice, the numbers really do not lie. A dentist under the impression that his or her practice is strong because there is a high volume of patient flow could be surprised at the true health and additional growth potential of their business when it is evaluated using a number of Key Performance Indicators (KPIs). Office managers (OMs) should measure KPIs that are particularly strong indicators of how effectively, efficiently and profitably the practice is operating. Failure to measure and analyze KPIs significantly undermines your practice’s potential to maximize long-term profitability.
What key performance indicators office managers must measure and why
There are 15-20 KPIs within your practice that provide you with a picture of how your practice is performing. It is important that the doctor fully empower the office manager with the responsibility of tracking these practice numbers. Your OM benefits from this situation because he or she can provide a more valuable contribution to the practice’s overall success. Through tracking these important KPIs, your OM has the information necessary to keep practice performance on target. Three specific, critical KPIs to be tracked and analyzed by the OM are:
* Average production per patient
* Accounts receivable
These three related KPIs are easily tracked, yet most critical for the office manager because they represent the most important measures in your practice. Tracking average production per patient requires documenting all production performed on patients each day and calculating an average production per patient visit. The collections KPI measures the ability of the practice to be paid for this production by analyzing the collection ratio. I recommend a 98.5 percent collection rate for any successful practice and this is the goal the OM should strive for. The KPI for accounts receivable tracks production that has gone uncollected, which not only impacts your collection ratio and revenue, but in the end, affects your practice’s overall profitability. As you can see, these are three very important and interrelated numbers that the office manager must track.
KPI #1: Average Production Per Patient
A busy practice is not necessarily a profitable practice. A dentist who comes to the practice each day and sees a full lineup of patients from open to close may feel successful because the practice cannot handle any more patients. But if the office manager does not track average production per patient, it is difficult for the dentist to know whether the practice is as profitable as it could and should be.
A practice is most effective when it is producing the maximum dentistry it can for each individual patient. A practice that sees 30 patients per day and averages only $150 of production per patient ($4,500) is not nearly as profitable as a practice that sees 20 patients a day, but averages $350 of production per patient ($7,000). Consider for a moment that a daily difference such as this ($2,500) can mean an additional $500,000 per year for a practice scheduling patients four days a week. The dramatic difference in revenue and profit is due to the fact that the “slower” practice has the time to present, sell and deliver more comprehensive dental care. The “slower” practice will also run more efficiently with less stress because the OM has more time to focus on the most important tasks in the practice. Here are three steps OM can implement to increase average production per patient.
1. Perform a comprehensive oral health exam on every patient, including periodontal probing, oral cancer brush biopsies, cosmetic dentistry evaluations and potentially appropriate elective procedures. This will help dentists identify more dentistry that could benefit patients.
2. Develop effective scripts for case presentation for the dentist, treatment coordinator and office manager. These scripts will focus patient attention on treatment benefits.
3. Offer patients the ability to have multiple procedures done in a single appointment (where possible). Patients generally like having as much dentistry performed in a single visit as possible because it’s more convenient.
KPI #2: Collections
You may be surprised at the high number of dentists I come in contact with who have a collection ratio that is below the recommended 98.5 percent collection rate — far below in some cases. Why is this KPI so critical to the financial health of your practice? When you schedule a patient for treatment, you block out a set amount of time, be it 30, 60, or 90 minutes, for that patient. At the time of service, the practice incurs all the labor and overhead costs associated with treatment delivery. When the fees for the procedure performed go uncollected, you lose the revenue for that procedure, the costs of providing the service, plus the revenue you could have made by delivering dental services to a paying patient.
In essence, the loss of revenue from dentistry that goes uncollected is far more detrimental to the practice than simply whatever the amount of the lost fee was. When a patient does not pay all or part of a fee for dentistry performed, there are collection efforts required, which limits practice profitability. Levin Group client research shows that the average cost of sending a bill to a patient is US$4.50 when you combine staff time, mailing and supply costs. If a patient becomes significantly delinquent on his or her account for a period of 90 days and your practice sends out bills monthly, that is a further US$13.50 cost per patient just in billing, not taking into account the high cost of letter writing and administrative team time. These expenses get added to the original loss in delivering the dentistry.
Collection issues can be particularly frustrating for the office manager, as the added collection efforts also take his or her time away from other more productive office tasks that need to be completed. Three steps your OM and dental team can take to increase your practice’s collection ratio:
1. Make information available in your practice that will educate patients on the benefits insurance can provide for particular treatments, and train your staff to be knowledgeable in these benefits so patients have a clear picture of what portion of a fee is covered by insurance and what is not.
2. Make sure patients are aware of the fees they will be responsible for before a treatment is performed. This clears up any misunderstandings later and allows a payment schedule to be worked out, if necessary.
3. Offer third-party patient financing through an external finance company- which can often pre-approve patients for financing before the treatment even begins. This allows the practice to be reimbursed immediately for dentistry performed.
KPI #3: Accounts Receivable
We recommend that 95 percent of your patients pay all fees to the practice within 60 days. We recommend this because our research has shown that you only have about a 20 percent chance of collecting accounts once they go past due for more than 90 days. Further, a good goal is to have 70 percent of your patient receivables be at or below 30 days. Unfortunately, a high number of dental practices that I have dealt with have more than the five percent recommended number of patient receivables that are more than 90 days overdue. These accounts receivable significantly impact the ability of the practice to reach profitability. In order to retain practice financial health, Levin Group Method prescribes accounts receivable not exceed one month of average production.
If your practice is suffering from exorbitant or out of control accounts receivable, there are three steps I recommend that your office manager can implement that will reli
eve this problem:
1. One system that patients will appreciate and take advantage of is a five percent courtesy on complete treatment fees when they pay in full up front, at least 48 hours prior to the time of the treatment. This saves the patient money on the fee (which, depending on the procedure, can be a significant amount), while saving money for the practice because revenue is already collected and there is no overhead needed for billing.
2. Allowing patients to use credit cards for payment is almost a must in practices today. Very few patients have the ability to pay out of pocket for significant dental procedures, but credit cards allow them to pay in full up front, or, they can also pre-authorize automatic payments that are charged on a certain date every billing cycle. Again, this causes minimal overhead for the practice in order to collect on this dentistry, and makes payment for dentistry more comfortable for patients.
3. Some patients who cannot pay up front in entirety are willing to pay half of the treatment fee when it is agreed upon and the other half before the treatment is completed. The second half of the treatment is collected at the beginning of the patient’s final treatment appointment, meaning there is no overhead needed for billing or collections.
Measuring and constantly analyzing all the Key Performance Indicators is the only way to accurately understand how your practice has performed in the past and predict what it will do in the future. It is also the best way to keep your Office Manager involved in one of the most significant management systems of the practice. Tracking KPIs allows the Office Manager to be a critical contributor to the success of your practice.
Roger P. Levin, DDS is founder and CEO of Levin Group, a leading dental practice management consulting firm. Since the company’s inception in 1985, Dr. Levin has worked to bring the business world to dentistry.