I just hung up the phone from one of our clients and caught myself saying: “Thank God I understand their numbers because neither the doctor nor any of his administrative staff have a clue what is actually going on in their own office!” That’s an unkind thought so I was pretty proud of myself for not having said that out loud while I was on the phone with them.
I have mentioned in the past that I spend 45-60 minutes on the phone, every six months and sometimes every three months, reviewing practice performance with each of our active clients. I did some math the other day and realized that I have had somewhere between 25,000 and 30,000 calls with my clients during my consulting career. To me that was an amazing statistic but I suppose my point is that if a person does something frequently enough and for long enough, he or she is bound to get pretty good at it. So, while it is easy for me to read practice statistics and understand most of what is happening to generate those statistics, whether it be good or bad, it does make some sense that doctors and their teams may have difficulty understanding why the rate of case acceptance in an orthodontic office declined two points or why production per hour worked in a dental office declined $10.
However, in my first paragraph above I was not speaking of nuance or subtleties of practice performance. If a general dentist does not know exactly why his production per hour worked declined 21% from $925 to $740, causing a $25k decline in monthly production, or an orthodontic team does know, exactly, why their case acceptance rate declined from 72% to 64%, costing them $22k in lost production each month, these guys are simply not paying attention!
I tell my clients, perhaps a bit too often: “If you do not know what caused production to go up, how can you hope to sustain that growth?” The reverse is also true: “If you do not know why new patient flow went down, how do you know what to work on to fix the problem?”
If new patient flow has declined, do you know exactly which source or sources of your new patients have diminished – and why? Do you know if the average age of your new patients (which has major impact on case acceptance!) has changed, up or down, and from which sources have those changes come?
If your new patient flow has increased but production is down, is it really the fault of your system, or the Treatment Coordinator’s poor verbal skills, or her efforts with the “pending” patients? What if you lost five adolescent exams but gained five adult exams? Total new patient flow is the same but because adult case acceptance tends to be 50% or less, compared to the 80%+ of adolescent case acceptance, your overall case acceptance would decline quite sharply.
From time to time we see clients who have done advertising we consider to be inappropriate such as any form of direct mail, etc. They tend to stop that type of marketing fairly quickly because of the low dental IQ patients and resulting poor case acceptance such marketing attracts, but a year later when it appears to them that the percentage of “B” and “C” patients is increasing, we catch these clients blaming that on the economy or some other issue not related to what’s really happened – the retail type marketing they did turned an entire group of “A” type patients away from the practice. If they were studying their numbers they would have seen that they did not, in fact, have more “B” and “C” patients – they had less “A” patients!
I often see orthodontic practices with substantial swings from year to year in the number of Phase II case starts, but there has been no significant difference in the past in the number of Phase I case starts. Until we informed the practices of the change, less than 10% of doctors and staff had any idea that their production and income was down not because of reduced new exams or reduced case acceptance, but because of reduced Phase II starts. They knew production and income had declined but had no idea why! Did they have a flawed recall system due to improper status codes? Was the recall system not being properly worked? Did they have failed recall appointments that were not being followed up on? Losing even a single Phase II case start a month reduces net income by $30,000 to $40,000 a year, yet most practices, orthodontic and general, never seem to know for certain whether or not their recall system is healthy.
If you are an orthodontist, what is your Production Per Patient (PPP)? Do you even track that statistic? Divide your production for the year by the number of first time (no Phase II’s!) case starts. That will give you the total dollar value of each patient who is in active treatment in the practice. If you do at least 20% of your new starts in Phase I and that PPP number is not at least equal to your most commonly charged full start fee then you are almost certain to have a profitability issue and probably a recall issue as well. Do you know your particular practice’s goal for that PPP statistic? Every orthodontic practice has such a number and it is unique to their particular practice. For instance, a doctor who enjoys doing early (Phase I) treatment will always have a substantially higher PPP than will a doctor who does not do much phased treatment. That’s simply because phased treatment has a combined fee that is typically 125% greater than an adolescent full start.
General and other dental practices rarely track PPP but those practices must track Production Per Hour. That number is obtained by dividing gross, before discounts, production by the number of doctor hours scheduled for the period. There is no way a general dentist today should have PPP below $1000 and most of our general dental clients are well above that number. Again, what is your own personal goal for PPP and if you are not reaching your goal, do you know specifically why?
What about your adjustments? Adjustments are what you give away every month in the form of sibling/family discounts, discounts for treatment fees that are paid in full, bad debt write-off, professional discounts, etc. Yes, your discounts are listed on most month-end reports but do you know your goal for adjustments as a percentage of your production? Do you calculate that statistic each month and compare where you are at to your goal in order to know if what you are giving away every month is under control or not? A $2M a year practice with adjustments that are only 2% higher than goal is losing $40,000 a year in net profit!
Delinquency – In practices with the same number of patient accounts, would you rather have 50 patients past due $200 each or 100 patients past due $100 each? Obviously the dollar value is the same but the practice with 100 patients past due is in far more trouble. Why then do so many doctors track dollars past due and remain oblivious to the number of patients and the percentage of open accounts that are past due?
Almost all doctors understand what Accounts Receivable (A/R) are, but for those that don’t, the A/R represent the total account balances of all patients in the practice that have open accounts. Do you track your A/R? Do you know what your goal is for your A/R? The A/R do not, and should not, have a dollar goal. Your Accounts Receivable goal is expressed as a ratio to your production and the goal for that ratio has to do with different goals for other statistics. For instance, all other things being equal, a $2M orthodontic practice with 20% of their new starts paying in full will have a greater A/R than will a practice with 30% of their starts paying in full. A practice with an average down payment of $700 will have a higher A/R than will a practice with an average down payment of $1000. If you are an orthodontist, do you know what your average down payment is and what that down payment is as a percentage of your average case fee? To a significant degree, the average diagnosed treatment time controls the ratio of the A/R to the production so an orthodontist doing a lot of short treatment time procedures will have shorter contract lengths (and lower case acceptance!) and will therefore have a lower A/R and a lower ratio for the A/R to production than will a doctor who does a lot of 24+ month diagnoses.
No matter your specialty, sometimes an increased ratio of receivables to production is very good thing for a practice. Sometimes the A/R ratio increasing is a very, very bad thing for a practice! It all depends on where the A/R ratio is relative to your goal, but most doctors have no clue what their particular goal should be nor do they know how to calculate the goal.
To summarize, there are basic numbers that truly tell you a great deal about your practice performance and if you are to have any hope of maintaining good performance or correcting weak performance you first must have a deep, thorough understanding of those basic practice metrics, a focus on the goals for each of those metrics, and the willingness to review those number regularly.
Merry Christmas and Happy Holidays to you all!
