All dentists should be acutely aware of the collection percentage in their dental practice and review it on a monthly basis. The collection percentage in my dental office in an average month will hover around 99%. We very rarely send patients to collections because we work hard to calculate accurate co-pays and collect payments at the time of service. I would estimate that less than .01% of my patients ultimately require collection proceedings. This ratio stands in stark contrast to a practice in which I once associated. In this practice, it seemed that nearly every other account went to collections. It was so common that the office manager once informed me that many of their patients simply pay the collection agency and then schedule another appointment. My experience with these types of accounts, however, has been that once a patient goes to collections, the patient chooses another dentist to dole services.
Interested to learn what the specific collection percentage in this practice was, I inquired this data of the office manager. She seemed knocked off balance initially, though my intent was merely one of curiosity and not one of judgment. She quickly filled the void in the air with the response, “Around 93%.” I thought she may not have been certain about that number, but that it had sounded good to her and a collection percentage about which a dental practice should be proud. I would caution you not to be so pleased with a collection percentage of that order in your practice. It would behoove us all as business owners to have the number that accurately reflects our true collection percentage at the ready in our minds as well.
Let’s look at an example of what not collecting that 7% of produced income would do to our bottom lines if our collection percentage was at that seemingly respectable level of 93%. As the math will bear out, a 7% neglect in collections will in reality amount to a 17.5% reduction in your take home pay. Now let me ask you, would any of your employees come to work for nearly 18% less money per year? If so, they are likely being paid way too much.
In this hypothetical example, let’s set our yearly production at $500,000. We’ll assume a reputable overhead percentage of 60%, though I am convinced that you can have an outstanding practice with an overhead closer to 50% without too many changes. Dentistry’s Business Secrets outlines in greater detail the various means by which to achieve The Low Overhead Practice. In our example, your take home pay after overhead of 60% will be $200,000 per year. This, of course, is assuming you collect 100% of that which you produce. When collections are off by the purported 7%, the bottom line take home pay is automatically reduced by $35,000, or, 7% of the $500,000 you produced. Therefore, your salary is no longer $200,000 but $165,000. That $35,000 you left on the table is equal to 17.5% of your original salary after overhead.
This brings me to the topic of free money. I look at that $35,000 of failed collections as free money. Since we all realize how hard the job of dentistry is, we know that this money does not truly come for free. The fact is you have earned it. I want to see you keep it! This was a big reason for why I wrote Dentistry’s Business Secrets in the first place; to help you collect and keep your hard-earned money.
Another way to view the money we lose when we fail to collect what we produce is in the amount of labor necessary to regain this lost income. If we collect the extra 7% we discussed, we get to keep 100% of that $35,000. This money is not subject to overhead expenses, because overhead is calculated as the ratio of expenses/production. Lost collections is not an overhead expense per se, it is in addition to overhead. In order to receive that full $35,000 in our paychecks, we would need to produce $87,500 more than if we simply collected it from our patients and the insurance companies who owe it to us. This is simply because whatever we produce is subjected to overhead expenses and what we collect is not.
Obviously, the greater the production value in your practice, the more negatively failing to collect will affect your bottom line. In turn, the harder you will need to work in order to produce the money lost to insufficient collection techniques. Take heart though, there are tried and true methods that can be easily implemented into one’s practice to ensure collection numbers closely approximating 100%. You have earned it, so it stands to reason that you should be able to receive it and then do with it as you so choose.