The post is part 4 of our series on what separates thriving dental practices from the rest. If you missed any previous part of this series, you can access it here.
Best Practice #4: Track and Monitor These Important Performance Measures
While reviewing the financials is key, just having general awareness doesn’t (in and of itself) drive financial performance. It is also important that you establish specific performance measures that allow you to assess the current financial health of your dental practice and point you toward course correction as needed.
Here are four metrics (i.e., performance measures) we track and report for our clients:
Average Daily Production (ADP) = Gross Production for Period / Operating Days for Period
This is your leading indicator for revenue production. This number will vary a bit by practice, but it’s important that you establish specific targets for ADP – whether by individual practitioner or collectively as a practice. Unexpected dips in ADP can indicate inefficiencies in your practice, performance issues with specific individuals, or challenges in attracting new patients.
Prolonged overly-high values for ADP can indicate a risk for dentist and/or hygienist burnout or a need to consider adding to your staff.
Gross Production Adjustments (GPA)
Although gross production is a measure of worked performed, it is not an indication of actual production available for collection. Tracking adjustments such as insurance write-downs, professional courtesies and write-offs provides insight into how the cash flow may be impacted. Monitor the trend of each adjustment group to ensure they are in line with your practice’s goals. If you see the write-offs increasing each month, it’s time to re-work the collection policies.
Net Collection Ratio (NCR) = Payment Received / Net Production for Period
This measures the effectiveness of in-office collection policies. Ignoring this metric is like tossing money in the trash. If your collections percentage is 90%, that means for every $50,000 in production, your practice is losing $5,000…I bet you would like another $5,000 in the bank, right?
Tracking payments due from patients vs. payments due from a third-party (i.e., insurance) provides insight on where to start your collection efforts. If your patient collection percentage is below 98% consider implementing strategies such as asking for payment at the time of service or having patients preauthorize your practice to automatically charge any balance remaining after insurance payments are credited.
Average Days in Accounts Receivable (A/R)
We’ll talk more about this in part 5 of this series, but cash is the lifeblood of any dental practice (or any business for that matter). At some point, cash must make it to your bank account – and the sooner the better for you!
Keeping a watchful eye on your A/R will provide you with valuable insight into the success of your collection efforts. We encourage our clients to set specific targets for their average days in accounts receivable, typically 90 days or less for services submitted to insurance, and 30 days or less for services billed directly to the patient.
By monitoring and managing to these 4 critical performance measures you’ll be well on your way to increasing the financial health of your dental practice. Hope this was helpful!
Shawna Aho, CEO of STAC Bizness Solutions
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7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.
There’s no denying it. Creating a thriving practice is about much more than practicing medicine!
Topping the list of “other” priorities is your practice’s financial management. In this short guide, the experts at STAC Bizness Solutions outline 7 financial best practices that differentiate struggling practices from those which are highly profitable and experiencing healthy levels of growth.