By ADMC member Rick Willeford
A successful – or aspiring – dental entrepreneur realizes that it is imperative to ‘know their numbers’ if they are going to plug profit leaks and drive productivity. But which numbers? After 40 years as a Dental CPA/Practice Advisor, I’d like to highlight some ‘facts and fallacies’ for you!
First, I’d like to emphasize that this article will focus on clinical/operational KPIs (‘Key Performance Indicators’, or Monitors) as opposed to financial/overhead KPIs. (The latter will be discussed in a separate article explaining why many offices are not benchmarking their overhead items correctly!)
Hopefully every office is watching the traditional KPIs, like Production, Adjustments, Collections, New Patients, etc. But did you ever stop to think that, in the world of ‘cause and effect’, things like Production are actually secondary or ‘effect’ KPIs. You can’t just say ‘Let’s increase production 10%’, and then go about your day. Instead, there are important underlying KPIs that drive changes in those secondary/’effect’ KPIs. Let’s take a look at a few of those.
Before diving into the details, note that, at the highest level, you could say there are 4 major ‘horsemen’ that drive the success of a practice: Production, Collections, Patients and Recare (assuming recare is an important factor in the practice.) A few of the actionable drivers in each area include:
- Mix of Procedures that are being done
- Fees that are being charged per Procedure
- Clinical speed of the provider – per Day, Hour and Patient Visit
- Adjustments and write-offs
- Net Collections as percent of Net Collectable Production
- Percentage of payments collected at time of service (Over the Counter)
- Average amount of time to collect Receivables
- Health of the A/R Aging and Credit Balances
- # Hours seeing patients vs. Open Time
- Level of Case Presentation and Acceptance
- # and Source of New Patients
- % Broken and Short-Cancellations Rescheduled
- # Delinquent Recare patients
- Conversion, Recare and Retentions Rates
- # with future Due Dates but no appointment
- Recare and Perio as % of office production
Let’s look at just a few in more detail. (In fact, our clients automatically track over 40 potential profit leaks!)
Many offices track production per hour and/or per day, but I suggest that Production Per Visit may be more reliable. Especially if you want to compare providers or offices.
Consider this case: Dr. Associate produces $400/hr. ($3,200/day) and Dr. Owner produces $800/hr. ($6,400/day). It looks like the associate is a slacker. But if we look closer, we find that the associate works out of one room and saw 8 patients in the day, or $400 per patient. However, the owner works out of 2 rooms and saw 24 patients – or $267 per patient visit! You might want to get the associate a second room, assuming you can fill it with patients!
Of course it could be that a new GPR associate is placing implants or has a richer procedure mix than the owner. Or somehow is on a better fee schedule.
Suppose two offices both collect about $1,000,000 annually. Yet Office 1 has $100,000 in A/R and Office 2 has $200,000. Interestingly, Office 1 collects 97.8% of their Net Collectible Production, and Office 2 collects 98.3%. Close enough for government work? Not quite. Remember that the current collection % counts prior money coming in this month too. That small leakage of .5% over 20 years for a $1,000,000 practice adds up to $100,000 cumulatively! A traditional practice may still want to shoot for 1.2-1.5 times one month net collectible production, but the heavy use of 3rd party financing could drop that dramatically – for a price.
We might also see that the Over the Counter (time of service) collections for Office 1 is 40% while Office 2 only collects 20%. And the average time to collect an account is 30 days for Office 1 and 50 days for Office 2. Those are two KPIs to track to see if you can better keep accounts out of A/R in the first place – or for a shorter time.
Obviously all the bullet points above are important, along with a number of others; but one thing we encourage clients to do is be sure to Break Appointments for failed or late notice cancellations. In addition, do one more thing: be sure to add either a procedure or adjustment code (in Dentrix or Open Dental) to indicate whether it was a true Broken Appointment (failed/no show/no call) vs. a Short Notice/Cancelled Appointment. Break the appointment even if the CA rescheduled. (You may find that they cancelled on you 4 times this year!)
The distinction of BA vs. CA is important because you may have limited follow-up time. At least a CA loved you enough to call vs. a BA, so I would focus your follow-up efforts on the CA first.
Oftentimes you can’t prevent BA/CA, but you can monitor how successful you are at rescheduling those patients. Low reschedule rates may say something about the quality of your team’s communications skills, or it may say something about the ‘quality’ of your patients and their respect for your time. You should strive for 85% reschedule rate if possible. Shoot for less than 8% of total appointments as BA/CA in the first place.
Everyone is excited about new patients, but who is watching the back door?!? And how do you measure that?
First, you should measure the Conversion/Enrollment rate of the new patients into the hygiene program. (Along the same lines, we track how many emergencies came back for a D0150 comprehensive exam, but that is another story.) Depending on the nature of your new patient population, you should strive for 85%+.
Once in the recare program what is your Retention Rate? Look to see how many new patients from nine months ago have had two recare visits in nine months. (We allow a few months to get settled into the practice for their first recare visit.) But then also look back to see how many new patients had three recare visits in 18 months. Again, depending on whether your practice is next to a military base where everyone may leave all the time vs. being very stable in some suburbs, you would like to have at least 75% 9-month retention and 60%+ 18-month retention. And hopefully higher.
Current Recare Rate is also important. For the month of, say, June, look to see how many patients had Due Dates in June. Compare that to how many of those patients actually came in during June OR have a recare appointment in July. You should have a Recare Rate of at least 80% – but many offices do not. (See the comments re BA/CA above….)
As you can imagine, we have just scratched the surface, but I hope you have found some of the metrics to be interesting, thought provoking – and actionable. Let me know if you have any thoughts or would like to chat about other KPIs.
This article is contributed by ADMC Member Rick Willeford, CPA
Rick has dusted off his old Electrical Engineering degree from Georgia Tech, and he has created DentaMetrix. This is a program available only through consultants, and it automatically extracts monthly management data from the client’s dental software. Prior to that, since 1975 Rick provided tax, accounting, transitions, retirement and financial planning services as the founder of the Willeford Group, CPA, PC. He was also the founding president of the Academy of Dental CPAs. He is an international speaker with his semi-annual resort seminars entitled the ‘Business of Dentistry’.