Articles By Fred

Author’s Note:
In order to keep identities private I have removed names from this e-mail I received not long ago.

“I don’t know if you remember me or not but I worked with (a local area dentist) several years ago and I am currently working with another dentist now who does not want me to tell (his/her) patients when they have credit balances. (He/she) wants me to just act as though the patient doesn’t have a credit on account. Some of the credits are in the hundreds (of dollars). I know that you can keep credit running on account until all treatment is done but what then? I personally feel this is unethical because in a sense we are stealing money that is owed back to the patient. I was also told by Arizona law that the doctor does not have to return any money owed to the patient if it is under $50 dollars and then just adjust it off under miscellaneous adjustment. I am having a hard time believing this. And because the patient is never made aware of the credit then they are not given the opportunity to decide what to do with the money. What a mess this is. I am really struggling with this. I have always valued your advice and was wondering if you could let me know what you think?”

Of course you give the money back; it’s the right thing to do!

In terms of public relations, it’s a practice builder to let people know the account is overpaid and they have money coming back because you’ve caught it early – before they find out. It’ll sink a practice if people know you’re keeping their money for your own benefit.

More often than not, a credit balance is the result of an over-payment by either the patient/guarantor or a third party. The patient/guarantor may have paid in advance for treatment that was not completed for some reason, or an insurance payment was received over and above the estimated amount at the time of the co-payment by the patient. Either way, we have a patient services issue on our hands and it must be resolved professionally and ethically.

Let’s examine the possible insurance over-payment. Researching this issue with insurance companies revealed a few interesting concerns. First, the fact that the patient has a credit balance leads some to believe that the estimated insurance payment was incorrect. By under-estimating the insurance benefit, be it the deductible or the co-insurance amount, the patient portion was incorrectly estimated to be higher than it should have been. The end result is more money was collected than expected.

Now, if the practitioner is a contracted preferred provider with an insurance company, the doctor typically cannot charge more than the allowed fee. This is of course dependent on the contract the doctor signed with the insurance company, and contracts vary in terms and conditions. If the doctor is not a contracted preferred provider, then charging the doctor’s usual fee is fine, and the portion not paid by the insurance can be billed to the patient. If payment from the patient is collected up front for the co-insurance and deductible, and the subsequent insurance payment creates a credit balance, then a refund to the patient is obligatory.

Also, it’s not out of the realm of possibility that the insurance company may not have been accurate in its payment and paid an incorrect amount for the claim submitted. For example, the claim was for a sealant and the insurance company paid the benefit for an all porcelain anterior crown.

Yeah, right; surely, I jest. But you get the point. It could have even been the insurance company entered the incorrect CDT code resulting in payment in excess of the claim amount. In these cases, the over-payment is due back to the insurance company. My recommendation here is to contact the insurance company either by phone or mail and request assistance in resolving the over-payment. Cover your bases by keeping track of your correspondence.

Another situation that may result in an over-payment and credit balance is when the patient has dual insurance. The primary pays their allowable benefit on the claim. The secondary insurance company may pay an amount that results in total payments more than the original charges. In this case, we probably don’t know what the contract terms and conditions are with the employer of the insured and the insurance company. It may be that the employer contract specifically states that the insured may not profit in excess of the allowed benefit. In other words, the treatment is $100, the insurance company allows $90. That’s all you get, and if you receive more money, then you have to send it back; you can’t bank it.

So, we’ve hashed through some of the more common events when the patient has insurance. But what if the patient doesn’t have insurance, or the practice doesn’t participate as a contracted preferred provider, or doesn’t accept assignment of insurance benefits at all? Realistically this can happen when a treatment plan is presented, the patient pays in advance, and some of the treatment paid for is not provided, or charges for treatment are less that what was originally quoted. Result: over-payment by the patient, and a credit balance.

Take another element in to play, say the patient uses a finance company, such as CareCredit. A good example may be that the patient qualifies for a 12-month interest free arrangement and CareCredit sends the office $3000 for the treatment plan amount. If the amount is not used towards treatment and it is agreed that a credit balance exists, do not send the money to the patient; they cannot use the funds for anything other than the agreed upon dental services. According to CareCredit, it is important to treat this as a credit similar in scope to a credit card charge back. In other words, rebate CareCredit the amount. CareCredit, if applicable to the arrangement, will then provide a rebate when the balance is returned for the portion of the merchant rate paid by the dentist.

In terms of the statement regarding the Arizona Law that allows for a business to adjust off an amount under $50 and not send the money back to the customer, I doubt very much that such a law exists; it just doesn’t make sense. Especially when laws are made to protect the consumer – how does this protect the consumer?

Well, we can’t assume this is true unless we research it. I searched the Arizona Revised Statutes and found nothing. The only reference to over-payment is in the tax code; nothing in the dental section of the statutes. I phoned the Arizona Attorney General’s office and was connected to the law library. The person there helped search for statutes that relate to over-payment and refunds and found nothing in the dental section as well. She did, humorously enough, find that fertilizer was mentioned under agriculture regarding refunds. Hmmm, so if you pay for more &%$# that you use, you can get your money back?!

My take on this issue is unless someone can provide you with chapter and verse of the law don’t buy it. If they produce the law in writing, have them send me a copy; then and only then will I eat my words.

The basis of law, according to my sources, is that reasonable and prudent judgment is at the forefront of any issue. In other words, “What would be a reasonable and prudent way to handle this?”

This really leaves us with the dilemma of figuring out what to do with money owed the patient. Ask the question, “If the patient found out the money was due them, and the practice just wrote it off and didn’t say anything, what reaction would you expect from the patient?” Would one really risk a potential complaint made by the patient to the Board of Dental Examiners against the doctor?

Okay. The credit balance is on the books and we know what happened because we’ve witnessed the event unfurl at the office. But there may be credit balances on the books where we don’t know the history and we must be sure there is a refund due. Diligence must be taken to ensure the accounting is correct.

First things first, find out what we’re up against. Run a Credit Balance Report from the Account Aging or Accounts Receivable section of your management system. See if the program will sort from the largest balance first. You’ll find 80% of the amount of money in credit balances linked to about 20% of all of the accounts in the report. Focus your efforts on the few accounts that have the largest amount of money due.

Work the accounts, audit for insurance payments and adjustments, patient payments and adjustments, and make sure the account balance is accurate.

Once verified, inspect the patient’s chart or computer record and determine if the patient has a scheduled appointment, if there is any uncompleted treatment, or if the patient is past due for their periodontal maintenance visit. If an appointment is scheduled in the not too distant future, make a note in the record that you will have a conversation with them at that time. If an appointment is not scheduled for treatment or periodontal maintenance, and the audit reveals a true credit balance, contact the patient to schedule an appointment for care and apply their credit to future treatment.

Follow a friendly dialogue like the one that follows:

“Mrs. Herbert, I have great news! There is a credit balance on your account, and after reviewing your record I found {you still have dental treatment that has not been completed/you are past due for your periodic examination and periodontal service}. We can go ahead and apply this to your next visit. I have a couple of appointments available this week, one is on Tuesday at 11:00 am, or Wednesday at 3:30 pm, which would be more convenient for you?”

Be prepared, if the subject comes up or the patient asks, to explain how the account has a balance in their favor.

If the patient is current with their periodontal maintenance and recommended treatment is complete, ask the patient if they would prefer that the doctor refund their over-payment, or to keep the credit balance on their account for the future. Ask them how they would like to handle it, let them choose, and proceed accordingly. If the patient wishes to obtain a refund, mention that you would gladly write them a check.

Don’t delay writing the check! Nothing will create ill will more than if a person is expecting their money in the mail and it doesn’t arrive in a timely fashion.

For insurance companies, whether or not they are due a refund depends upon the statute of limitations they place on their claims processing. My recommendation is to first complete this project for patient balances; then examine on a case-by-case basis those accounts that have been overpaid by insurance and contact the insurance company as stated earlier.

Be careful not to let this project slide by the wayside. Again, patients who discover they have a credit balance and nothing has been done to refund their money may become upset and discouraged with the level of service you provide. Don’t let this happen; move quickly to resolve current credit balance accounts, and proactively manage them monthly.

If someone does call the office asking about a credit that may be on their account, let them know that you’d be happy to audit their account right away and respond within 24 hours. Take a number where the person can be reached during the day and be punctual with your follow up.

Referring back to the person who submitted the question for this month’s article, it’s entirely up to the owner of the practice regarding what he/she does with the money. If the owner chooses to do something that is against your principles, it is probably a good idea to make a decision to find a practice that is more in line with your main beliefs. Not a tough call, really; keep to your principles of good business and professional service and find a practice in which you feel comfortable working and can feel proud that you are a patient advocate.

My staff seems to just 'go through the motions' throughout the day. I want them to see the big picture of making the office work, to be more accountable for their actions, in order to make the office run more smoothly and be more productive. What is the best way to institute a change?

Accountability, or reporting back on the results of specific activities, is a key method of ensuring the practice is moving closer to its goals. The doctor’s time is better spent when people report back on their performance instead of requiring the doctor to pour over management reports and track down a team member during the course of a busy day to try to find out why a particular objective has not been achieved.

The doctor must foster the opportunity to celebrate good performance and address poor performance. This is best done in the form of a short, regular meeting with staff responsible for business systems.

Vital Signs: Reporting back on Monthly Performance
At the end of each month, staff must prepare the necessary reports that review practice performance, preferably condensed to a single summary page. Practice Vital Signs is one example, a one page synopsis of key performance criteria.

Included in this report will be production, adjustments, payments, ending accounts receivable, same day payments (collections “over-the-counter”), pending insurance, days worked, new patients and current number of active patients. The names of the criteria may be slightly different depending on the practice management software used in the office. For instance, “Production” and “Adjustments” in Kodak/SoftDent will be termed “Charges” and “Reductions” in Dentrix.

Keep in mind, this is not a drill to transpose numbers from computer generated management reports onto a worksheet and hand to the doctor for him/her to study. It is an important function of accountability. I will include a copy of the Practice Vital Signs sheet I use for my clients at the end of this article. Feel free to modify the worksheet for your particular needs.

Staff must make sure the results of their activity during the course of the month or period, contained in Vital Signs, represent a positive direction towards the practices’ goals. If it doesn’t, then they must prepare information and/or documentation that will propose a plan to correct poor performance.

During a brief five to ten-minute meeting, the doctor must ask the staff member to report on the previous month’s performance. Questions may be broad based, or detailed to pinpoint specific areas. For example,:

“How did we do last month?”
or,
“Based on our goal, how did we do last month in terms of production?”

“We were trying to hit an average of $5500 in production per day, how did we do?”

“I noticed our payments were below charges; what happened?”

“The adjustments seem a bit high; could you give me the details?”

{Were they professional discounts, bad debt, reductions for insurance plan participation, family courtesy, staff dentistry?}

“How does our accounts receivable compare to last month?”

“I noticed the aged accounts over 60 days have gone up, what happened?”

“The insurance over 60 days looks a bit high, what’s hindering your ability to get the claims paid? What’s your plan to reduce the balance?”

“New patients looked healthy, where did they come from?”

Remember to ask for details. Don’t accept a hunch or a guess when it relates to answering a question about a specific issue. For instance, when asking a staff member about an increase in accounts past due over 60 days without a payment, don’t accept an answer such as, “Oh, that’s mostly insurance.” Often times this type of response is not based on fact, it is merely an assumption that we are doing a good job of collecting and the insurance is holding up the process.

Rather, ask for a printed report of all accounts past due over 60 days that haven’t made a payment in 60 days and identify exactly which accounts are pending insurance payment, and which accounts are slow at paying. Then, review the practice’s payment system making sure the practice is following prudent payment protocols. Finally, review the practices’ collection sequence and verify that proper steps are being taken to address past due accounts.

With this approach, one will be able to help the staff member examine data instead of guessing. Once the real reason is revealed, formulate a plan with the team member to address the issue and ask them to provide details in the future for better justification, rather than assuming.

The old adage, “Pale ink is better than a short memory” comes to mind when documentation is discussed. Make certain notes are taken at the meetings and log them for future reference. In this way, we can trace our activity and follow up on assignments and track progress towards positive results.

Establish a proactive approach to build the practice and ward off problems by having the staff track performance, document results, and be accountable for the outcome thru reporting back to the doctor each month. Institute this approach and performance will not only be measured but the staff will be more knowledgeable regarding their efforts that will promote excitement in the workplace, creating a positive result. The staff will get into the moment rather than going through the motions.

We hired a contract hygienist to work in our practice for the past year. Now that the contract is up, the hygienist is filing for unemployment benefits. What are the hygienist’s chances for collecting?

When first read, the answer seems simple, “No chance in h-e-double-hockey-sticks!” A contract is a contract, and the hygienist was well aware that a year commitment was the deal. Now force the point with the Internal Revenue Service.

The IRS recognizes two types of workers; the independent contractor and the employee. In the dental field, most independent contractors are sole proprietorships. Any working individual with a Social Security number has the default tax status as sole proprietor. Sole proprietors can use his/her Social Security number as the federal tax identification number, but there are significant differences regarding taxation between employees and sole proprietors. As a sole proprietor, one must pay both the employer’s and employee’s share of federal payroll taxes. The Self Employment Tax requires that the individual pay both since the independent contractor is both employer and employee. In a usual worker/employer situation, the employer pays half of the FICA tax and the employee is responsible for the other half. Despite having to be accountable for both shares, the sole proprietor reaps the benefit of tax advantages, such as deducting legitimate business expenses, special retirement plans that offer tax-deferred retirement contributions, and having more tax breaks than regular employees are able to spend more of their wages tax-free.

Employers are responsible to the employees for enforcing HIPAA regulations, OSHA rules, etc. within the workplace, because the employees are under the dentist’s control. Since contract employees are considered sole proprietors, and therefore their own employees, they are responsible for enforcing these stipulations themselves. This is where it gets tricky in a dental office; the dentist is responsible for the care the staff provides to patients. The dentist must be sure that all the employees are compliant in all aspects of the dental experience. Can a hygienist or any other dental staff member be a true independent contract employee since the dentist oversees/is responsible for the work/care the worker provides? This excludes, of course, another dentist working in the practice as a sole proprietor.

Employers control the work of the employees, not the work of the independent contractors. The IRS manual includes “Following the common law standard, the employment tax regulations provide that an employer-employee relationship exists when the business for which the services are performed has the right to direct and control the worker who performs the services. This control refers not only to the result to be accomplished by the work, but also the means and details by which that result is accomplished.” In other words, the dental office must treat independent contractors like an outside vendor, and avoid the appearance that the contractor is an employee. However, if a dentist must oversee all care within the office, and be accountable for the outcome of care, can a contract worker truly be classified as independent?

This is where the seemingly simple year-end contract question becomes difficult. If the hygienist decides to file a claim for unemployment benefits, the burden of proof to show the employment status of the contract employee to the IRS or state governing boards, is shouldered by the employer. This same scenario can be applied to workman’s compensation due to an injury while on the job or if the dentist decides to employ this person as a full or part-time employee. An IRS audit can be initiated when an out-of-work contractor files for unemployment, files for workman’s compensation/disability claim or decides to change his/her employment status. Once a claim has been filed, the State Department of Employment must determine if the contract worker was actually an employee. Sometimes the determining factor is if the contract worker carried independent unemployment insurance, which because of the expense, few contract workers do. If the State Department of Employment determines that a contract employee was actually an employee, the IRS will be given the heads up that back taxes need to be collected for federal unemployment insurance, and this will lead to an audit of federal and State withholding taxes as well. To prove that a hygienist, dental assistant, office manager, or any other dental employee besides a fellow dentist were contract employees is extremely difficult since the care provided by them was overseen by the dentist.

To sum up, despite having a written or verbal agreement, the dental hygienist can very well collect unemployment benefits, all the while the dentist is suffering through an IRS audit.

Special Note: A world of thanks to Susan Heppner, RN, BSN for the exhaustive research and composition of this article about a confusing subject.

I’ve been working my dental practice for several years now, and I’m just not making the money I would like to make. What should I be looking at in terms of my income and expenses, and how can I trim overhead to take home more money?

To answer this question, let’s turn to some quick and basic fundamentals of good business management and learn how to measure practice profitability. But before we do, a small but direct disclaimer: The author is not an accountant, and is not a tax advisor. This article is not meant to provide tax advice or accounting advice. It is meant to shed light on the concept of identifying cost centers and ways in which a dental practice may improve profit.

Many dentists are not skilled in reading a Profit and Loss Statement, similarly called an Income Statement, because their time and energy is often put forth in learning to become excellent clinicians. This could be construed as a fault of the dental schools, but is it really? Some would argue that dental schools are credentialed to teach dentists in the healing arts, not business management. I concur.

On the other hand, in the real world dentists in the private sector are privy to educational courses beyond dental school in business management, but how many attend? Management consultants, like yours truly, have the information and skills to teach dentists about overhead control and profitability, but how many contact a consultant and make an investment in their business education? This article will help clarify overhead control and profitability, and at least provide help to those who seek answers.

Many dentists use overhead as a measure of proficiency in business. True, low overhead yields good profit, and proficiency in this area is a measurement of business success. But overhead is commonly misconstrued, in that it may not be measured consistently across all practices. Here is a good way to consider measuring office overhead so that the office’s ability to generate profit is enhanced.

The Net Operating Overhead for a practice is derived from the Profit and Loss Statement, or Income Statement, by calculating all operating expenses and dividing it into the practice’s income. The result is in the form of a percentage, usually less than 100%; if it’s more, we need to talk!

The first step is to have an accountant prepare a Profit and Loss Statement, or generate a P&L from an in house accounting program such as Quicken or QuickBooks. Use the feature if it’s available, that calculates expenses as a percentage of income. This will come in very handy later.

The next step is to identify expenses not included in operating overhead. These expenses occur in the P&L but are not part of operating the business, per se. Expenses such as doctor compensation and his or her payroll taxes, interest paid, depreciation, amortization and taxes. In addition, any discretionary expenditures taken on the doctor’s behalf not related to practice operations must be included, such as automobile expense, life insurance premiums paid, medical insurance for the owner, disability insurance premiums, and so on. Again, these expenses are not related to operating the dental practice and are part of the owner’s benefit.

Adding all of the above mentioned expenses would help arrive at a number that represents operating income. The difference between this number and the total collections is the operating overhead. Divide the operating overhead dollar amount into the total income dollar amount of the practice and voila! Overhead Percentage!

Here’s an example. Our fictitious dental practice collects $1,000,000 in our make believe year. Doctor’s compensation and payroll taxes are $230,000, Interest Expense is $25,000, Depreciation is $15,000, Amortization is $10,000, Taxes are $5000, Life Insurance premium is $7500, and Automobile Expenses are $7500. Total non-operating expenses and doctor’s compensation: $300,000. The difference between $300,000 and $1,000,000 is $700,000. $700,000 divided by $1,000,000 is 70%.

Is that good? Bad? Okay? So-So?

Since a large pool of comparable data is not available to measure against the “averages”, it isn’t possible to say 70% is good, bad or otherwise. It’s relative to the income needs and financial plan of the owner.

Clearly, 30% operational profit on $1,000,000 in sales would satisfy a good portion of working dentists in the marketplace. What’s important here is that we now know how to calculate net operating overhead. Take that one step further and begin to study the key cost centers of a dental practice, make budget decisions, and set goals that will decrease overhead and increase profit going forward.

To control overhead and increase profit, I suggest concentrating on four major cost centers of the practice and their target levels to ensure overhead is managed. The percentages are related to income (collections) rather than production. This discussion is focused on general restorative dental practices, not specialty practices such as pediatric dentistry, oral surgery, endodontics, periodontics, prosthodontics, and orthodontics.

Rent/Mortgage: 5-7%; with a target of 5%
The Rent/Mortgage line item in a Profit and Loss Statement is an excellent indication of practice performance against rent expense. If Rent/Mortgage is above the 7% range, the facility is either too large, rent is too expensive, or the office is not generating enough income to support the occupancy payment. The ideal target is 5%. If the rent is below 5%, more often than not this shows an excellent use of facility resources.

In order to reduce this cost center, or reduce the percentage of the cost relative to income, one may have to re-negotiate a lease or improve income. More often than not, leases are locked in for a period and the alternative is to focus on increasing income. To do this, improve communication skills in order to boost case acceptance and increase productivity by having patients better understand their dental conditions and the benefits of proper treatment. Keep in mind, case acceptance is also related to the practice’s ability to help patients understand that the decision to undergo treatment for diagnosed conditions is theirs to make. Ultimately, improved productivity will increase income and bring this line item into a healthy range.

Laboratory: 8-12%; with a target of 10%
On the whole, it is a sign of fiscal success if actual costs are contained below a specific target. This is not true with Laboratory expenses. If this expense item is below the target of 10%, it is an indication that perhaps not enough laboratory related dental services are being delivered. On rare occasion, a low lab expense in a practice that is producing well may indicate a below market fee for lab related work is being paid for good profit.

Increasing this cost center depends on how well the office can increase case acceptance where lab related work is focused. That’s not to say, “Go sell more crowns!” Rather, improve productivity by following the suggestions previously stated.

Dental Supplies: 5-7, with a target of 5%
This expense should not waver. Be sure, however, that the expense entails only disposable dental supplies and materials. Keep equipment purchases separate since they are not usable disposable supplies, per se. Often times, including equipment purchases such as handpieces or other small equipment purchases will boost this category out of the healthy range. Understandably so, a business owner may want to deduct the expense of small equipment expenses during the year purchased, rather than depreciate the expense over several years. Just the same, if the expense is over 5%, it most likely means supply-ordering and inventory systems are inefficient.

If you find your systems are inefficient, integrate a Dental Supply Cost Containment program by setting a budget for dental supply ordering and establish a tracking mechanism to monitor expenditures monthly. Have the person who is responsible for ordering supplies in the office manage ordering so that they do not exceed the budget. For example, in our $1,000,000 practice, if the goal is to keep supplies at 5% of income, then the office would not want to spend more than $50,000 a year in disposable supplies and materials. On a monthly basis, keep track of ordering and attempt not to spend more than $4200 per month for supplies.

Remember not to be penny-wise and pound-foolish. If towards the end of the month materials are needed for scheduled production, such as impression material for a large crown and bridge case, then order what is needed so as not to run out.

Payroll/Staff Salaries: 25%; Employee Benefits: 5%
This line item is critical simply because of the size of the expense item. A quality team can be well compensated. It is not unheard of to pay team members well and maintain the expense in a healthy range.

Administrative and clinical staff may be allocated 12-16%. The remaining 9-13% could be salary for hygiene. Payroll taxes and cash paid benefits, such as bonus and paid time off are included in these numbers.

There is a saying in dentistry: “You’ll never get rich on the money you aren’t paying your team.” But the income of the practice must be able to support a well-paid team of people that produces results and appropriate net income for the doctor.

In some cases, a high salary percentage may be the result of over-staffing in certain departments. For instance, a practice with one doctor may employ two full-time hygienists and not produce enough revenue to offset hygiene salaries. And, a practice may employ extra front office to handle a high traffic of low-revenue insurance patients, there again perhaps not generating enough revenue to offset the cost.

Employee Benefits, such as medical insurance premiums, retirement contribution, profit sharing, continuing education, are separate and could range from 1-3% depending on the practice.

To keep payroll at a healthy level, make sure the team is well-educated in patient services, well paid for their excellent work, and track the income and expense results periodically to be sure revenue is supporting the salaries paid to your great dental staff!

The total of these four cost centers is 43% to 56% (when including employee benefits). Consider that there could be another 25 or so remaining cost centers in a dental practice that will make up anywhere from 10% to 25% of income. These include Advertising, Credit Card Fees, Bank Charges, Professional Development, Dues & Subscriptions, Legal Fees, Accounting, Consulting, Office Supplies, Postage, Repairs & Maintenance, Computer, Internet, Utilities, Meals & Entertainment, Collection Expense, Interest, License & Permits, Printing, Gifts, Medical Waste, and Storage. One can see how confusing this exercise is when each of these expense items is tracked regularly.

It is prudent to establish a budget for each of the rest of the expense categories, but first control the four major areas discussed in this article. Once a practice has the four major areas under control, the rest of the expenses can be evaluated individually to see if work must be addressed in other areas of the practice.

Be Proactive in planning for profit by examining the Profit and Loss Statement for the practice. The end result will be reduced overhead and increase income. Ultimately, this exercise will help create a more profitable and enjoyable practice!