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Dig N2 the Numb3rs: Are Your Patient Statistics and Accounts Receivable Ready for a Critical Look?

Dental practice management software has become ubiquitous. Most practices today are computerized at some level, but what does that really mean to your practice?

When we are asked to value a practice, we look for the reports that are available from most of the commonly used programs. Those statistics are utilized to evaluate the health of a practice and provide important information that purchasers and practice acquisition lenders require when they evaluate their interest in purchasing a practice or financing the business. As the adage says, “garbage in, garbage out,” meaning the accuracy of any computer report is limited to the accuracy of the information that is entered and maintained.

As an example, prospective purchasers and lenders both want to know the number of active patients in the practice. But what is the definition of an active patient? Generally, we look at the number of patients treated by the practice in the last 18 months. This time window has been an accepted standard for years; however, practice software reports will not usually show that number anywhere. We can’t help but wonder why?

Most offices that still use paper charts do periodic chart reviews and move patient charts to storage when the patients have not been in the office for approximately 3-4 years. However, when the inactive charts are removed, the practice software is often not updated. Patients need to be inactivated in the software or they continue to be counted in the patient register. So we often see practices with 7,000-10,000 patients on patient statistics reports but only 2,000 patient charts in the office. It is unlikely there are 7,000+ active patients in a general practice with only two hygienists seeing patients five days per week. Such ambiguity is not generally favorably received. In most cases, even 2,000 patients is ‘too much.’

Another report that is often overlooked is the accounts receivable report. If you want to know how well you are doing financially, look at this report at least monthly. How much dentistry did you produce and how much money have you collected of that production? Your overhead costs are actually a function of the production of the office and not the collections. Your overhead may seem to be too high when compared to the collections, but evaluating your overhead relative to your actual production may reveal a quite different perspective.

We’ve seen offices where the accounts receivable approach $500,000 and more. How does this happen? If the practice owner does not regularly review the status of the patient accounts, a continuing error will never be corrected and, over time, that can become an exponential error. Why is that a problem? At the time of the sale of your practice, you will be required to disclose the amount of money owed to the practice.

The accounts receivable is money owed to the practice by patients and insurance companies (if you submit claims for patients) less the amount of patient credits. Credits include patient overpayments (most likely due to duplicated payments by insurance companies) plus patient prepayments for dentistry not yet performed. Longstanding errors are usually going to be seen in the aged collection report, probably in the “over 90 days” or “over 120 days” columns.

As a purchaser, you should look at the accounts receivable report and if the balance or amount of credits is excessive, you may find that the office software has not been properly closed at the end of each month for many years. The only way to rectify this is to have the practice go back and close each month individually until you are up to date. The seller will also need to either write off very old accounts or send them to collection and remove them from the practice software.

As a practitioner later in your career, if you do not regularly review this report, you could find yourself at the closing of the sale of your practice writing a lot of checks to patients refunding their overpayments (credits) or transferring money to the purchasing doctor, as that money will be held for the patients to return to the office. In either situation, it can be a real problem, as sellers have had to return tens of thousands of dollars in order to sell their practices.  How do you avoid this? Look at the accounts receivable report. If the balance or amount of credits is excessive, you may find that the office software has not been properly closed at the end of each month for many years. The only way to rectify this is to go back and close each month individually until you are up to date. You also need to either write off very old accounts or send them to collection and remove them from your software. The time to discover how your practice looks in management reports is not the day you decide to sell it.

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