Why Your Production Does Not Matter

I hear many doctors talk about how well their offices are doing and boast about their production. My follow-up question is, “What is your collections percentage?” The scary part is that many cannot answer this questions with confidence.

The key figure is the total amount collected that ends up in the bank as opposed to simply what you produced. The money in the bank pays the bills and ultimately effects your net earnings.

Its important to realize how much you net is influenced in part by how much you collected….in fact this is the single biggest factor that impacts your bank account….

A business needs profit to grow, but cash flow to survive. It can operate for a considerable time without profit but it will not last long without cash flow. Your collection percentage directly affects your cash flow.

For instance, your practice may have generated $80,000 in revenue last month. If your total expenses were $60,000 then your net profit is $20,000. This profit does not necessarily mean net real cash flow.

A low collection percentage is a lagging indicator flagging that something is broken in your process. My benchmark for collection percentage is 97% or higher. Anything below that and I know something is not working properly and my practice is leaking cash.

Now that you have something you can measure, it can be managed. Here are some reasons your collection percentage may be low:

1. Being behind on processing insurance payments and checks.

One big flaw in your process is when your team delays processing insurance payments and checks. You need to find out why the delays are happening, starting with communication. Is it possible your staff members do not see the urgency in processing these payments as they arise? Perhaps this is the task they put off until they complete all of their other tasks. Perhaps the hold-up is caused by delayed mail pickup or any other of a list of hundreds of possibilities. The point is, the measure indicates there is a problem. The good news is this can be easily identified and corrected.

2. Not collecting co-payments

Neglecting to collect co-payments is another issue that should be corrected. This matter may be a little more involved depending on the source of the problem. You may find out that members of your staff do not know which appointments and services require a co-payment, or perhaps they feel uncomfortable asking for the payment. In either case, and many others, this problem can be corrected through training.

3. Payment plans

Although payment plans will have an impact on your collection percentage, they aren’t necessarily an indication that your practice is leaking cash. Payment plans impact your cash flow because you are performing a service today and being paid for it later. An example is when you perform a $2500 service and agree to finance the fee for $100 per month for 25 months (assuming no finance charge). You are effectively recovering 4% ($100/$2500) every month until all the payments are made. This only applies if you are doing in-house financing or procedures such as orthodontics, in which patients pay monthly until the payments are complete. I advocate using a third party that will pay you in full and handle the payments for the treatment on your behalf so this is never an issue for you.

4. Embezzlement

Embezzlement is a very difficult problem to diagnose and remedy. It can dramatically affect your collection percentage. You must tread warily here. Collection percentage is not the only indicator of embezzlement. You may be meeting your expected targets and you may still be leaking cash because of embezzlement. You may require a third party to investigate and audit your cash flow. When you do confirm that someone has been stealing, act immediately. First, contact your lawyer and consult with your trusted human resources adviser. There are multiple ways you can reduce the risk of embezzlement in your office. (covered in more detail in a separate article)

A low collection percentage is an indicator that something is broken in your process. Find out what it is and fix it quickly!