Detect Overhead Leaks Before They Sink Your Profitability
by Barry Freydberg, D.D.S., F.A.G.D., F.I.C.D.
With the use of benchmarks and effective monitors, your management system should enable you to keep your bottom line on an even keel. Recently, our practice faced an alarming situation. Our collection rate suddenly dropped 30% in a single month. Panic quickly set in. Where did the money go? Were some payments never recorded? Did an insurance payer suddenly stop reimbursing us? Were we being embezzled?
Recognizing that something was drastically wrong, we called a team meeting. We put our heads together and pored over our revenue printouts. Surprisingly, there was no obvious reason for the collections slippage. A short time later, however, we discovered the source of the problem. It turns out that a medical group had moved in next door and our mail carrier had mistakenly assumed that their group was part of ours and delivered mail payments due to our doctors to their office.
As stress-filled as these few days were, this experience renewed my conviction that the money we’ve invested in our practice management program was well spent. The system and the tracking monitors we have in place instantly alerted us that something was seriously wrong so we could take immediate action.
Sure, the problem was unavoidable, but at least we knew there was trouble. That’s really the greatest value of today’s programs. It’s not that they can manage for us, it’s that they can help us to be more attentive managers, particularly when it comes to our greatest challenge: controlling overhead costs.
Sounding the alarm
Ideally, we should use our management software to help keep us on track to reach the goals we’ve set for our practices and our team members. Likewise, when we inadvertently veer from the course we’ve set for our practices, warnings should sound.
Unfortunately, many times we aren’t close enough to the overhead numbers of our practices. Cost increases typically creep up on us because we don’t track our numbers closely enough. Typically, the reason for this is that we don’t have a simple yet comprehensive way to give us the numbers we need in a format that is readily understandable.
Many current practice management systems can meet this performance objective. Program designers are continuing to incorporate input from practitioners and management consultants to help make our jobs easier setting up monitors that will signal us when costs are getting out of line.
We can establish our own benchmarks based on performance standards in the geographic areas we practice or that have been recommended to us by consultants. We can then quickly, effectively, and consistently monitor our results.
Some of the many overhead areas that can be instantly analyzed on the computer include:
- Staff salaries as a percentage of practice production or collections.
- Lab expenses as a percentage of the doctor’s production.
- Hygienist’s salary as a percentage of his or her gross production.
- Supplies, including the percentage of gross practice production spent in this area as well as how frequently specific supplies are ordered.
- Production per hour of the owner, associates, or hygienists.
Scores of other key data can be monitored to quickly give greater insight into how the practice and its members are performing. In addition, we frequently use our group practice data to develop performance incentives for individual staff members. This allows individuals to be rewarded when important overhead targets or other objectives are reached.
Over time, these monitors are even more valuable. We can identify trends and respond to them easily and quickly. We always know how we’re doing—good or bad—because we have a management barometer.
I believe using management software to monitor performance has become a necessity for practices that are intent on operating efficiently.
For doctors who are evaluating whether to become providers in dental preferred provided organizations, health maintenance organizations or capitation plans, knowing your numbers is a must. To get a firm handle on whether you have a chance to be profitable in any of these programs, you must know your numbers before you decide whether to participate. Current practice management software programs can help you analyze these numbers infinitely faster and with greater clarity than their predecessors.
Similarly, if you’re among the many doctors who have been approached by a practice management company to sell your business, your software program can be an invaluable resource. If someone tells you they can shave 10% or 8% from your operating costs, a sophisticated management program that is closely monitored will give you a solid foundation to make an appropriate business decision.