Dental Accounting
Dental Accounting
All about the financial business of being a dentist: tracking new patient numbers, fraud risk management, key performance metrics, tax planning, debt reduction, and more. Using the language of accounting to understand your practice.
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BluebackJay
BluebackJay

Production: Which Numbers Are Important?

Production: Which Numbers Are Important?

9/28/2016 11:43:34 AM   |   Comments: 0   |   Views: 150

There is a lot of confusion when it comes to dental production and the correct numbers to track. Some dentists look at total production, others look at adjusted production, while even others cut it down further. In our  opinion, there are two production numbers that should be tracked to better measure efficiency and improve the bottom line: Gross Production and Net Collectible Production.

Gross Production (GP) should account for every procedure and service that is done in the dental practice. No matter what, even if you are working pro bono, everything you are doing should be tracked in GP. This number will be the base for operational efficiency. All operational benchmarks should use this number as the denominator, as the output of total effort drives operational expenses.

We looked at the books of a practice that was struggling a bit, and their staffing expenses ran at 35% of production over the past 12 months. Average dental benchmarking estimates that expense around 20-25% of production. At first look, it seems that this practice is very overstaffed, or at least the current staff is very inefficient. After some more digging, we uncovered that their true gross production is 40%, yes, 40% more than their collectible production. In essence, the staff is working extra hard to do work that the practice is never going to collect. Their efficiency is fine for the work they were doing; they are just doing too much work for free.

This 40% gap grew over time because this practice was not paying attention to the next important production number, Net Collectible Production (NCP). NCP represents the total production that the practice is actually expecting to collect, before adjusting for uncollectible accounts. This number shows how decisions like discounting services impact the practice’s cash flow.  We like to think that by creating awareness for something, it influences our decisions. If an NCP goal is not hit for the month, and everyone is aware of it, it may be harder to let a patient schedule unpaid work. Or it may give the dentist/case manager more incentive to stand firm while presetting the next case.

Generally, the dentists/owners have the most influence over the NCP, and the officer manager and staff have more influence over operational efficiency (measured by GP as the denominator). Knowing what numbers matter and how they work together are the first steps to improving operational efficiency and the bottom line.

 

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