Master Your Practice's Finances

You are listening to the Dental Practice Owner's Podcast brought to you by Prosperident. From our unique perspective as dentistry's embezzlement experts, Prosperident's team can bring you the information that is important to practice owners. The Dental Practice Owner's Podcast brings you strategies, tools, and tips that you can use and dentistry's thought leaders as guests. So sit back, relax, and listen to Prosperident's Amber Weber, Wendy Askins, and David

Harris. Talk about the issues that matter to you. Hello my dental friends and family. I'm Wendy Askins from Texas. I'm joined by my co-host

this evening, Amber Weber, who's also from Texas, and David Harris, the CEO of Prosperident, who is from Halifax, Canada. And we have a very, very special guest, an amazing guest with us this evening, Scott Clifford. And you'll learn a little bit more about him tonight. Tonight we're focusing on our second series of this spring theme of how to arts outsmart embezzlers. Tonight is going to be a very interesting topic. We're focusing on master your practice finances. And with our special guest, he's going to inform you about some

amazing things. Don't miss out on our third and final episode of our spring series, slam the door shut on thieves in June. But we have some exciting new webinars coming to you this summer. We're going to focus on the receivables of your practice. So please make sure you join us next month and register for our upcoming series this summer. Well, it's my pleasure and privilege to introduce our special guest. His name is Scott Clifford. Scott is from Northern California. He's been with Prosperident almost a decade.

Before that, he had spent most of his adult life working in dental practices. He is what's called a supervising examiner. And we have three levels of examiners, Scott and Wendy Askins, who most of you know from being on camera with us all the time, are both supervising examiners. So this is our top level examiner. They handle some really wild cases at times. And Scott's going to tell us about one of them in a minute. And they also are responsible for training other examiners when they start with us. So

they're kind of our go-to people. What I didn't realize when we brought Scott on was that actually we were hiring a whole family. Scott came first, and then his wife Rose, who's now a senior examiner with us. And their daughter, Mickey, who has worked for us and kind of fits in a little bit of stuff for us between her college classes and forensic accounting. So we are looking forward to having the Clifford family with us for many, many years. And they're just fantastic people and have been a great addition to prosperity. So with that, Scott, why don't you tell us a little

bit about this absolutely hair-raising case that you work on? Thanks very much, Dave. I appreciate it. And thanks for all the attendees that are watching this tonight. We really appreciate you guys coming to these. This case is a very recent case. In fact, it's ongoing right now. And it involves a dentist who outsourced to their consulting firm to handle a lot of the

operations of the practice. And not just AR, but they had embedded employees that actually worked for the consulting firm that answered the consulting firm and then he would pay them. So it was a very intertwined relationship between this dentist and the consulting firm. And the consulting firm also handled, they were supposed to do AR and insurance aging reports, insurance filings, insurance postings. And they also handled PPO memberships. They handled transitions whenever they brought in an associate dentist or whatnot. They're supposed to

handle all of this as well. Go ahead, Dave. The fees for this were fairly handsome.

They paid in three different methods. They had an annual fee that they paid to the consulting firm. They paid a monthly fee to the consulting firm. And they also paid the payroll for these employees that were embedded within the practice. And so all told, the fees were about $150 grand a year to the dentist to handle these things. Some of that obviously would have been offset a little bit if he had hired his own front desk, but still that's the fees that were coming out for him. When I first started this case, I kind of had to rub my eyes because

I do an AR analysis on every case that I do, even if we don't expect AR to be an issue. I have the numbers. I might as well run them. And the first thing I noticed was $680-some-odd thousand dollars of AR added in a single year. And I went, that can't be right. So I started running AR totals from a long time, as long as I had data for. And I noticed that

since 93, I think I had data for all the way up until about 2015, 2016, AR was pretty much running what you would expect, 10 to 15% of net production. And it kind of hovered in that for years, decades. And then it started to build. And I noticed it go from $100,000 accumulated to

$300,000 to $600,000. And then all of a sudden in 2020, it doubles again, total outstanding AR was $1.2 million. And this is an office that's doing $2 million in net production

unreal. This could actually be true. And so I checked it from one angle, another angle, another angle, just to make sure that I'm not crazy. And I wasn't. These were real, actual AR figures. And so we started trying to figure out what the issues were, why it was growing so much. And then we started discovering other things that they were doing incorrectly or not doing. When the dentist purchased the practice, they never dropped the old dentist from the insurance records, any of them, even though they had all the information.

And so the old dentist was still getting 1099s from insurance companies. IRS was still thinking that the dentist no longer owned the practice was earning all of this income, brought in an associate dentist to have that associate dentist sign up with all of the same PPOs. That was never done. And so patients that were seeing the associate dentist thinking that they were in network, were getting out of network billings from their from the from the insurance. So just a ton of things that were supposed to be handled by this consulting

firm for 150 grand a year were absolutely left by the wayside. Absolutely left by the wayside. The doctor was starting to suffer financially. Obviously, you can imagine with with $600,000 AR growth in one year. And so he started asking questions to the consulting firm.

Go ahead and go to the next slide, Dave. Like what's going on with receivables? Why don't I have any money? And the consulting firm sent him a kind of a rosy AR report showing that

his total receivables were less than $300,000. And that was the true receivables. And and this is actually an image from an email that they sent to the doctor. I looked at that email and looked at the data, the email and said there's no way because I know that AR was much higher than that at the time. So I ran my own report. And it showed, yeah, 640 plus new receivables of 42.

So, you know, nearly $700,000 in total receivables. And they're telling him that he's got less than 200 or less than 300. And what I discovered was is that the report on the left that you see on your screen there was actually pre filtered. This particular practice management software allows you to filter by doctor and by all sorts of other things. And what we found out was that when they sent him this information, they sent it to him pre filtered, but they never sent him page one, which would have showed the filters that had been put on. And so,

you know, they're really deceitful and concealing the fact that they weren't doing what they were supposed to be doing. The reason we bring this up and we know that it's a fairly

spectacular case with big numbers and things like that. And not everybody has a relationship with a consultant like that. But what's really important is that the things that were done are the same things that your front office manager could do with cash. You know, you have a person that's entrusted to do something. And they don't do it, or they do it wrong, or they do it to your financial harm. They will doctor reports. They will give you a day sheet that's not really what happened that day, but because of things that

they do, they're able to mask their activities. And, you know, the effect is really the same. There are so many commonalities between this spotlight type case and the things that we see every day in offices around the country. And this trust but verify a lot of people will remember Ronald Reagan saying this and actually he lifted it from an old Russian proverb that probably dates back to the 1900s, early 1900s. But trust but verify. You want to trust people to do the job, but you want to be able to verify that they do it. And I think that

is where a disconnect happens in a lot of offices and that, you know, the dentist needs to be able to know what's going on and know that the information that's being given to them is correct. And I preach this every single day to every single one of my clients. You know, yeah, you should ask the front desk to give you a day sheet at the end of the day, but you should also run that and make sure that your number matches their number, that they're not trying to, they don't pre-filter, they don't mask information,

they don't use date trickery and things like that to show you what they want you to see. You need to be able to verify that what you're being given is true and accurate, and so you need to be able to run those reports on your own. There you go. And these are the

kinds of reports. The insurance agent report in the middle, we're going to go over that later. I'm a big, big, big proponent of that. There is so much hidden information in that insurance agent report that we'll talk about. And David will rein me in, he'll mute me because I could talk for hours on that particular report. But you need to be able to know what your patient AR is. You can ask somebody for it, but make sure when they give that information that you're able to run that yourself and make sure that they're not painting

a rosier picture than is really occurring in the practice for you. But that's basically what happened in this case. And just because it's sort of a highlight case doesn't mean that this sort of activity doesn't happen with office managers and front desk people every single day. Wow. That's a great story, Scott. Just to clarify a couple of things for people. First of all, as you determined, the consultants weren't stealing money here. They were just really derelict in their duties. Yeah, that was actually the first question I wanted to

answer. Let me see a $600 AR. Is it really AR or is it stolen? And so I ran our battery

of tests and making sure that there wasn't actually theft going on. That's question I wanted to answer in that case. Good point, David. I probably should have said that earlier. But yeah, that's the first thing you want to do. Is this so many steal $700 in a year? Or is this just... And once I determined that the theft was not occurring, then we have to find out why isn't virtually anything being collected. Yeah. And just ballpark, and I know the numbers are somewhat inflexible on this,

but what do you think the doctor's exposure is? I mean, how much can this little adventure have cost our client overall? $2 million. And that's a combination between... And I only went back four years on the fees that they charged him, but that's a combination of fees that they charge plus the outstanding AR, which may or may not ever be collectible, because some of it's very old. And write-offs that they've been forced to do for stale-dated insurance and

we're estimating right around to 1.9 and change. Wow. Absolutely staggering. What comes out to me from this case is exactly what you said on the screen. Trust me, verify. No matter who you have doing the job, whether it's a consultant or a staff member, there always needs to be oversight. There's nothing financial that a dentist can simply walk away from and say, you know what? I've handed that to somebody and I don't ever have to think about it again. There has to be oversight

no matter what. And if there's no oversight, you know, when the cat's away, the mice are going to play or take long naps. So great story, fascinating case. And as you say, the facts of this case are kind of specific, but the lessons learned are a lot more broadly applicable. Thanks, Scott. Amber, Wendy, anything you guys want to add here?

Well, I totally agree with Scott on the trust, but verify, you know, because you never know realistically. You're seeing patients every day, you know, a dental office is very busy, has a lot of moving parts to it. So you can be very busy and feel like, you know, you've not had a moment to breathe. And at the end of the day, what's really happening in the gray areas of your practice. Yeah, I think what's important too is that these things in the green box on the right, these are not all day tasks. You know, there are systems that you can put in

place to be able to monitor these things to where it's not going to take you all day on a Friday or have to come in on a Sunday. These are not it's not big scary when you know what you're doing. It might look gray and nebulous now. But the more you learn about them, the more you figure out that these are these are fairly simple, short tasks that you can do. And just a small time investment. And you know what, frankly, yeah, this guy may have lost two million, but I don't want people to lose 200. You know, I bristle when I see a $200 effect.

You know, because that's $200. If you put that in real world, you know, that's, that's, you know, a couple of dinners and movies out. You know, I don't like anything. And if it can be prevented by, you know, a few minutes at the end of a couple of days a week that you can run these things and look, then it's worth it to me. Absolutely. Again, you know, a depressing story, but one that has some good lessons for everybody. Thanks very much, Scott. And Scott's going to be with us for the rest of the evening

and we'll we'll hear from him again. I'm very sure. Okay, I have a question, Dave. Yeah. And it may not be pertinent if you're not finished with the case yet, but um, is, is the client anticipating any type of litigation or refund from the consulting company

that we're not sure about the anticipation of refund, but there is a civil case on going right now. So yeah, we are, we are going civilly or we're also talking to, to his attorney whether or not in their state and jurisdiction, there's criminal liability with it as well. So you know, what's interesting about that is that even though this case is quite a bit different than what we usually see in our, in our standard investment cases, if, if you can call them standard investment cases. Which is why I got it.

That title supervising examiner means something right now, doesn't it? Yeah, but, um, uh, it just, it comes back to me, you know, where we talk about any time there's embezzlement, there is always a small portion of recovery, but really the majority

of it is not recovered. What's, what's that saying we use? Um, some get or all, Yeah, everybody gets something back and, and the select few get it all back. Yeah. What I'll say here, Wendy, is that I, um, you know, this is something we don't know the answer to, but we're really hoping that the consulting company has liability insurance because if that's the case, then the means to pay is, is, is going to be fairly easy to establish. So we're working with the client's attorney now,

you know, there, there, there's about to be launched a lawsuit. I think the amount that the attorneys are going to run with Scott is, as I recall, is $5 million. Attorney is always, you know, sue for the monetary loss plus what's, what's called punitive damages. In other words, the, you know, in this case in, in our mind, the, the consultant was so reckless with their job that the court really should punish them in a civil court. So there are punitive damages and whatever. So it's going to be a $5 million

lawsuit. Um, you know, how much will ultimately be collected. We, we don't know yet, but I'm, I'm hoping that the consulting company has an insurance policy with a couple of million dollars coverage because that will give the liquidity to pay that, pay our client back. And, and hopefully he will end up whole from this. Just a reminder to the audience that if you have questions, please use the question feature in Zoom to submit them. And we will, we'll get to them either, either in the presentation or, or we've, we've saved a little bit of time at the end

for questions as well. Amber, I think you're up. Yeah. Well, and it just makes me really think Scott's case, there's so many different ways that, you know, you cannot make money in the dental world. It doesn't mean that something is always just stolen directly from you. So that's where this is such a passionate thing for me, that it's great to produce every day because you feel like you're really accomplishing something. The schedule is busy, people are coming in, but at the, at the end of it all, if you are producing but not collecting,

that's another form of loss that you're suffering. It doesn't mean that funds necessarily have to be directly stolen from you. The key area of this is, you know, really monitor your monthly activity of what you're doing in your practice as far as how much is being collected. And this is kind of a gray area in a practice. What happens is a lot of people think that, Oh, I'm going to print my report that says what my bottom number at the end of the report, because sometimes it's a long report, what that number says. But what you have to

really remember is this is a multifaceted area of your practice. And one number does not give you all the answers to what's really occurring in what you're collecting, what you're producing, and how much at the end of the day, your practice, your business is truly getting paid. It's like putting together a piece of a puzzle. So, you know, as Scott mentioned earlier, you want to look at your overhaul what overhead amount that you are producing at a yearly standpoint. And then once you look at that number, you want to make sure that

your true AR is within that normal percentage range in your practice management software. Then from that, like I said, it's multifaceted, you have to look at the pieces of the puzzle. What's your 30 day aging? What's your 60 day aging? And what's your 90 day aging? So how old are these amounts that people truly owe you? And at the end of that report, you're going to get that number in my in that normal percentage range. But it doesn't end there. The other piece of the puzzle is, okay, people owe you money. But combined in that report, you will also see a lot

of people that may be overpaid for services or insurance compensated you, they might have a small credit, you planned on doing more treatment than they ended up needing. And you need to make sure that's cleared out. So to get what is truly owe to you also need to filter out some of that puzzle, some of that gray area, what those credit balances are. And one of the key things for me, especially if you are an insurance driven practice is you need to also look at your overall AR number. But as a separate report, as an own separate avenue that you really need to study

and focus on on a regular basis is your insurance aging report. This will show you claims that have been sent to insurance, maybe not sent to insurance in the in certain software, and it will show you how long are you waiting for that money? Has it been one month, two months, several months? A lot of times with insurance, there are so many different things that can prevent you from collecting what you actually produced. I have a case that I recently finished up. And what happened, there was no actual theft or money stolen, but they would delete

the insurance payment, and then renew the claim and send it again. So a lot of these claims were actually showing that they only aged for about 30 days. Oh, we just sent the claim. But some of them were up to five and six months old. So then the claims were not had been sent so many times. But just because the system wasn't being done correctly, it didn't show their true aging. There was a couple other instances where, you know, like Scott said, the timely filing, you know, a lot of insurance companies now say you have, you know, six months to a year. And

if we haven't heard from you six months to a year, your time's up, you know, where you may not get what you produced from us. We may not be sending you any money. So I always look at, you know, the pieces of the puzzle and I look at it as three pieces. Number one, our overall accounts receivable amount, number two, your credit amount, and number three, your insurance. That's its own little avenue that you really need to focus on and really understand because it can also contribute to your overall accounts receivable amount will look great.

But then if a few months go by and you haven't gotten paid by insurance and they finally say, we're not going to pay that claim, then you have a patient that owes you money that maybe necessarily didn't look like they owed you as much money as they do all of a sudden. So that is one of the key areas. Oh, I'm sorry, I didn't mean to interrupt you. Speaking of that, I am finishing up with a case where I have like 950 pages of open claims

and 950 page report of claims that are open in this particular dental software.

What's the impact of an open claim on your AR numbers or HUOs between the insurance ledger and the patient ledger depending on if your claim is open still or if it's closed and kind of what's that process? One of the main things I see in my experience with many practice management software is if you have a claim open and the overall accounts receivable number, you're waiting for insurance to actively participate in the cost of that patient's treatment. So at the end result that may say, you know, you're waiting on insurance and the patient may owe

you less than realistically what they do. So when there's a lot of open claims like that and the aging category extends, you really want to make sure you get those cleaned up and processed so that the true accounts receivable what that patient owes you is handled earlier on. So you don't have a big patient that six, eight, nine months down the road is shocked because, you know, four months later, you insurance didn't cover what they were expected to cover. And now they have a much larger balance than originally you had thought a few months ago.

Yeah, Scott's got a point and I'll say something first and then we'll go to him. Wendy, what you might be seeing is a lot of claims that were filed on a non assignment basis. In other words, that the the when the insurance paid it paid to the patient. So what the office has to do in those cases is they still get an EOB explanation of benefits and they have to use that EOB to close that insurance claim. And that's not an instinctive thing for offices to do because in their mind, there's no money

coming in. There's no payment being processed because the claim wasn't assigned in the first place. So if if offices don't close those claims that came in with with zero dollars,

then what you're going to see over time is hundreds and hundreds and hundreds of open insurance claims that have actually been paid. Scott, I saw you nodding there. So it sounds like you were kind of going the same way. Yeah, that's the question you got to answer on the on these claims and almost on a per claim basis is why is it still here? And when you have that many open claims in my experience, it's because assignment wasn't taken or wasn't granted for some reason.

So the payment goes to the patient. The problem with leaving it open in the system is if you don't resolve that claim, your the system still thinks that's expected from insurance. So when you go to generate statements for patients, it's going to say, Hey, this patient owes $500, but we're expecting $500 from insurance. It will suppress that claim usually automatically. And so the patient will never know that they own they own any money. And the longer that goes, the more difficult it becomes to collect the second reason that you might

have a lot of claims on the aging report are is that some of these claims might have been denied. And if they're denied, they come with no check. Some front office staff for whatever reason won't resolve the claim. It's zero dollars. So I'm not going to resolve it. I have nothing to post in in a payment for this. It's zero. You still have to clear that out for the same reason as the prior. Absolutely. All right, let's change gears. And I'm involved in a discussion in a Facebook group right now. And this is almost exactly how it's going. What I hear Dennis talking

about a lot is how much my overhead is, and it's expressed in terms of percentage. So, you know, my overhead is 70%. And typically they're talking about collections, but maybe it's 70% of production or adjusted production or something. Anytime you start a sentence that way, you're about to make a bad decision. And when you think about that 70%, there are two components to it. There's a fixed component and a variable component and fixed overhead is just that it's fixed. In other words, when we talk about overhead being 70%, that assumes a certain

level of production. If that production goes up and nothing else changes, the percentage of overhead that the percentage of production that goes into overhead is going to go down. One of the best ways to think about this is average overhead. And that 70% is kind of an expression of average overhead versus incremental overhead. And what I mean by incremental is how much is my overhead going to change for the next $100 of production. And when you put it that way, the incremental overhead

in a lot of practices in around 15% or 18%, and it's really normally based on three things, dental supplies, lab fees, and whatever it costs you to process credit card payments. Those tend to be the ones that change if we produced another $100. So we've got fixed costs and variable costs. Here are the variable costs. Another thing that I'll add to the discussion of variable costs is if you have, for example, if you have a hygienist who is paid on commission, that's a variable cost, not a fixed cost. In other words, it varies

directly with that hygienist production. Also, if you get to a point where you have to add staff hours to do more production, then that's a variable cost. But most of your staff costs are fixed. Occupancy, whether you rent or own a building, that's a fixed cost. Your marketing is

generally a fixed cost in the sense that it's not related to production. You've got hardware, software, lots of other things. The majority of costs in a dental practice are fixed. So here's where this is used to make a bad decision. And this was kind of the discussion that was going on on the Facebook group. Somebody said, associates want 32% these days. And my overhead is 70%. So I can't afford to hire an associate because if I do, I'm going to lose 2%. And that analysis is very flawed. The first question we have to ask when

we're going to bring in an associate in is, where are their patients coming from? In other words, am I going to end up busy because the associates there? Or am I in a practice where there's kind of a long line up to see me and I can't get to everybody? And I'm observing a lot of work that I should do simply because I don't have the chair time to get to it. So the first question we have to ask is whether the associate is going to bring in new revenue or they're going to do some stuff that I would ordinarily do anyway.

If the answer is number two, then an associate will never make financial sense. The numbers don't matter. It will never pay to have an associate do what you could have done.

So I'm not saying that that isn't a situation where an associate might be there. Maybe you want to slow down. Maybe you're trying to get out of some stuff that you hate so you can replace it with higher dollar stuff. There are situations where cannibalization makes sense. But in pure dollar terms, it's never going to make sense to pay somebody 32% when you could do it without having to pay that. So you've got to ask that question first. Let's do a scenario though and let's assume that we're talking about extra revenue. So the first thing that happens is when

you bring in an associate, they need an assistant. So let's assume that you're going to pay that assistant $4,000 a month. I'm going to plug supplies and things like credit card fees at 9%. Normally with associates, lab fees kind of come off the top. In other words, they're kind of not part of the associate's revenue. So when I treat them that way, I can just ignore lab costs for the purpose of this analysis. So if I do that, now my incremental or variable

overhead rate is the 32% I'm paying the associate plus the 9% of other costs that I have, which total 41%. And what that means is that for every dollar that the associate brings in,

59% of it, 59 cents stays in the practice and 41 cents goes to the associate and Henry Shiner, Patterson or Benko. So the question is how much does the associate have to bring in this month before they don't cost me money? And the way that I solve that is I'm paying, remember I said I have to hire another dental assistant and I'm going to pay that assistant $4,000. So if I take 4,000 divided by 79%, the break even is $7,000 of collections

after the lab fees have been taken off the top. It's not a really high number. And remember, this was somebody who started the discussion by saying, I can't afford to hire an associate because my overhead is 70% and they want 32%, which adds up to 102. Our fixed cost didn't change here. And if we look at the associate collecting $22,000 in a month, which is not a lot of money for an associate, they left $9,000 in the practice. Pretty good money.

If you double the 22,000, it's actually more than double 9,000. In other words, it's not proportional because once we cover the $4,000 for the dental assistant, 59% of the next dollar that the associate bills stays with me. So that's associate math and it's developing this concept of a break even calculation where we have a certain fixed cost of $4,000 and we have to cover that first before we start making money. Now, we can apply the same kind of logic to your entire practice. And again, just a reminder,

if you have questions about this, if you're not sure of the math, put them in the question box and we'll get to them at the end. And if you want to talk about your own practice on this stuff, feel free to reach out to us later. There are three ways conceivably you could pay an associate. You could pay them based on collections, which to me is by far and away the most logical. You could pay them on adjusted production, which creates the possibility that you're paying the associate for money that you never actually see. For example, if a patient

doesn't pay their receivable and it gets sent out to collection, you still have to pay the associate. And the worst yardstick to use is gross production

because now you're paying the associate based on money that never even has a chance of being collected. Now, theoretically, you can play with the percentages. In other words, an associate who's paid on gross production should receive a lower percentage than somebody who's paid on net production and a lower percentage still than somebody who's paid based on collections. You can fool other percentages to try to make the numbers work. But the best answer when you have an associate is let's pay them based on collections.

And then when I get paid, you get paid and there's no scenario where I didn't get paid, but you still get your 32%. So let's talk about the concept of break even for the whole practice.

This is really just a bigger calculation of what we just did for the associate. Why do we want to know this number? Because as several management theorists have said over the years, if you don't measure it, you can't manage it. So every practice owner should know what their monthly or annual break even is. And of course, that's not your goal. That's the floor. The goal you're going to set is higher, but you got to know what the floor is. So how do we do that? Well, there's a little process here and it's not that different than the

calculation we just did. First thing you need to do is figure out what your fixed costs are. And as I say, staff costs generally are fixed except for commissioned producers like hygienists and associates. The next thing you build in is how much money you want to make because to me, break even is you get paid that amount and there's nothing left after that. So you need a target for your own withdrawals and that's a fixed cost. Then you determine what your variable cost percentage is. So this is

lab bills we're going to exclude from the entire calculation. It's generally supplies and things like credit card fees. Number four is really repeated number two. I don't know why I have that there twice. One of the little challenges in doing the calculation is that you will have different producers at different contribution rates. For example, because you've got your salary covered in number two and number four, you don't need to pay yourself a percentage like an associate as well. So when you're looking at how much money you make from a dollar you bring

in versus how much money you make from a dollar that an associate springs in versus how much a commission hygienist brings in, they're all different. You could solve this problem in a couple of ways. The easiest way to do it probably is to work out a blended contribution rate.

And the good news is that we have a spreadsheet that we're happy to share with you and all you have to do is ask us. There's gonna be an email that comes out around the end of our session tonight. There's a button on that you can click

if you want the spreadsheet and that will send us a notice. Actually it'll let you download the spreadsheet right from the email that we send you. So we have a spreadsheet that will do this. Basically you're fixed costs

divided by your blended contribution percentage, that's your breakeven. It's a great exercise just to do that calculation and know what that number is. And then you can sort of breathe a little easier in the month when you pass your monthly breakeven.

Or when you pass your annual breakeven in July you can feel pretty good about it. So that's in a nutshell how to do breakeven. As I say, the spreadsheet will make it a lot easier for you. Feel free to download that and give it a try. Scott, Amber, Wendy, anything you wanna say here?

And just my two cents from where I sit talking about associates, make sure that you get everything. You don't write it on a napkin. This draws a little bit away from what we're talking about right now,

but make sure your associate agreements are up to date, specific, detailed, and they really tell what the story is on that because any sort of disagreement is going to come down to what that says. And if there's nothing on it,

then it makes you very difficult, but that's all. Yeah, good point, Scott. And that agreement really needs to be done by a dental attorney. Your cousin who does real estate law every day can probably find a precedent somewhere for this.

It's not the same as somebody who understands the issue specific to the dental practice owner, independent contractor, associate relationship and rights and agreement that takes all that into account. So, you know, hire people to understand dentistry

and you'll be much happier with the result.

Whoops, where'd Amber go? Did we lose her? She dropped for a moment and then she came back, pictures there, but I don't see video or I don't hear her. All right, well, she'll be back with us

in a minute hopefully, but this is her slide, so I'm just gonna borrow it. And the question we're talking about here is a big one, the PPO question. And Amber, if you know Amber, she's a live wire and she said to us the other day,

yeah, I've decided I know what PPO stands for and stands for please pay my overhead. There's Amber back. Hi, Amber, we just started your slide. Why don't you pick up from here? Okay, perfect.

I don't know, it kept kicking me off. It says you've been dismissed from the meeting, so I don't know where that went from, but yeah. So from my experience when I was in practice management, when I look at a PPO and what we were just previously talking about,

why it's so important to know what your break-even point is, is as you add a PPO, in my viewpoint, what a PPO stands for is please pay for my overhead. What this means is you wanna make sure what you're going to bring in from that PPO is going to do exactly that.

So if you are a single office provider and you're going to bring in a PPO at a reduced fee, you need to understand, even at that reduced fee, if it's going to add something to the revenue and the growth of your practice. So for example, if you're going to take a 40% reduction,

it will still add in to your overhead. Amber, let me just give people a little background here. The whole concept of PPO was a way to waver carrot in front of people who already had a practice that was sort of more or less a capacity. And what the PPO kind of said was,

you know what, if you pick up 200 more patients from us and you do so at a 40% discount, you're still making money because of course you've already covered your fixed overhead. So this has kind of found money. That was the theory, unfortunately,

PPO's tend to displace the other patients sooner or later. I mean, when 70% of your patients in your practice are PPO patients, that's not what happened anymore. It looks like we dropped Amber again. What the business researchers call this is the Braniff Fallacy.

And for those of you with really long memories, Braniff was an airline that went bust like around 1985. And the way that Braniff worked was that they decided that when an airplane left Dallas and landed in San Diego with empty seats, that opportunity was lost forever.

So what Braniff said is we're better selling those seats for $50 than letting them go empty. And so they would do these last minute sales where they would sell off the empty seats at very low prices. You know, some people got transcontinental flights

for $20. And what started happening was nobody would book on Braniff. They just wait till the last minute. And pretty soon Braniff was flying a whole plane full of $40 and $50 tickets and you just can't make money as an airline that way.

And the same thing with the PPO. You know, when we're comparing PPO revenue with incremental cost, it kind of doesn't seem so bad. Once you consider all of your overhead, then PPO numbers don't work so well. Here are three scenarios

where PPO numbers in particular don't work well. The first is when you're existing patients, when you have out-of-network patients and then you join a PPO and those patients move in network, now you're treating the same patients

you used to for less money. The second place where it happens is you have so many PPO patients that you have to rent a bigger space or you need more staff or whatever and you're fixed overhead changes.

And the other one that's always been a bit of a hard sell for me is when you're paying somebody a producer percentage to do PPO work because between what the insurance company discounts you and what you pay your associate or hygienist, you know, there's, there tends not

to be a whole lot left. So, you know, some scenarios to consider. A lot of dentists have had success dropping their PPO's and going out of network and sure they've lost some patients, but you know, it's just a question of how many you lose

and whether it's enough to matter. If it's not, I personally would be much happier being out-of-network in general. Well, anybody see Amber? Yes, I'm here. Oh, okay, sorry, I thought you had left us

and I just kept doing your slide. No, I- I'll shut up now. It just keeps, no, you said exactly what I was going to say. I actually have a personal experience

of an out-of-network practice that I managed and as we added an associate, the doctor was really nervous about adding an associate to the practice. And even when the break-even, it was shown that staying out-of-network

was going to work. We went ahead and went into the PPO and so that please pay my overhead sometimes didn't always work because the fees were considerably lower than what it was costing to do bigger procedures on these patients.

But the bad side of this is we had a great out-of-network patient base built already. And what happened when they figured out, kind of like that brand of fallacy that you're talking about, that they could utilize their benefits,

the practice ended up taking a rather large hit because majority of the out-of-network patients, almost 65% ended up becoming in-network patients and we had to take that PPO hit. We had more patients coming through the door. We were busier, right?

So that whole, you've got to produce but you still need to collect. It was a lot more work to make sure, we were producing and seeing twice as many patients, but sometimes the collection piece was that putting that puzzle together.

The picture I kind of have there, Amber, is like all the little hamsters on the treadmill trying to run faster. Yeah. Yeah, and that's kind of what PPO can do to you. So yeah, Amber, just hit on the key.

When you're treating patients at your usual fee and then you end up treating the same patients at 60 or 70% of that usual fee, that's not a good math. So anyway, it's a complex question, but we just, since we were talking about overhead,

we kind of wanted to relate it to the PPO problem. So Wendy, how do we manage this relationship? Like, how do we make this stuff work properly? I'll tell you how to manage it in your software. Hey, Dave, go ahead. Can you go ahead and bring up all of those points?

Cause I think I'd like to take an... Sorry, I got a little excited there, but yeah, there they go. They'll be back. That I'm like going off on a tangent, right? Okay.

That excitement or is that fear? I'm just kidding. Anyway, and talking about this in recording contracted rates versus recording UCR and how you keep track of that.

If you'll look at point number three on the slide, it talks about your practice management software. Now, some practice management softwares will allow you to go into your system and set up contracted rates so that when it pre-populates on the patient's ledger

in the computer system, it pre-populates the contracted rate and not your UCR rate. There's several different opinions on the best way to do this. Some people feel like that's the best way to have the contracted rate shown on the patient's ledger

because then you're not having to make adjustments. There is another segment who believes that UCR should, your usual and customary rate should be shown on the patient's ledger and then a discount or an adjustment

taken off of each individual service charge so that you can actually see where that UCR has been written down to and then what the amount is. I say do what works best for you to do. However, something that concerned me as an examiner

is that I know that embezzlement is often hidden in adjustment and it's mainly hidden in adjustments that are nonspecific or shall we say just a discount or adjustment category that's called miscellaneous. It's like you throw all the trash discounts in this miscellaneous category.

If you're going to be a practice and you're gonna choose the procedure of posting your UCR on the patient's ledger and then you're going to take a write off or a discount or adjustment after that. It's incredibly important

that you make your adjustment very specific even down to as the name of the PPO. So you have delta dental discount, you have SIGNA discount, whatever you wanna call it but it needs to be specific so that you can go back and track those.

Another thing I like about making those adjustment accounting categories very specific is let's say at the end of the year, I wanna find out how much money I had to write off on SIGNA. How many SIGNA patients said I have to write off?

What amount was that? Do I wanna continue to take that? If you're not tracking that specifically you have no way to know unless you go back and do a lot of work to segment those out.

Okay, so that's one part of it. The second part that I wanna share with you is that no matter what you choose to put on the patient's ledger, if you choose to represent UCR and then take the cut after that

or you choose to post the contracted rate, whatever you do make sure that your UCR is on the insurance form that goes to the insurance company. And there are several reasons for that. Number one is that when the PPO's are looking

at your practice versus all of the practices within the area and they're trying to adjust their rates which come on, let's face it, we all know they usually adjust downward. They hardly ever adjust upward, right? So they're trying to figure out

how they can decrease what they're gonna pay you or what the patient is gonna pay you. If they have your UCR, they get a clear picture of exactly how much they're asking you to write off your books, right? Also, it gives them a more accurate feeling

or a more accurate representation of what everybody in that area is charging. Secondly, those fees can be negotiated. And I have heard some friends talk about how they hire a company to go in every year and they play the negotiation game

with these different PPO companies. Sometimes they win and sometimes they don't. But if you're sending insurance claims to the insurance company and it has their fee on it and not your UCR fee, it gives you nowhere to negotiate, you can't go back after the fact

and say, oh, well, no, that's not really my fee. My actual fee is really higher because then they're gonna come back and say to you, well, that's not what you told us on the insurance claim she's been filing. So, Amber, I know you're really good

at how the computer software works together. Do you wanna comment on that on anything? Well, I think it depends on the software and the system that you wanna have in place. But I totally agree with you. You need to have really specific adjustments

and make sure that you're filing your standard and customary fee and not your in-network, what you've agreed upon with the insurance because every insurance is going to be different. Some will allow you to negotiate

and disclose fees and others will not. So in my experience, I've seen kind of a double edged sword doing it each way. There's great ways to doing it with the UCR fee on the ledger and then there's other ways

that it's more beneficial for some practices to have their contracted rate on the ledger. So I think you really need to review the system and how you want to really look it over and analyze it on a regular basis as a practice owner. Yeah, and I like what Wendy said.

There are companies that will negotiate this for you and it is so much easier to just hand this off to them than to try to do it yourself. But again, we've gotta deal with this duality of fees where there's the UCR that you want to present to the insurance company.

So they know what dentistry really costs in your neighborhood. And the contracted fee that they're gonna pay. And if you use UCR internally, then you're faced with it right off. I love the fact that a lot of software will handle both.

In other words, you can build the insurance company for one fee, but what gets entered internally in your software is the contracted fee. As Scott says, when you do that, you need to have staff that are somewhat on the ball because if they take EOBs from insurance companies

and just enter the adjustments without thinking about it, they'll end up over adjusting and you'll get a whole bunch of patients with credit balances that aren't real. So challenging area, but if you use the software properly and train your staff properly,

you can make your life a whole lot easier. Okay, let's recap on overhead just a little bit, kind of a recap of what Dave was saying as far as when you're looking at your overhead, make sure that you're looking at incremental overheads or fixing your variable expenses

versus just lumping it all together and calling it a percentage. Dave gave some excellent, very deep examples before, but here's another example. If a practice is doing, say a million dollars and their expenses are 700,000,

so okay, their overhead is 70%, so that leaves 30, right?

Dave, can you bring that next point? Oh yeah, sorry. I was having a nap here. Okay, okay. I'll just put them all up, Wendy, then you won't need me anymore.

Oh man, that's the way I like it, thank you. Okay. Oh no, I love being your friend, thank you, I didn't mean it that way, but I like having them there. Okay, so anyway, if you have a one million dollar practice and you increase your collections by 100,000, right?

Your overhead on that 100,000 is not 70% anymore, right? Like it is in the initial one million, right? So instead of it being 30,000, it's just 20,000, right? Because of your fixed versus variable cost. And then of course, less overhead is always better. We all know that, right?

But one thing that in working with a large group practice and managing a large group practice and trying to manage the overhead, one thing I really learned firsthand is that everybody is looking for that one thing that's gonna fix 100% of their problems.

But that's not really how it works when you're talking about overhead. It's 100 little bitty things that equal a 1% change, right? So for example, your credit card fees, how high are they? Can you negotiate them?

Can you use a different company? When I worked at a large group practice, they had so many phone lines and our phone bill was just, it was astronomical. And so I sat down with a financial officer and I'm like, let's figure out.

This is unreasonably high. Well, what we figured out is that for about 10 years, this large group practice had had about six or eight different telephone lines that were still connected that nobody ever used. They weren't connected to phones.

We're like, what's this phone number? Who does it go to? And we'd call it and nobody would answer. Well, and that doesn't sound like much. But the thing is, is that the practice was paying a base fee to have those lines

that when you call, it just goes out into La La Land. So that's an example of just one-minded thing that can save you a lot of money and your overhead and lower your overhead. And then also Dave talked a lot about hiring an associate

and how that can affect your fixed variable costs and the payment of the associate. Another option would be to have the older doctor down the street who's getting ready to retire. You could simply buy that doctor's practice base and not buy the building.

And then that way you're keeping your fixed costs stable but yet you're adding more patients into your database. So that's also a good option. So Dave, do you have anything you wanna say about that? Yeah, I hear a lot of practices say that they have an overhead problem,

that their overhead's too high. And again, these percentages which are always static against a specific level of revenue keep coming out. A lot of times I don't think those practices have an overhead problem. What they really have is a revenue generation problem.

And as Wendy says, if you can buy a practice, especially a small one that would be difficult for somebody to buy and run as a standalone practice. If you can buy that practice and consolidate it into your operation, which really means that you're only looking,

you're gonna ditch the fixed overhead of that other practice and you're really only probably looking at variable overhead, that is a great way to boost your practice. And again, what you're looking for is something that a lot of other buyers are gonna pass over

because who wants to buy and own and cover the fixed overhead for a practice that has three or 400 patients? On the other hand, those three or 400 patients will fit very nicely into your 1800 patient practice and will pump up your bottom line.

And that practice is far more valuable to you than it is to a standalone buyer. And it's an opportunity that may not be there for everybody, COVID has certainly changed the retirement plans, I think of some senior dentists. So there may be an opportunity like this around you now

and if you can see it and go after it, great. All right, well, we're at the point where we'd love to take your questions. Yep, yeah, so please use our, we have time reserved for questions and submit those questions in our Zoom question and answer box.

We're always happy to hear from you. There may be some questions that we are not able to answer but please feel free to contact us, either our toll-free number or go to our website and you can send us a direct link and we'll be able to get back with you.

We are excited to see everybody next month, June 22nd and we really appreciate everyone coming. And as always, we appreciate a great Google review if you enjoyed our webinar. So now we'll open up our question and answer box to anybody who would like to ask any questions.

Okay, here's a question from Dinesh. How can we get out of network insurance allowable fees for Delta Dental for a general practitioner and specialist? When we call Delta, they don't wanna provide it which seems unreasonable as all other insurances

we are out of network with provide the info. Wow, unreasonable on Delta are two words that I often hear in the same sentence. I don't have a good answer to that. I mean, there are people, Dinesh and it's a great question. There are people who have a lot more

kind of upfront experience working with somebody like Delta than we do. And there are companies and people who really specialize in the PPO world. And I think that's a question that really needs to go to them. I'm a little hesitant to give you

a sort of half-assed answer here. Okay, I have a couple more. Do you want me to just rapid fire or? Let them rip, Wendy. Okay, if Amber, Scott, if the other of you have questions, let me tell me, I'll be quiet,

I'll shut up. Okay, where someone asked, where do I find the AR report and the insurance aging report? Where do you find that? They're in your practice management software.

And please understand, when we talk about reports, we sort of use generic names. In other words, we're using a name that describes the report, but it will be a little bit different depending on which software you use.

So when you think of Dentrix versus Eaglesoft versus OpenDental, which are the three main softwares for general dentists and a lot of specialists, in each case, the reports are a little bit different. The one that's called insurance aging, that's the name I normally see for it in most software.

So first of all, I'm assuming you at least know how to access the report feature in your software. If you don't know that, then this is a really good time to contract a software trainer. Every brand of practice management software has trainers. So if you're an Eaglesoft user, for example,

if you contact your local Patterson Dental Office because Patterson Dental makes Eaglesoft, they will put you in touch with the trainer. Almost every Patterson branch has an in-house software trainer. They're called technology advisors. Dentrix has its whole range of trainers as well.

Everybody's got trainers. So if you don't know the basics of your software and you're sort of embarrassed to even ask, then contact the software and ask them to set you up with a trainer for a couple of hours. And they will sit there with you,

typically do one-on-one training and they'll show you how to print the reports. But normally it will be in the reports menu or the reports feature. In Dentrix, I think the place you wanna start probably is called the practice manager.

Yeah, office manager. Office manager, sorry. Let me just add something. Please, Scott. The insurance agent report could be called insurance aging. It could be called unresolved insurance.

It could be called outstanding insurance. There's a lot of things that it could be called. My suggestion, if you're not familiar with where to find it, is to start fishing in that report section because number one, you're gonna find the report that we're talking about.

But number two, you're gonna find a whole lot of reports that you maybe should know about already. And just kind of that self-education thing. Also, a lot of software companies have online resources, online webinars and things like that

that you can sign up for. But the first step, but I would go to your software and I would go to the report section and I would figure out a whole bunch of stuff that you probably didn't know already.

Here's the question. When collections are higher than net production, should we be factoring in the credits that are in the day sheet? Collections are higher than net production. Okay, and I'm assuming that the question

is about a fairly short period of time. I mean, in the long term, we just, it's not really possible unless there's something funny going on to have collections higher than production, right? You can't do it.

So collections can be higher than production for a whole bunch of reasons. Right. One is that last month, collections were lower than production and now you're getting some of the money

you didn't get last month. In other words, you're kind of comparing things that relate to two different time periods. So that's the first reason collection may be higher than production. I don't really understand

maybe somebody else in the panel can shed some light on maybe what this person's thinking when they ask about credits. I've had collections be higher than production, but a lot of times it will be like a patient pre-paste for treatment.

So I agree with you, Dave. You have to understand, really dial in and know the details of what is factoring that. Where's your collections coming from? I'll answer. Number one, almost every office

that I've examined post COVID has had that collections higher than net production in April of 2020. It's a weird situation, but that's how it can, when you have low production,

but you're still getting paid for stuff that you did last month. The other reason that that could happen is somebody goes through every couple of years and sometimes at the doctor's orders to go through and kill a bunch of bad debts,

kill everything that's two years old or five years old or 10 years old. They do that. You're gonna have one day in a month that you're gonna have a whole bunch of bad debt ride-offs

or old, uncollectable balances or something, but that should always be done at the doctor's direction. And it should be done very carefully, but when you talk about net production, you're talking about gross production minus adjustments, that's how that figure can be there.

And it's usually anomalous. It shouldn't be normal, but those sort of, or you might have somebody pre-pay for a large, that's not gonna get done for six months or 12 months because there's a whole bunch of implantors.

Or simply you just collect a big receivable for something you did last month. Sure, but it's generally gonna be anomalous and might impact a single year if you're looking at it, but it shouldn't be ongoing or you've got other issues going with credit balances.

Yeah, and again, that's where it comes down to time period. If you're looking at a day, this can, it's almost a random event as to whether today's collections are higher or lower than today's production

because they're not really related to each other. When you're talking a month that's a little more anomalous and I'd be very surprised if there's a year you have when collections exceed production.

There's something going on which isn't necessarily sinister. It's just that there's some unusual factor that makes that happen because almost everybody in the long-term collects less than they built.

Okay, so Helen, let's change gears real quick. Helen asked, what percentage of dentists have been fed, I love this question. What percentage of dentists have been fed up with insurance and have succeeded in going to cash up front?

We will help you with insurance after the fact. Close quote. Percentage, I don't know. I get the sense, and this is very unscientific, Helen, but just from the Facebook groups I'm in and stuff,

I get the sense that around 20% of dentists are really fee-for-service and the other 80% are somewhere on the continuum between, we don't allow you to assign your insurance but we'll fill in the form for you

to where we're fundamentally a direct assignment practice and really all we collect from patients is co-paste. As I say, I think 20% are really fee-for-service and certainly all of those people, if you talk to them, say, you know what, it is so much better.

It is so much more fun to be in a practice where we don't spend all day arm wrestling with insurance people. On the other hand, if your practice is struggling now and you go to fee-for-service and you lose,

let's say 20 or 25% of your patients, you may have issues. I don't think there's an easy answer. I always say fee-for-service is the utopia. I mean, that's where everybody would like to be. The question is, can you get there?

And I think it depends on a lot of things. For example, if you're the only dentist in a small town, it's easy. If patients have to drive 80 miles to the next dentist, that's a really good place to be fee-for-service.

On the other hand, if you open a new practice and everybody around you is accepting assignment and they're in-network with PPO's and all that stuff and you march to the beat of a different drummer, you could starve to death very quickly. So you kind of have to look at what your competitors

are doing and sort of what your economic position is. In other words, can we take a little bit of a hit financially and still be okay, at least until people get educated and the patients who are gonna leave us leave and the patients who are attracted to our model come to us.

There may be a couple of rough years there. Yeah, and just to make sure that we have all of our terminology straight and there's non-participation in any PPO and there's probably a decent percentage that don't participate in any PPO's.

But I think if you combine that with people that don't accept assignment, so if you're in no assignment office and you don't sign up with any PPO's, I think that percentage is probably very low, at least in the U.S.

Canada might be a little bit easier because patients get paid faster on non-assignment offices. Their system up there turns the payments around a lot quicker. So it's easier to convince a patient to put it on their credit card

and get reimbursed by their insurance 24 hours later and then they get the points. You have a selling point there. In the U.S., it's more of a 30-day turnaround and it's a lot more, it's a harder sell when the guy across the street

is a member of the PPO and takes assignment. It's a difficult proposition. Okay. We probably have time for one more question if it exists. Okay, what strategies are good to use to bring on an associate

without the owner-doctor cutting back? That's correct. Wow, that could be an hour-long session in itself.

It's really a marketing question. It starts, in my mind, Wendy, with looking at the ratio of dentists to people in your area. And those stats are published. I think the ADA puts a sort of region-by-region statistic. So you can look at Boston versus Springfield, Massachusetts

and see where the doctor-to-patient ratios are. If the ratio really stinks where you are, and I'll tell you one place where it almost inevitably is bad, wherever there's a dental school, there tend to be too many dentists

because some people graduate and they just can't be bothered to move. So that's a place where you tend to see excess dentists. So before you bring in the associate, you have to kind of ask yourself, are there patients available somewhere

where if I did a good job of marketing and if we did all the little things right in the practice, that we can build another patient base? Other question is, do we have an associate who's gonna appeal to a demographic? If I'm a male dentist and I bring in a female associate,

that's probably gonna attract some people who really prefer a female dentist and for that reason didn't deal with me. But other than that, you've got to dump some money into marketing and you have lots of traces there

and I'm nothing approaching an expert, but there are good dental marketing companies out there and talk to one of them, make sure that your website is good because personally, I think a lot of dental practice websites are crap.

A lot of dentists sort of try to throw money at the problem and buying off the shelf website that looks nice, but doesn't capture their personality, doesn't tell a patient what's important to you about dentistry and what you value in that relationship with that patient.

So if your website isn't up to par and we did a session on some of that stuff last year, I think you all know that we record all of our webinars and they're all on our website. You can go back and have a look because there were some good ideas there.

Anyway, we're probably at time. Any closing thoughts, Amber, Wendy, Scott? Had a great time. Thanks everybody for coming. Awesome to have you, Scott. And next month we're talking about receivables and stuff

and I know that you have a special love for that. So can we book you again? Sure, that'd be great. Okay. Yeah, the invitation will be in the mail. All right, well, then it's time for me to thank

my terrific colleagues and you have no idea how much fun I get to have working with these folks and whether it's laughing when we have a technical glitch or whatever, they really make my job, including the webinars just a joy.

And so I appreciate you guys so much and I'm just blessed with wonderful coworkers. So thank you all very much. Audience, thank you for hanging out with us and we'll see you in a month. Now we're gonna turn it over to the guy

I refer to as Mr. Big Voice and then we're done. Bye everybody and thanks. Bye everybody and thanks. Bye, thank you. Thanks for listening to the Dental Practice Owners Podcast brought to you by Prosperident.

You can contact Prosperident through its website, www.prosperident.com or by calling 888-398-2327. If you have questions about this podcast, if you would like to discuss your practice or there is a topic you would like to see

in a future podcast, we would love to hear from you. Amber, Wendy and David will be back soon with another episode.