On a regular basis, we discuss the importance and usefulness of good business systems and automated processes in the orthodontic and dental practice. We talk in general terms about time savings, accuracy and ability to direct people to the most productive tasks, but how does that actually translate into dollars in your pocket? Lately, as I have spent time with practices that do not utilize these systems versus those that embrace them, I have been absolutely amazed by the dollar value added by implementing technology in the orthodontic practice.
Let me give you a simple example of a stark difference created by automated systems: refunds.
Given all the variables in a two year or more treatment plan, especially if you accept assignment and have a long-term payment plan, every practice deals with several refunds on a regular basis. Under a non-automated system, a front desk person must verify the refund is the correct amount, then probably fill out a form with the patient information and reason for refund to add to the file and submit to someone else who will review it. Then, another person must enter the information into a financial accounting application, print or write a check and then send that check to the patient. Lather, rinse, repeat for every patient due a refund. Finally, someone needs to go back to the patient accounting software to enter the refund transaction (which may include the check number of the check sent out).
Now, compare that to a standard automated system. Here, an authorized person in the office visits a web page that has a listing of all patients who are currently overpaid and who may be eligible for a refund. The authorized person can either click a link for the full detail on that patient or click a check box to give that patient the refund. Once all the patients to receive a refund are chosen, the person clicks “Submit” and the data are automatically sent to the accounting system where an entry is automatically made into the accounts payable system (any unusual items are sent to the practice owner for a second level of review). Because this is an authorized refund, the accounting system automatically generates a check to the patient. Once that check is generated, a record is automatically submitted to the patient accounting system with the refund entry, including the check date and check number. So, with one click of a button, a user updates all the necessary systems and has a check cut. If good controls and systems are in place beforehand, the office can rest assured that all the amounts that created that credit balance were properly verified beforehand. Clearly, a huge cost savings, but only once the office puts forth the effort to get that automated system set up.
When you compare the fully integrated system to the old-school system, all in, that generates anywhere from an additional 10-30% of profit margin! That’s percentage points, not a percentage improvement. So, an office with a 30% profit margin can do a 60% profit margin (before doctor compensation) without sacrificing any quality of care. To the contrary, people are now freed up to focus more on the patient and the treatment.
How do we know? A couple of reasons. At OCA, Inc. back in the early 2000’s, a 60% margin was a standard goal which was very achievable. With over 800 offices at its height, the company had to automate as many processes as possible to be able to manage that network. The improvements in margin were driven by employee costs which feel into the high teens as a percentage of revenue (compared to the mid to high 20’s in a lot of practices) because staff time directly corresponded to patient volume. There was no need to hire a separate insurance person, for example, because that was handled by good systems. When management and ownership changed around 2005, a number of these practices with margins of 60% plus left orbit of OCA, de-automated their systems and ran independently. Margins immediately fell, usually by 15-30 percentage points, within just a couple of months.
Second, we had the opportunity to work very closely will several of those offices during the OCA days and after they were clear of their OCA obligations. The differences in margin and the cost requirements to run those practices were stark and surprising even to those of us who have been involved in the day-to-day of business operations for a number of years.
Soon, we’ll talk about some of the excuses given for not doing this and overcome those excuses with some sensible solutions.
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