Production and Income
Below is a definition of terms used when discussing production and income, as well as a discussion about compensating providers by production vs income.
Production: The amount of money you expect to collect. Production is often described in terms of production for all (or a group of) patients in a date range (or on a certain date). Gross production is the sum of the fees charged the patient(s). It is a good number to compare how busy you were in different periods. Net production is gross production minus adjustments and insurance writeoffs.
Writeoffs: The difference between the insurance fee the provider is contractually obliged to charge and the provider's UCR fees. If patient insurance plans are set as PPO percentage plan types and use the carrier's fee schedule, several reports include writeoff information.
Adjustments: Reductions in charges to patients. Open Dental splits adjustments into positive adjustments and negative adjustments for data entry purposes, but they are reported together or by type. For example, a positive adjustment type might be 'missed appointment' or 'late charge'. A negative adjustment might be 'senior discount'.
Income: The amount of money brought in or paid on accounts, usually described in terms of a date range. One could also call this 'collections'. For reporting purposes, this can be grouped into 'insurance income' and 'patient income'.
Production or Income? Sometimes there is confusion about whether a particular entry is production or income. Examples:
It is easier to track production by provider, thus many offices use this method. To track income by provider, payments need to be properly allocated using paysplits. Also see Refund.
There are several Production and Income Reports (daily, monthly, annual, provider). Each summarize the data differently but are comprised of the same information.
If you have insurance plans that use the PPO percentage plan type, and thus track write-offs, you have two options that affect when write-offs in reports are applied to production: using insurance payment date or using procedure date. See Show Insurance Writeoffs for guidance and examples.
Some offices compensate providers by paying them a percentage of production. To determine provider production, run the Production and Income Report by provider, or for a single provider, for a date range.
If you do not use PPO insurance plans: The Tot Prod amount indicates the net production and accounts for adjustments. Set a Global Lock Date so that financial report data doesn't change over time. See Security Lock Dates
If you have PPO insurance plans and know your contracted rates: In this scenario you will know the write-off at the time of service. Run the report to show insurance write-offs by procedure date so net production (Tot Prod) for the day will also reflect the write-off. If for some reason the write-off amount changes at a later date, you will need to re-run historical reports.
If you have PPO insurance plans and do NOT know your contracted rates: In this scenario you will not know the write-off at time of service or the amounts entered at treatment time will be questionable. Thus you will enter (or update) the write-off when you receive the insurance claim payment. Run the report to show insurance write-offs by insurance payment date. The Tot Prod amount will not include write-offs until the insurance payment is entered. Since payments will not always be entered in the same time period as production, you may have 'residual' negative production. A provider's net production in any given period will be lessened by the amount of write-offs entered on insurance payments received in that period, even though the work may be from another period. This may or may not have a significant impact upon the production.
|Period||Gross Production||Adjustments||Write-offs||Net Production|
The real result here is that your writeoffs may be associated with work in a different time period. The numbers become less meaningful if you are trying to measure productivity. You can't just use procedure date because writeoffs will change as payments come in and you may overpay your providers.
Provider income can be viewed on the same Production and Income Report used to view production. There are two types of income: insurance income (Ins Income) and patient income (Pt Income). Together they equal the total income (Tot Income). Write-offs are not an issue because they do not affect income. They simply lower the amount you expect to collect (production).
There are two issues to be aware of when tracking income:
Insurance Income: Insurance income is allocated when you receive the claim payment.
Patient Income: Patient income can be allocated when entering the payment or at a later date using income transfers. Depending on Allocations Setup, Open Dental may suggest paysplits based on the family's outstanding charges, payment amount, and FIFO logic (first in, first out, by date). It is very important to know which provider should and is getting credit for a payment. You should also develop a policy for allocating a payment to multiple providers. The daily or weekly Daily Payments Report (run by provider) can be a useful report to give to providers so they can verify the income information.
Adjustments to income: Adjustments themselves only affect production amounts, not income. If you need to adjust income, you must enter a payment. Below are some example scenarios.
What are the issues with reporting income by provider?
For example: Provider A performs a procedure for $1000. Insurance payment is expected to be $400, patient pays $300 immediately and will pay the remainder after insurance pays. Insurance is billed the next day. Three weeks later the claim comes back saying that the procedure needs more information, the original prosthesis date is incorrect. One month after the procedure date, the provider's husband gets a job in Zambia and leaves immediately. The insurance payment finally arrives three months after the original procedure, and it is indeed $400. Now because we are paying based on income, you send provider A's check to Zambia. The patient moves and fails to pay the remaining $300. A year later the patient pays. Another check must be mailed to Zambia. So the ex-employee retains a claim on the Accounts Receivable for work that they did, and that can be a problem, but if it is not, this might be the way you want to compensate your providers.
To mitigate this issue:
The most thorough solution is to do all of the above, then split payments by procedure.
How much income am I getting compared to my production?
You would think you can just compare income and production for a period and it will tell you what percentage of production you are collecting. Not so fast. This is problematic because it will compare different periods. The period you collect income for is not the same period the work was done in, so that ratio will have no meaning. Each incoming payment will be from an unknown period of production.
These numbers will not help you run your business. And it does not matter if you make the period larger, unless you make it ONE period for all time, which again is not informative.
What you may be looking for is called the 'collection ratio' and is reported in units of days. It is also called an average collection period.
Then the formula is AR*P/CE and is reported in days.
If your ARStart is $5000 and your AREnd is $15000 then your average AR over the period is $10000.
If we call your production the credit extended, and count payment at time of service as collection, for a month of 30 days with the AR shown above and production (sales) of 50,000, your ratio is
$10,000*30 Days/$50,000 =6 days
What does that mean to you?
It means that you need to produce for 6 days to equal your average AR. So the lower the number, the better.
To determine your collection ratio, there are a few queries you can copy, paste, then edit. See Query Examples.