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859: Metric Mondays: The Truth About Write-Off Percentage – Dr. Barrett Straub

You might think you know your write-off percentage. But do you, really? In this episode of Metric Mondays, Kirk Behrendt brings back Dr. Barrett Straub, ACT’s CEO, to break down this important KPI. They explain what it is, how it affects your profitability, and countermeasures to start adding some percentage points back to your bottom line. For step-by-step guidance through this process, become a Premium member of ACT’s BPA and listen to Episode 859 of The Best Practices Show!

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Main Takeaways:

  • Understand the causes of large write-off percentages.
  • Higher write-offs mean more pressure on your profit margin.
  • Learn the four steps to add some percentage points back to your bottom line.
  • If you don't know how much you're writing off, you're working too many days for free!
  • To master this KPI and many others, register to become a Premium BPA member today!

Quotes:

“Today's KPI metric is write-off percentage. It is the percentage of total charges that are adjusted off. There are three different ways or reasons you would adjust off production. One would be PPO insurance adjustments that are contracted through your PPO contract. Number two would be your elective patient discounts or adjustments. Number three would be those discounts that come as part of your membership plan, if you had them. So, basically, we're saying of all the dollars of production, what dollar value, and then what percentage of that did you write off or adjust off and knowingly make non-collectible?” (0:53—1:34) -Dr. Straub

“I know what you're thinking if you're listening to this. ‘We've got this. I know what my write-offs percentages are.’ No, you don't. Most of the clients that we coach do not have their arms around this. Now, it's becoming even more complex. Prior to COVID-19, it wasn’t unusual for us to see practices writing off 20%. Even prior to COVID-19, I thought that’s a lot of money. I’ve been doing this for almost 30 years. Now, we’re seeing people north of 35%, 42%. We’re even finding people that are writing off 50%. So, this gap is climbing.” (1:36—2:11) -Kirk

“Another factor in the reason why many of us don’t know our write-offs — and we’ve covered this on a previous Metric Monday — is the question, do you bill your full fee? A lot of times, when you're not billing your full fee, you're billing the UCR or the approved fee by insurance. You're under-reporting your gross production, and you're under-reporting your adjustments or write-off off of production. So, it is a little complex, and we can simplify it pretty easily. And the why — what is a write-off? Now, why is it important? Your write-offs are a huge factor in your profit margin. The higher your write-offs — we call it the effort gap — the more pressure there is on your profit margin.” (2:20—3:10) -Dr. Straub

“Let's really simplify it, just to make sure all the listeners are on the same page. If we charge $100 for a fee, every time we do that billable code, in our ledger, the top line should say $100. Now, we may have to adjust off $20 of that because we're part of a PPO, contracted. We would write that off and say X, Y, Z insurance. We might write off the total amount of that if it was a guaranteed service for a patient. We would write off the whole $100. We would say — and I did this a lot — NC, no charge. Make it zero. We need to bill out the full fee, write off the full amount. We might write off part or all of it for charitable cases. We might write off 15% of it for our membership plan. All is fine and good, and the goal is not to hide your write-offs or adjustments. The goal is to bill out your full fee all the time, cleanly and accurately calculate those write-offs so you know, ‘I write off X percent. Of that percent, I write off X to PPOs, I write off X to memberships, and I write off X to my elective write-offs.’ So, that's how you do it.” (3:47—5:03) -Dr. Straub

“Again, going back to the story, we produce X dollars of production. That's our output. That's our business's output, and it takes energy, time, money, and people to do that. We want to know what percentage of that effort are we writing off before we can start collecting money. Obviously, the larger that amount or the bigger that gap, the less profitable we are. So, what can cause that percentage to grow? One is reduced reimbursements from our PPO contracts. That's largely out of our hands, and part of that is the reason that we're always saying, ‘Hey, let's take a crucial eye at how many plans we're a part of, which ones we're a part of, and what's our strategy going forward regarding PPOs.’ That's one.” (5:08—6:52) -Dr. Straub

“Another reason your effort gap or your write-off could increase would be, of your active patients, how many are in-network versus out-of-network? So, theoretically . . . we could have not signed up for a new PPO, and our write-offs could be growing because, for whatever reason, all our new patients are in-network. Or conversely, we can lower our effort gap with bringing in new patients that are out-of-network. And it begs the question, how many of your active patients are paying you 100% of your fee? The more that do, the smaller your write-offs and the higher your profitability. So, when you have a larger proportion of your active patients on PPOs, your profit margin will be squeezed and your write-offs will be increased. Again, we're not making any judgments. We're not saying to do PPOs or not to do PPOs. We're saying, let's understand what our write-off is and what proportion of our patients are on these PPOs, and therefore, we can understand our profitability.” (6:52—7:06) -Dr. Straub

“Our best practices in that fee-for-service model live in the four to eight percent range. Meaning, no matter what they produce, only four to eight percent of that is being written off. The rest is being collected. If we are a fee-for-service practice with a membership plan, now the membership plans require some kind of discount. Membership plans are great, but that's going to increase your write-offs. Now, we're usually in the seven, eight, to 12% ratio. Practices that have one big PPO, they're usually 12% to 20%. If you have a couple PPOs, you're usually living in the 20% to 30%. When we have a handful of PPOs, we're 30-plus, sometimes into the 40%. So, you can see I'm using very gray terms: a handful, a couple. And that's usually right. But I want you to think about it this way. It doesn't matter if I have ten PPOs or one PPO. What matters is how many of my patients are in-network versus out-of-network. So, theoretically, we could have two practices. One has eight PPOs, and one has one PPO. They could both have the same level of write-offs if 100% of their patients are in-network. So, it's a two-fold question — not only how many PPOs do I have, but do I have any patients that are outside of these networks? Therefore, now, we're getting deeper into what truly is my profit margin.” (7:18—8:51) -Dr. Straub

“Today, when you get to your office, I want you to calculate your write-offs. It can be for last month. It can be for last quarter. It can be for last year. It doesn't matter. Just start and say, how much did I write off? Now, number two, you're going to ask the question, but is that accurate? Do I bill out my full fee, or do I bill out some adjusted? Number three, we're going to calculate how many active patients we have, and then how many of those are in-network versus out-of-network. Those of you that are clients, those of you that are BPA members, those of you that have been in our PPO Roadmap, you might understand this as patient segments. I want you to start looking at your patient segments because each segment means something different to your practice. So, let's say you have 2,000 patients. Great. Now, I want to know how many of those are in-network, versus out-of-network, versus in your membership plan, just for your understanding. Now, lastly, we're going to do some math. If I produce X and I write off Y, what if I reduced Y by five percent and I collected all of that? What's five percent of that production? Add that to your bottom line, your profitability. What would that mean for your practice? What would that mean for your financial health? What would that mean for your life? Now, you can start to see how the financial gaps model works, meaning incremental improvements can mean some very impactful improvements to your profit margin. So, do some math. Those are the four steps I would encourage people to take home and do today.” (9:32—11:13) -Dr. Straub

“If you don't know your write-offs, you're working a considerable number of days for free. I used to say if you're writing off 33%, you're working a third of your days for free — but you're actually working more than that. Barrett is going to cover that in a future podcast. But that's one thing to consider. And there's big talk about burnout. While I'm not a burnout expert, I don't need to be to understand that when I'm working harder, and harder, and harder, and I'm paying expenses on efforts that I'm not being rewarded for, burnout is going to happen — especially if you care a lot. A big piece of this is knowing what your write-offs are.” (11:31—12:08) -Kirk

“As Barrett already said, you can get really angry about what insurances are paying and reimbursing and how big write-offs are. That's not the real issue. The real issue is you have your arms around that, and you're building a patient base of people that pay your full fee, show up, and all of that stuff. We're here to help you and simplify this journey. When you can get your eyes and your heart set in the right way, you can actually create an amazing practice.” (12:11—12:38) -Kirk

“Some of you are driving to work right now, and some of you have a little anxiety happening in the inner parts of your chest. You're like, ‘Oh my gosh, this is complex. I don't know the answers to what these guys are asking.’ And I would say, there's only so much we can do in a 15-minute podcast. This is a little complex. But it is highly simplified if you go step by step. So, number five, if you're like, ‘Boy, this is something I think is not lining up in my practice. Man, this is really resonating with me. I want to figure this out,’ I'm just going to say it: go to our BPA. Sign up for Premium. It's $100 a month. I feel very good asking people to do it because the value is crazy. We have a PPO Roadmap in there as a Premium member. It guides you step by step through all these questions that I'm proposing. All you have to do is take the pressure off and go, ‘I'm going to do step one first. I'm going to pull the numbers. I'm going to find out what it tells me.’ Then, we're going to go, ‘Okay. Now, next question. Do this.’ You just have to do it step by step. It takes out all the fear, it takes out all the unknowns, it takes all the complexity out, and it will walk you through this process. You'll know more about your business. Whether you ever drop a PPO or not, it is going to make you a better leader and better [businessperson].” (12:45—13:58) -Dr. Straub

Snippets:

0:00 Introduction.

0:40 Write-off percentage, explained.

3:13 Why your effort gap or your write-offs could increase.

7:06 Important benchmarks to know.

9:19 Four action items to implement today.

12:41 Final thoughts.

Dr. Barrett Straub Bio:

Dr. Barrett Straub practices general and sedation dentistry in Port Washington, Wisconsin. He has worked hard to develop his practice into a top-performing, fee-for-service practice that focuses on improving the lives of patients through dentistry.

A graduate of Marquette Dental School, Dr. Straub’s advanced training and CE includes work at the Spear Institute, LVI, DOCS, and as a member of the Milwaukee Study Club. He is a past member of the Wisconsin Dental Association Board of Trustees and was awarded the Marquette Dental School 2017 Young Alumnus of the Year. As a former ACT coaching client that experienced first-hand the transformation that coaching can provide, he is passionate about helping other dentists create the practice they’ve always wanted.

Dr. Straub loves to hunt, golf, and spend winter on the ice, curling. He is married to Katie, with two daughters, Abby and Elizabeth.
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