Ultimately, the clinic's financial reporting system will provide a bottom line as to its financial sustainability by comparing annual figures related to actual revenue and expenses compared to projected revenue and expenses. However, clinics can't wait until the end of each year to monitor financial sustainability. Therefore, depending on the size of your clinic and whether it is part of a larger system (city government, hospital, health center, or other agency or organization), financial operations must be managed through an existing data system, an accounting software package or a computer spreadsheet that generates accurate, consistent, timely, and reliable financial reporting,
Accounting software packages will produce an operating statement of revenue and expenses showing both current month and year to date, calculating the variance between these actual figures and budgeted amounts. In this way, a clinic manager or dental director can monitor revenue and expenses compared to the budget projections on a monthly basis. Depending on how a year is going financially, adjustments in expenditures and activity can be initiated in order meet or exceed the budgeted projections.
In addition, a clinic can generate an internal management report combining financial data and clinic operations data (patient visits, days of operation, RVUs, capacity, failed appointment rates, types of services rendered) to understand productivity and to assess how closely the organization is meeting its initial assumptions (see more on RVUs). An internal dashboard of performance metrics can allow for real-time assessment and active management. The needed data should be available through your billing and your accounting software packages.
Such monitoring reports can be useful to a clinic, particularly a new one, as a basis for future budgeting and cash flow projections.
There is another method of monitoring financial performance that is used in private dental offices and is easily adaptable to a safety net dental clinic with a few modifications. In private dental offices, the methodology is to compare specific categories of expenses to the net income (collections) of the office (as a percentage) compared to industrywide benchmarks for those expense categories. Keep in mind that collections rates run in the 92–94 percent or better range in a private dental office setting. In order to use these benchmarks in a safety net dental clinic, the methodology would be to compare specific categories of the direct, in-office expenses to the UCR 100 percent fees (as a percentage) compared to the same industry wide benchmarks for those expenses categories. This comparison will only be valid as long as the UCR fee schedule for the safety net dental clinic is in the 70–80 percentile range for your area. (Note: One would not include the indirect administrative expenses incurred in by a safety net dental clinic that is part of a larger organization in this methodology). These benchmarks are published as part of the ADA’s Survey on Dental Practice. They are also published in such periodicals as Dental Economics and Dental Management. Please note that there can be some variation in the benchmarks due to geography, type of practice, and even economic conditions (for example, an economic downturn). But in general, these benchmarks can be very useful in monitoring the clinic on a monthly basis. They can also be useful for projecting an expense budget on an annual basis as well.
Following are some of the benchmarks that can be used for monitoring the direct expenses in a safety net dental clinic. Keep in mind the percentages: direct expenses divided by the gross charges of the practice with the UCR being set between the 70–80th percentile.