Evaluating Patient Credit

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by Paul Zuelke
 
In 1980, I started my career as an orthodontic consultant focusing exclusively on teaching our clients how to grant credit (payment plans) to their patients in a manner more appropriate than what was currently being done by the profession. I had spent 10 years in the banking/lending industry and had learned that orthodontists were routinely suffering from poor case acceptance and high delinquency because they were, essentially, required to grant credit to their patients, but they had no proper training regarding how the credit granting process should be implemented.
 
Back then, most orthodontists had a, more or less, fixed financial policy that put virtually all new patients into the same “bucket” and allowed them a payment plan with a required $X down payment and a required X number of months to pay. Some practices had very strict policies requiring large (20 percent-plus) down payments and limiting financial arrangement length to 80 percent of treatment time, and other practices allowed 5 percent down and payment plans at 100 percent of treatment time.
 
No matter the financial policy, the result was poor case acceptance on some of the highest quality patients because the required down payment and/or monthly payment was more than the patient/parent was comfortable with.

All practices had high patient delinquency along with the resulting problems including failed/cancelled appointments, poor clinical cooperation, patients in treatment longer than diagnosed treatment time and all of the other problems associated with patients/parents being in a negative relationship with the practice on the subject of money! The greatest problem of all, though, was something that almost no orthodontists recognized:  The poor rates of case acceptance caused by a very low percentage of new patients being referred by existing patients.
 
It is a fact that patients out-of-relationship with a practice because of delinquency will not refer friends, relatives, or co-workers to the practice. It is also a fact that of all sources of patients (community marketing, doctor referrals, etc.) coming to your practice, those who are direct referrals from your existing patients have a case acceptance rate that in most offices is 80 percent-85 percent.
 
Compare that to the 60 percent case acceptance that is typical of patients coming as a result of dental referrals. 
 
Still today, 37 years later, most orthodontists are putting all of their patients into the same financial “bucket” with a more or less fixed financial policy that is applied equally to all patients and without any consideration at all to the level of maturity, stability, and credit worthiness of the responsible party.
 
A few orthodontic consultants and a few more “guru” orthodontists are against the concept of obtaining a credit report and/or making a credit evaluation of patients in order to make financial arrangements proportional to risk. They believe, incorrectly, that having strict financial arrangements on the small percentage of patients with horrible credit damages the ability of a practice to grow. Those who are opposed to the idea of obtaining a credit report and using risk information have a goal limited to having a great big practice. They seem to believe that having a large practice is the be all and end all of practice “success.”
 
Zuelke & Associates’ purpose for recommending credit evaluations is also to grow the practice. Since our history has proven that our clients’ new patient flow, case acceptance rates, and annual production and income are substantially greater than that of the national average, we know that our purpose is being accomplished. (As of March 2017 our average single doctor practice is producing $179,000 per month.)
 
“A” category patients make up 65 percent to 75 percent (80 percent to 85 percent is some practices) of all new patient exams. Since such patients are allowed $0 down payment when necessary and are allowed long term - even longer than treatment time - payment terms when necessary, case acceptance on those “A” category patients goes up far more than the case acceptance that is lost by the financial restrictions on the 25 percent to 35 percent of patients in the “B” and “C” risk categories.
 
However, the goal behind our credit evaluation recommendations is also to create quality of life within the practice by avoiding the serious problems associated by bringing high risk patients into the practice in a financially out-of-control situation. 
 
Those consultants, dentists, and orthodontists who say that you can bring a high risk person into the practice by offering a $500 or lower down payment and long term (even longer than treatment time) financing, and do that without terrible patient related problems as a result, are simply not telling the truth. I have aggressively studied this issue for 45 years since I entered the financial world and I have learned a few things. The 37 years that I have focused on orthodontic patient financing have taught me a few more things. For instance, 90-plus percent of high risk patients who are financed in the practice will become 30-plus days (two payments) or more delinquent. Fifty percent of those will become delinquent before their new account has been on the books 90 days. That is true whether the practice gets a $500 down payment or a $2,000 down payment.   
 
The very small percentage of new patients in the high risk categories, defined as the “B-” and “C” patients, live a lifestyle and/or have a level of integrity that makes the odds of such a patient paying properly on a payment plan almost zero.

Note that poor people do not necessarily have worse credit reports than do people who are better off socioeconomically.  In fact, there’s a pretty good argument that those at the lower income levels may well have generally better credit reports (lower credit scores probably, but better credit reports). 
 
About 80 percent of all patient delinquency experienced by orthodontists is due to what I call “integrity” issues.  Very little delinquency is due to the inability of a responsible party to actually pay the bill.  In the simplest terms, people with a high degree of integrity will compromise their lifestyle (go to the movies less often, purchase a less expensive car, etc.) in order to be able to maintain their integrity (such as to keep their financial agreements).  People with a lower level of integrity will tend to maintain their lifestyle, even when money is tight, and simply choose not to pay certain bills, such as the orthodontist.  That’s why we recommend that orthodontists obtain credit reports (not credit scores!). You cannot ascertain integrity from a Patient History form or from an interview with a patient/parent.  You can identify integrity from a thorough review of that person’s credit report.
 
The good news is that the level of integrity that causes a responsible party to pay their bills on or before their due date is the same level of integrity that causes them to show up on time for appointments, follow doctor’s clinical instructions, teach their kids to brush properly, etc.
 
So, you may ask, if our high down payment requirement does not stop high risk patients from becoming delinquent, what’s the point?  The point is that high risk patients put into treatment without appropriate financial arrangements cannot be controlled once they inevitably become delinquent. They have no “equity” in their treatment. Just as 95-plus percent of all foreclosures/repossessions of automobiles, homes, RV’s, furniture, etc., have loan balances greater than the value of the product being purchased (hence, the debtor allows the repossession), so also do practices have tremendous financial loss when they allow high risk patients into the practice with low down payments and long term financing.
 
Again though, the financial loss these practices suffer, while significant, is nothing compared to the clinical, administrative, and social problems that these practices have with these financially out-of-control patients
 
These same high risk patients, when started with appropriate down payments and payment plans, have substantial equity in their case and when they inevitably become delinquent, a practice with even a reasonably good delinquency control program will be successful, well over 80 percent of the time, in keeping the account under control and being appropriately and fully paid while the patient remains clinically cooperative.
 
So, is getting credit evaluations and structuring financial arrangements according to risk for everyone?  Nope! It’s not. If negative relationships with a lot of your patients, too frequent instances of poor clinical cooperation, missed appointments and a lousy rate of patient referrals are things you choose to live with - as long as the result is a “big” practice - then credit evaluations are not for you.
 
On the other hand, you can go onto the web and in 45 seconds, and for $6, obtain a 100 percent accurate credit grade along with a specific recommendation for a down payment and contract length appropriate for the risk (www.getzacc.com). By doing so (and assuming you pay attention to the recommendation) you will enjoy much improved case acceptance among the vast majority of your new patients who are low risk.

You will, of course, lose a few points of case acceptance with the much lower number of high risk patients who are unable or unwilling to pay you appropriately. Again, though, the case acceptance gain among the “A” patients significantly exceeds the loss of starts from the “B” and “C” categories of patients. As a result, you will enjoy a practice filled with high quality patients who are paying you perfectly, along with 20 percent-25 percent of your patients of higher risk but under perfect control. The result, 100 percent of the time, is a highly profitable practice and a doctor and team enjoying strong relationships with all of their patients and a great quality of life within the practice.
 
 
Paul Zuelke is president and founder of Zuelke & Associates, Inc., provider of superior management strategies which build productive and highly profitable orthodontic and dental practices. Mr. Zuelke may be contacted at zuelke@zuelke.com or www.zuelke.com.
 
 
Nov. 22, 2017

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