True Net Numbers

Pretty much everybody understands that your list or MSRP sales figures are not what you’re actually going to take to the bank. There are discounts, managed care contracts, and countless other reasons that your list price sales are not an accurate reflection of your business trends. To get down to brass tacks, some sort of adjustment has to be made to those numbers before analysis is effective. Basically, there are two ways to make these adjustments: expected value and receipts reporting. At first blush, these may seem to be roughly equivalent, but there are some important differences that you need to understand before choosing your practice intelligence software.

Using expected value, a comparison is made to the difference between your list price sales and your total deposits. That variance is analyzed in terms of historical trends, and a percentage value is assigned. The assumption is made that the future relationship between list and compensation will remain approximately equal to the past relationship. That percentage is used to create an approximate sales value for purposes of trending analysis.

Example

In 2016, you sold products and services with a list value of $1.2M. You deposited $800K in the bank. Your receipts represent 67% of your list price. An expected value model will report $0.67 of every list-price dollar sold for purposes of your analysis.

Pros:

• Easy to calculate
• No waiting period between sale and final (estimated) value
• Reasonable for trending

Cons:

• Difficult to differentiate performance between various plans and / or cash patients
• Margin variances between products and services is unclear
• Modifying markup strategies disrupts the accuracy of reporting current activities based on historical ratios

EDGEPro utilizes receipts reporting to determine true net numbers. Essentially, analysis is based on real receipts, at the time that they are received. When a patient purchases a product or service, the sale is valued at the patient out-of-pocket amount. When an insurance reimbursement is received and applied to that item, we are then able to state exactly what the product or service has added to the revenue of the practice. Since there are often adjustments made by managed care plans, we find this to be the most reliable way to calculate and assess the “true value” of any particular sale.

Example:

Patient Smith purchased a $700 frame, using a managed care benefit. They are responsible for $300 of this purchase, and their carrier has been billed for an additional $249, which is adjusted by the vision care plan to a payment of $199, which is paid to the practice in 40 days. For 40 days following the patient’s purchase, this is a $300 sale. When the reimbursement is received, the true value of the sale (300 + 199) can be calculated to be $499, 71.29% of the original list price.

Patient Jones purchases the same frame, but does not use vision care benefits for the purchase. As a courtesy, the practice extends a 15% discount to cash patients. The sale of $595 (patient responsibility) is booked at the actual value of the sale, at the time of the order.

Pros: 

• Accurate value statement for each sale
• Brand and board management can be precisely analyzed and fine-tuned
• Managed vision care plans can be assessed based on actual performance and compensation
• Specific sales habits or proficiencies of staff members can be identified and tracked
• Current performance (improvement or decline) can be correctly stated regardless of historical trends

Cons:

• Waiting period between sale date and final sales value availability
• Requires correct posting of insurance receipts

Either method will render an analysis that is usable on some level. Which method is most useful for your practice will depend on how important it is to you to understand the exact contribution each staff member, product line, or service makes to your bottom line. If you’re content with a top-level understanding of your cash flows, and never need to dig into the details, you may do just fine with an “expected value” report. If, on the other hand, you want to be able to identify the particulars, dive into the details of your practice activities, and pinpoint specific vulnerabilities or opportunities, you probably need to look for a receipts reporting analysis tool.

Do you need help finding your true net numbers? Schedule a free business analysis with the experts at EDGEPro and we’ll help you get a better handle on your cash flow..