More and more dentists are starting to rethink the traditional payment model. Waiting until after services have been rendered increases the likelihood that patients won’t show up or pay, as well as creating extra work to chase up late payments. So, it’s easy to see why many dentists prefer prepaying nowadays. In this episode, Jeff discusses the pros and cons of prepayments, and gives tips for implementing it successfully.
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Questions From This Episode
Why does Jeff say a prepayment discount usually costs less than patient financing?
A prepayment incentive, typically around 5 percent, is usually far smaller than the merchant fee on a longer-term patient financing plan. He also points out that an internal payment plan carries its own costs, like chasing missed payments and the inflation clock eroding the value of an aging balance, so the discount is usually not all that bad by comparison.
Why does Jeff call prepayments a liability, and how does he recommend reviewing accounts receivable?
Money collected for services you haven't delivered yet is technically owed back if you don't deliver, so it sits on the balance sheet as a liability. He recommends pulling three versions of the AR report: gross, excluding credit balances (to see what patients actually owe), and credit balances only, so a prepayment sitting on an account for 60 or 90 days gets noticed. He also recommends spending prepaid money only as the work is delivered.
What are the main benefits of prepayment Jeff describes?
It sharply reduces cancellations on larger cases, since patients who have paid are far less likely to wobble. It also confirms the patient is serious, avoids the labor of chasing payment, makes cash flow and the schedule more predictable, and spares the patient a financial conversation while they're numbed up after treatment.
What does Jeff say "prepayment" should mean in practice policy, and which payment methods does he accept?
Prepayment means paying now, on the day the plan is accepted, not paying on the morning of the appointment, with some reasonable flexibility if a patient needs to go get a card. He accepts credit cards, even though the fee stacks on top of the discount (roughly 8 percent total in his example), but not patient financing, since patients see financing as a payment plan, and a 14.99 percent fee plus a 5 percent discount would mean eating around 20 percent.
Why does Jeff say getting the patient on the schedule quickly is essential for prepayment to work?
If you ask a patient to commit and pay today but can't treat them for three weeks, you give them time to second-guess and ask for a refund. He recommends scheduling within one to three days and even getting the patient "started" in their mind with scans, impressions, or home care tips before the appointment. He also notes that long booking delays hurt new patient conversion and can affect a doctor's own willingness to sell larger cases.
Episode Transcript
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When it comes to the more consequential treatment plans in your practice, is prepayment among the payment options you offer your patients? In other words, in addition to patient financing, or a deposit to reserve my time on your schedule, do I also have the option to pay now, in full, and do I get any kind of incentive for doing that?
The idea of having patients prepay for their treatment plans has been around for some time. You saw it a lot more prior to the advent of patient financing, but it's still out there and still used, and it has its pros and cons. That's what I'm going to talk about in this week's episode. In addition to the pros and cons, I'm also going to discuss four things you should keep in mind in order to make prepayment work in your practice. My name is Jeff Blumberg, and I'm your host.
I'll start by saying I'm a fan of prepayment. I think the pros far outweigh the cons, and it can make your life a lot easier. That said, you have to look at it for your practice individually and see how it might fit your business model. To end on a happy note, I figured I'd start with the cons first and then get into the pros.
Con number one: you lose a little bit of money if you're offering some type of incentive. If you have a 5 percent prepayment discount, you're giving up that 5 percent. Some people offer more than that, with a sliding scale, say 5 percent under a certain amount, and then every additional thousand or two thousand dollars it goes up a percent, 6 percent, 7 percent. So you're going to lose something if you offer an incentive to pay. But what you're losing is usually nothing compared to what you'd lose with patient financing. I'm not down on patient financing at all, I think it's opened up possibilities patients didn't have 20 years ago and given them access to treatment they might not have been able to afford. But the merchant fee on a lot of patient financing plans can be pretty prohibitive, especially for the longer-term plans. So with prepayment you're still not eating as much as you would with financing, which is why it wouldn't exclude it for me as an option, though it is something to consider.
The other thing to think about is that if it's a larger treatment plan and you were running a payment plan internally with the patient, how much would you have to spend chasing that money? What if they miss a payment? How many phone calls does it generate? And the inflation clock is always ticking, so that money becomes worth less and less as time goes on, especially as the balance gets old. If you take those two factors into consideration, the prepayment discount is usually not all that bad.
Con number two is the potential for a refund if you don't deliver quickly, and I say "quickly" because that's an important part of making this work. If you offer me the chance to save a couple of dollars by paying for my whole treatment plan today, and I won't end up on your schedule for three weeks, that gives me a lot of time to think about it. It also gives life a lot of time to step in. Things can go wrong, I may need that money, I may regret having spent it, someone I talk to may try to talk me out of it and tell me to do something else. So if you don't deliver quickly, that's a potential refund, and a potential problem.
It's also something you don't normally think about. If you're collecting money from a patient for services you haven't delivered yet, from a business perspective that's actually a liability. I'm not going to get into the different types of accounting you might be under, but technically you've taken in money for services you owe. So until you deliver, it's a liability on your balance sheet. There might be a lot of excitement, "hey, we just collected $40,000 for an All-on-X case," but until you deliver that case, you owe that money back if you don't deliver.
This matters especially when you do AR reviews, accounts receivable reviews, maybe once a month. If you're doing prepayments, I'd look at it from a few different perspectives. First, pull a gross accounts receivable from your aging report. Then pull your AR excluding credit balances, so you can see who actually owes you money. Then pull your AR with just credit balances. Why? Because if I have a 60 or 90 day credit balance sitting on an account, that means 90 days have gone by where I've taken in money from a patient and not delivered. That's a liability and a problem, and we need to get on it. It really shouldn't go past a couple of days, or a week at the most, though I understand that for longer-term treatment plans it might.
Here's an example of why you pull them separately. Say I have $60,000 of prepayments I've taken in and not yet delivered, and $100,000 of patient balances validly owed to the practice. If I just pull an AR and look at the number on the last page, it tells me I have an accounts receivable of $40,000, because the $60,000 in credit balances gets subtracted from the $100,000 I'm owed. I want to see both numbers separately, my credit balances and what patients actually owe the practice, because the longer that stuff sits, the worse it gets.
The next point goes along with that. If you're doing larger cases and the patient prepays, especially for something you're not going to deliver right away, say it's a big implant case where you place the implants fairly quickly but then have to wait before you finish the case, you're probably going to want to set some of that money aside. Escrow is more of a legal term, and I don't want to use it. And let me be clear, I am not an accountant or a tax attorney, and I recommend you talk to your accountant or tax attorney about these things. I'm not giving you that kind of advice, I'm just making you aware that you should seek it. But if I'm taking in $40,000 and I'm not going to finish delivering the case for two or three months, I'm probably only going to spend the money as I deliver. Say my first appointment, placing implants and doing some restorations, is $15,000. Fine, I'll take that $15,000 because I finished that work, and I'll take the rest as I do the rest.
You end up in a bad spot otherwise. Say you're collecting $100,000 to $150,000 a month and you take in $40,000. That's a quarter to almost half of what you collect in a given month. If you spend that right away and the patient turns around a week or two later and wants it back, that can be catastrophic for your business. If you were collecting $600,000 or $700,000 and spent $40,000, which I still wouldn't advise, you could absorb that hit much more easily. But it's something you have to account for. It's not the usual dental business model, which was do the work, get paid. This is a little different, and it requires the proper administration, so you don't build up huge credit balances that sit unused, and so you're not spending money you haven't earned yet, especially on larger cases that are a large percentage of your revenue. Remember, it's a liability.
The last con is a funny one, the insurance issue. I've heard about this off and on from different people, and I've heard other people dismiss it. I'm not taking a position on it. I've sought my own advice, and I'll tell you what I heard, but I'm asking you not to use that as advice. I'm not offering legal advice, and I'm not a lawyer. Here's the issue. Say you're selling a crown for $1,300, insurance is going to cover half of it, $650, and the copayment is $650. You're giving the patient a 5 percent discount on their copayment if they prepay. Five percent of $650 is $32.50, so their copayment goes from $650 to $617.50. When you file insurance, you're normally putting your full fee, $1,300, on the claim. But truthfully, all I'm going to be paid is $650 from the insurance company and $617.50 from the patient, so I'm getting $1,267.50. That's the argument I've heard, am I putting the right amount on the insurance form?
To be clear, I'm not taking a position on this. It's something you have to check out for yourself, and I'm not offering any type of actionable advice. I did speak to a lawyer about it when I first heard this, years ago. I'm not trying to build legitimacy for the argument by saying this, but he was the head of a healthcare division at what he described as the second largest law firm in the world, an $800 an hour attorney, so again, you've got to seek your own advice. The point he brought up was whether every single patient prepays. I said no, that's never going to be the case, some people do patient financing, some pay later, some pay as they go. He didn't see it as a big deal in that case, since it wasn't a global policy in the practice. You're not charging less to the insurance company across the board, you're offering an incentive to some patients. That's the argument I've heard, good and bad, and it's something you might want to check out if you're going to institute this, just to make sure you're walking the right line. As an aside, this was back when PPO penetration was maybe 50 percent of the profession as opposed to 80, and there are other weird wrinkles too, like if you accept PPOs and I'm a cash patient, your full fee is $1,300 while your PPO fee is $880, which is kind of funny in and of itself. So check it out for yourself, and make sure your lawyer has you on the right path if you're going to institute this.
So those are the cons of prepayment: it's going to cost you a couple of dollars, usually not as much as patient financing, there's the potential for a refund if you don't deliver, it creates the need for a whole other administrative system since you're going to be building credit balances, especially with larger cases, and there are potential insurance issues.
What are the pros? There are quite a few. The first is that it more or less nukes your cancellations from orbit, at least your cancellations on larger cases. Generally, if somebody pays, they're going to show up, assuming they haven't had a change of heart about the treatment plan. When a prepaid patient cancels, it's usually because they're ill or had to leave town for a family emergency, not because they just don't want to do it, since they've already paid for it. Patients are a lot less likely to wobble at that point because they've already made the commitment.
The second pro is that it tells you the patient is serious about doing it. Lots of people say lots of things. I might tell you, "Doctor, I'm so excited about this, I'm going to bring you in a check next week," but until I make some type of commitment, you really don't know. Maybe I've been a patient of yours for 20 years, in which case you do know, because I've always done it this way. But if that isn't the case, until I've done something in the real physical universe to show you I'm serious, like doing patient financing, putting down a deposit, or prepaying, you don't really know for a fact. Prepayment takes the ability for someone to pull the wool over your eyes and throws it out the door. I've paid in full, so I'm obviously serious about doing this.
The next pro is that it avoids the labor of financial chase-up. There's no labor associated with it, I've already paid, and that labor is usually going to exceed the 5 percent you gave me as an incentive to pay, as I was saying earlier. The other thing I like is that it gives you a prediction of your cash flow and what your future weeks look like. If I look at my schedule and see that this person has paid, this person's paid, this person's paid, I know my schedule is going to be relatively solid. I have an idea of what my cash flow is going to look like, it gives me some prediction on my collections and a bit more control. I'm not waiting to get paid.
Another pro is that when the patient comes in for their treatment, we don't have to talk to them at the end and work out how they're going to pay or do anything associated with collections. Maybe they had a bunch of extractions and they're all numbed up. The last thing we want is to have a financial discussion, and the last thing they want is a financial discussion. It's already taken care of. They finish, we schedule their next appointment, and they're on their way. In my view, prepayment adds prediction to the practice, gives you more control over your collections, and keeps your schedule a heck of a lot more solid.
Now, a few comments if you're going to do prepayments, and again, you have to work out how it fits your practice. There are some things I've seen that work and some that don't.
The first: prepayment doesn't mean paying before the appointment, it means paying now. Say you've just presented a $10,000 case and I'll save $500, 5 percent, if I prepay. That means I pay today. What if I don't have the credit card I want to use on me? Fine, I'll go home and bring it in tomorrow, or I'll call your treatment coordinator with it later tonight. Prepayment means pay now, I've made the commitment, now I can go on the schedule, we know I'm for real. It does not mean the appointment is next Wednesday and I'll pay on Tuesday, because you don't really know anything until Tuesday. This is really a policy point in your practice, because it could easily get abused. If the policy is "prepay before we do the treatment and save 5 percent," well, when am I getting the treatment? Next Wednesday. Okay, I'll bring it in Wednesday morning. It just doesn't work. Prepayment means you pay today, and if you pay today, you save this much. If there's a reason they can't, "I can pay you tomorrow morning because I have to go get my card," fine, within reason.
The second: I've been asked whether to let patients prepay on a credit card. I'm totally fine with that. If I'm giving them 5 percent and my credit card fee is 3 percent, I'm eating an additional 3 percent, 8 percent altogether. So what? That's usually going to be less than patient financing, and for many people it's the only means by which they can prepay. I'd of course prefer a bank wire, a bank transfer, or a check, but you can't always get what you want, so I'll take a credit card as a prepayment. What I will not take is patient financing for a prepayment, because in the patient's mind, patient financing is a payment plan, not a prepayment. That would get out of control, especially if it's a two-year financing plan where I'm eating 14.99 percent plus the 5 percent, and now I'm eating 20 percent. That does not work. Again, these are things we've observed to work, and you have to do what's real for you, but credit card yes, patient financing no.
The third: when you ask someone to pay today, the treatment needs to follow with the same speed and intensity. "Great, let's get you paid up today, and we can get you on the schedule in three weeks" is super anticlimactic. You can apply this to anything, even patient financing. If I'm making my financial commitment today and you're asking me to be fast about it, you need to be fast and get me on the schedule, within one to three days, assuming that works for me. If you're booked out weeks in advance and can't do that, it's going to torpedo any efforts you make to get this working. In that case, I'd listen to the podcast we did not long ago on how far out the doctor's schedule should be booked. It might be an assistant problem, a schedule problem, or an associate problem, but being booked far out is definitely not an ideal state of being, even if you think it is, because there's a hidden block you might not be thinking about, which is availability.
Let me explain. Say you really want a lot of new patients, so you go crazy with marketing, pay-per-click, Facebook ads, postcards, an implant funnel. Then I call your practice as a new patient, because I got your offer for a discounted cleaning and exam. I say, "I just got your postcard in the mail, I just moved to the area and I'd like to schedule a cleaning," and your schedule coordinator looks and says, "our first opening is three weeks from now." In the case of a promotion, I don't have much of a connection to you. I just got a postcard, or I saw you on Google, or I typed in "dentists near me." I don't have enough of a connection to wait. I may schedule, I may not, I may call another office that can get me in sooner. That lack of availability is going to hinder your ability to get new patients. I'm not saying not to market if you have that problem, but it's definitely going to mess up your marketing.
The same applies to production. If you can't get patients in quickly for larger procedures, or really any procedure, it's going to kill your sales. Especially if you're asking patients to pay now or commit now, there's all this urgency and then zero urgency on getting me in. That's a real problem, and it will start to affect your mindset. After a couple of patients get disappointed that they have to wait so long, or a patient pays and then two weeks later, with the appointment still a week out, asks for a refund, it will start to play mind games with you and affect your ability to sell. I remember talking years ago to a doctor who was behind on his lab bill with his favorite lab for his higher-end restorative work, veneers and things like that. The lab stopped working with him, and he actually shied away from selling those cases he would have used that lab for. It put a reservation in his mind when he was selling them. You don't want any reservations when you're selling a larger treatment plan. You want to make sure you can get this person in quickly. If it's taking a while to get people in, you have a problem and you need to resolve it as soon as possible. We're happy to help, we offer a free practice consultation, and I'll put a link to it on the episode webpage. But you want the urgency of the sale matched by the urgency of getting them on the schedule.
Now say you've sold me that $10,000 case and I'm coming in within 48 to 72 hours. You've done a good job. You can take it a step further and get me started on the case in my mind. I could call you 48 hours from now and ask for my money back, but I'm less likely to do that if I feel like I've already started. So you might say, "Jeff, we're going to do some scans before you come in the day after tomorrow, and I'm going to look at some things to make sure I'm properly prepared." Maybe you take an impression, maybe you give me a couple of tips on home care before my appointment. You haven't actually started the case, you haven't prepped anything, but you're getting me started in my mind so I'm less likely to want to unstart. Remember, we're not worried about losing the sale, we're worried about getting the treatment done, that's the whole point and why we're here. So anything we can do to make me feel like I've started the case is a good idea.
The fourth, and I talked about this earlier: remember it's a liability. That's a bigger deal with the larger treatment plans. With smaller ones, $2,000 or $3,000, especially if it's delivered in two or three days or within the same month, it's usually not a big deal, especially if it's a small percentage of your production. But it is something you have to keep an eye on, especially if you end up with undelivered prepaid treatment, because that's a liability sitting on your books. You want to make sure you use these up and get these people treated as quickly as possible.
Those are the pros and cons, and a few points of advice on using prepayment. All in all, it can be a very useful part of your treatment presentation and acceptance process. My advice: if you're not doing it, look it over and see how it might work for your practice, and if you are doing it, make sure you keep it as part of your repertoire of ways for a patient to pay. And if you have any questions about the legal side of it, check with your attorney. I find that people who pay tend to be more committed to what they want to do, and it definitely helps your cancellations.
A shorter episode this week, but I hope it helps. If you want to find out more about MGE, you can find us online at mgeonline.com or call us at (800) 640-1140. I've put the links to the things I mentioned on the episode webpage if you want to check them out. Other than that, folks, have a great week, and we'll see you at the next episode.