Winter 2000 Presentation Summary:

An effective credit management system in an orthodontic office can improve case acceptance and net income while improving patient relationships. Ms. Snippen describes a management system structured with three components: (1) identifying credit worthiness, (2) patient management and, (3) delinquency control. Just as all three legs are necessary for a stable tripod, these three components are all necessary for an effective and successful credit management program within the orthodontic office

1. Identifying Credit Worthiness

Most patients are credit worthy. It is the job of the office personnel in charge of making financial arrangements to distinguish between these people and the 10–15% who are not. Ms. Snippen describes a "Risk Identification" system with A, B, and C ratings. These ratings are determined by the degree of stability and maturity a patient or parent exhibits along with evaluation of a credit report. A, B, and C ratings are based on maturity and stability, not income. Income has nothing to do with whether a person will pay or not, because, as a general rule, mature and stable people do not make financial arrangements they can't keep. Ms. Snippen provided the following rating characteristics:

• A patients are mature, stable, and there is evidence that they will keep financial agreements.

• B patients have some level of instability (shorter length of employment or time at a residence), and are less mature (younger patients or parents).

• C patients demonstrate evidence that they cannot or will not pay you, for example, they have no employment or a poor credit history.

Maturity and stability are evaluated with information obtained from a well organized patient history form. Some of the questions that should be asked are:

• What is your address?

• How long have you lived at this address?

• If less than 3 years, what was your previous address?

• Who is your employer?

• What is your occupation?

• For how long?

• What is your birth date?

Typically these questions are asked of the responsible party but, to help determine maturity and stability, it is equally important to obtain information for the spouse. Studies indicate that married people are more stable than singles, people living in houses are more stable than those living in apartments, and the longer people live at the same address and the longer they have been at the same job, the better the credit risk.

Credit Reports

In every state except Vermont and New York you can legally run a credit report as long as you have an established business relationship. By virtue of a patient coming to your office for evaluation and treatment recommendations, a business relationship is established. Ms. Snippen does recommend that the patient be informed that you may request credit information, possibly with a statement at the bottom of the patient history form saying, "I understand that appropriate credit information will be obtained."

When a credit report is obtained, you should look at the pattern of payment. Is anything late? Are there any collections or bankruptcies? Is payment slow? Don't look at the number of accounts or payment amounts, just see if all credit has been paid. It isn't necessary to make a judgment about how much credit a person has, just whether or not they pay.

The purpose of the credit report for 85–90% of all patients is to ensure they pay everyone with whom they have agreements. Once satisfied, you can be liberal in granting credit and making credit arrangements for orthodontic treatment provided in your office.

The 10–15% of patients with poor credit also tend to have the greatest number of no shows, last minute cancellations, and poor levels of cooperation with treatment. Weeding out these patients before treatment begins will not only improve the practice's financial status, but will help eliminate factors that negatively influence the quality of practice life.

Next, combine the level of maturity and stability with the information obtained from the credit report to determine risk identification: A, B, or C. Ms. Snippen states that maturity and stability are the most important factors, therefore the patient history form is critical. Because you cannot make an accurate risk determination without adequate information, she recommends the Treatment Coordinator or Financial Coordinator interview the patient to obtain all the necessary information since, typically, most forms will not be completely filled out. The interview will also help build a relationship with the patient.

Divorced Families

Legally, the custodial parent is responsible for the child's financial contract. Typically they are also the single responsible party. The terms of the divorce should not influence financial arrangements made with your office. If there is joint custody and the child lives exactly half of the time with each parent, Ms. Snippen recommends that you ask one parent to assume responsibility for the account. You only obtain a credit rating for the responsible parent. . The noncustodial parent can make payments to the office, but only in agreement with the custodial parent. Do not allow yourself to become involved in the relationship between divorced parents.

2. Patient Management

The second leg of the credit management tripod is the arrangement made with the patient once credit worthiness has been established. You do not have to limit treatment to A patients, You will only adjust arrangements made with B and C patients to match their credit ratings. Ms. Snippen recommends the following payment arrangements:

• For A patients, negotiate as much down as possible, but make whatever arrangements necessary to begin treatment.

• For B patients, she recommends 30% down and a contract length slightly shorter than the duration of treatment. A larger initial payment will also promote a serious decision to begin treatment.

• For C patients, she recommends 50% down and payments completed during the first half of treatment.

Due date and late charges must be considered. Most computer systems allow multiple due dates, so have the patient choose a date that best fits their needs. A late fee ($10.00 advised) should be charged if payment is ten days late from the agreed due date. Don't waive these fees! It will only encourage patients to put off payment.

Monthly statements are recommended on a regular basis, not just when a payment is overdue. They help keep you in the patient's mind, and studies show that payment is more prompt with statements than with coupon books. With multiple due dates, send statements only once each month to simplify office bookkeeping.

3. Delinquency Control

The third leg of the credit management tripod, delinquency control, should be immediate and consistent. It is important that the financial coordinator's efforts focus on the majority of patients that do meet their financial agreements. However, should an account become delinquent, immediate action is necessary. The goal of the financial coordinator is to prevent late payment and to control delinquency before it becomes unmanageable. Effort must be made and to maintain a positive relationships with patients and to solve any problems to keep patients in the practice. Such effort will promote cooperation in all aspects of treatment and a greater likelihood of successful treatment. Therefore, establish a computer or manual system, making note of any promises made. Consistently follow up on these promises and call immediately at ten days delinquency.

Personal contact is most effective, but if you cannot make personal contact, send a letter. An 8–10 day follow up is necessary–don't wait for the 30-day billing cycle.

If an account becomes seriously delinquent, you may have to dismiss the patient. Ms. Snippen recommends you follow "Terminating the Doctor/Patient Relationship" from the AAO's legal office, Guidelines on Patient Situations.

Should an account become uncollectable, she doesn't advise that you go after them or turn them over to a collection agency because nationwide studies show that collection agencies only collect 7–10 cents per $1.00. However, she does recommend that you report bad debt to the credit bureau.

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