134: Accrual Accounting Part 2 - How Accrual Accounting Impacts the P&L

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You have this natural talent, this unique ability. Hello everyone and welcome to another episode of DSO Secrets. I'm Ken Kaufman, your host today and I am back for part two with CFOs Holly Williams and Mike Yates to break down in our five part series, how to get from Cash basis Accounting to Accrual Basis accounting. Mike and Holly, thank you for joining again.

Thank you for having us.

Thank you for having us.

All right, I think this is, I think this is going to be a good one. So last episode we broke down and I apologize, we won't go through the intros. If you don't know who Mike and Holly are, you should go back to the last episode. You can hear some of their bios and those sorts of things. Um, we just, we're ready to get down to business today and tackle this one. In episode one, we talked about the why we should change to accrual accounting and we also talked about some tips to think about on when, what the timing should be, when you should consider doing it. Today we are going to hone our focus in completely on the profit and loss statement or the income statement or what we all just short the name down to the P and L and exactly what all that means. So Holly, let me, let me lob this over to you to get us started. There's a connection between ultimately what we bill insurance companies and what we charge patients and what the clinicians do and then what we actually end up collecting and ultimately this accrual for revenue. It's completely tied to understanding that relationship. Do you want to kick us off and take to give us a little bit of a high level exposure to what it is we're trying to solve for here.

Yes, sure. Thank you, Ken. You know, the profit and loss statement, your net revenue or the revenue you recognize should be what you expect to collect for the services that you performed inside the month that you're reporting. And you know, we have fee schedules and we'll send, you know, Maybe our claims we'll have some go to Blue Cross, some go to Medicare or Medicaid, some, you know, or for self pay patients. And you know, if we bill $100 and we expect to collect $80, then we need to be recognizing on the income statement revenue of $80. And so to understand the reason for the difference, you have to understand your contracts with your payers and you have to understand, you know, any discounts that you expect to give to your patients. And then you also need to understand that some patients don't pay the full balance of what they owe. And so that is the difference. You have your adjustments which would be your, you know, your contract with your payer says you may bill me $100, but I'm going to pay you 80. And then your, your history will tell you what your patients typically will pay you based on, you know, what you bill them.

Yeah, that's perfect. There are a couple, there's a lot to start unpacking here. I just want to be clear with the listeners. If you're on cash basis for, for your accounting purposes right now, what's happening is you're recognizing your revenue when it shows up in your bank account, not it has nothing to do with when the services were provided. The objective is to recognize the revenue in the month or in the period where the services are actually provided, even though you may not get paid for two, three weeks after you send a claim, or three or four weeks or three or four months, or if you've got a patient, for example, that you've extended a little loan to that that could go on sometimes for years. And so this is a critical thing to understand that we're no longer going to care about what cash is coming into the bank account during the month to figure out revenue. We're actually going to look at services provided. And then ultimately, to your point, Holly, we're going to make our best estimate of what we're going to collect. And I think the right place to start, the very, very first place to start is get as close as possible in your gross production number. So the high, high level. Get that as close as possible to reality. Mike, do you want to maybe comment on gross production and what has to happen in order to try to get that number right or as accurate as possible?

Yeah, and I think Holly really started to kind of open that door. You know, it's knowing your contracts, you know, you're going to have a fee schedule, you're going to update that fee schedule, you know, ideally at least annually, you know, Sometimes quarterly. You know, unfortunately there are, I'm sure, some out there that update it every few years. But regardless, you know, whatever that charge schedule is, you need to know the relationship between that and what your fee schedule actually says you're going to pay to get that down on the top line so you're not generating false expectations for your doctors, your partners, your PE backer, whoever it may be, you know, and that's in our scenario. That's our top line. We don't even talk in terms of gross charge because.

Or ucr. Right. Industry calls it ucr.

Yep, ucr.

So does that mean that if I'm, if I'm part of a billing team, then I have a list of all the payers for each practice with their fee schedules and every claim that comes through, I'm writing down which amount or what's the automated clean way in that practice management software to capture all that.

Yeah, so the clean way is that you get those fee schedules loaded and again updated in your practice management system every time the payer makes a change. The second piece of that is at the site level, making sure your front office is choosing the right fee schedule. You know, Blue Cross is a great example. There may be five or six Blue Cross plans in a particular office. You want to make sure you're choosing the Blue Cross Federal or you know, the Blue Cross Oklahoma or whatever, because they may very well have different fee schedules. So those are the two pieces. Is keeping your practice management system totally updated with the most accurate information your payer gives you and then making sure your staff understands the difference and selects the right piece.

Yeah. Mike, should I be concerned here if. Because I believe that I'm worth my ucr. So isn't it a little bit of a hit to my pride to say, well, I want UCR in my practice management system, but if I put in what the payers pay, you know, is that somehow reflecting negatively on me as a provider, like my services aren't worth as much? Help me understand that?

Yeah, so unfortunately, and we kind of joke all the time, we can send a bill out for whatever we want to, whatever we want to send it out for. Blue Cross is only going to pay us what they pay us. And so it's not necessarily a measure of value as much as a measure of market. And those payers, quite honestly, those payers dominance in that market, they somewhat have the ability to set the ground rule for you, obviously subject to the negotiation at contract renewal or whatever. But yeah, it's not necessarily a value. And that UCR fee does still come into play for out of network coverage uninsured patients. So there is still that value measurement but on commercial plans your somewhat subject to their mandates.

Okay, great. That's really helpful context. And this is all within the picture of we're trying to ultimately estimate what we're going to collect. So by having the fee schedule in the system, that means starting right out the gate so long as the team members are selecting the right fee schedule or the right plan that's associated with the patient where you know they have a membership or you know they're covered under, it's creating the opportunity for us to start with what we think we should be collecting. All things being equal if we. If we perform flawlessly based on the contract and their frequency and their time and payments and all those different things. So number one is you set your UCR wherever you feel like you need to relative to your other payer contracts and what you charge cash patients and all cash paying patients. But you nail that down and the key is put it in the system so that you're not so that you can run reports and easily look at what. What's my gross production for this period? Meaning if I were to collect perfectly on all these insurance plans and if they were all attached to the right patients for the right services, that should be the number I collect. Is that a fair way for me to sum it up or describe it?

Yes.

Okay, awesome. Now, now Holly, we start there but then we're not perfect. Don't always follow the contractual rules to be paid. Not that we're breaking a contract. It just says, you know, a clinician who does certain services maybe out of scope or too frequent or whatever. Walk me through. Because we started with gross production and we're going to end up with net revenue.

Right.

The first step is to understand what adjustments are happening from what you thought you should collect versus what you're actually going to collect. Do you have some thoughts to share there?

I do, but can I go back just a second to add a thought to your the proper fee schedules. If you fill out for UCR on everything, number one, you're going to overstate gross production. But if you have any kind of creep or significant change in your payer mix, you're hit. You're. You're really not going to be able to know how to properly adjust your net revenue unless you have the proper fee schedules for each payer loaded. And so I think that that's really important.

But I'm going to layer into there's one critical thing here to remember, and that is that if you go to your accountant and you say, I want to be accrual basis, your accountant says, great, I'll do it. I'm just going to make an entry real quick every month over here.

Right.

It's really important to realize that's totally wrong because until you do these steps and you actually get the most accurate information coming in, you're just going to struggle to really ever figure it out. And it involves lots of different team members executing and doing exactly their job the way that it needs to be done. Your billing team, your accounting team, all through the organization at the practice level. All that has to happen in order to get this right. So sorry, I wanted to. You had a great. And then that triggered that for me. So I wanted to just get that out there too. Watch out for the accountant who says, oh, yeah, sure, I'll do that for you. And they never look at your practice management system. They never help you build the right processes with your team members to get it there. Go ahead, Polly.

And so and the other, other part of that is, you know, coming back and doing adjustments three months, you know, because everything's collected and I'm going to adjust, you know, it's April and I'm going to go adjust. January to accrual is also not timely. So it doesn't really help you. And it's not meaningful. So to go from gross to net, because we do have things that happen, like frequencies or maybe an X ray is not good enough quality or, you know, just different reasons the payer doesn't pay what they. What you thought they were going to pay. I would refer to those as adjustments or contractual adjustments where we maybe didn't meet all the points of the contract to get paid for that claim. And we have adjustment codes in our system that we use to tell us what those dollars are. And we'll write those dollars off first. We appeal them all the way through to the end, but we'll write those dollars off. And that is an indication to the team as to what happened so that we can make corrections so it doesn't continue to happen. And then, you know, the patient portion, no matter how good you are at sending statements, how good you are at collecting co pays when the patient walks in the door. How wonderful your TC is at estimating the patient portion. There's usually an amount that the patient owes for services. And some patients are great about paying and some are not. It's really hard when the service is performed and that patient walks out the door and you left a balance. Sometimes it's really, really hard to get that money into your practice. And so that is a historical study of. You kind of have to reserve for that. And as a historical study on what your percentage is, I mean, do you typically collect 99% of what patients owe you? 99.5, 98. You know, it just, it just depends. And then it also gives you the opportunity to, to really think about how you want to pursue your patients. I mean, do you want to do it gently? Do you want to turn them over to collections? Those are personal decisions that you have to make for your own practice. You know, it's very difficult to do sometimes when you know that you're a service organization and you depend on return, you know, return business. But that is something that this process will help you identify how much you're losing by not billing your patients or collecting from your patients.

Yeah, that, that's great insight. And there's two pieces to break down. And so, Mike, I want to want to lob this to you for a second and say, so if I've got my gross production coming in mostly right, because I've got my fee schedules in and I've trained my team to pick the right fee schedules and all those sorts of things, if I was a dentist, then the next level down is now I've got to figure out why I'm not getting paid 100% of what I'm charging to. First of all, let's start with the insurance payers, right? The blue crosses of the world and all the insurance plans. So, Mike, once you implement this and you understand it and you figure out your percentages and everything, what are some of the benefits that we see when you jump to this level of detail? What are the things you learn and what types of improvements are available to from a collection perspective once you dive into these details and learn all this?

Sure, yeah. And I think Holly and I have a pattern here. I'm going to piggyback something on her answer first. So the other thing I think to exactly what Holly said, and I think everything she said is spot on, but I think the only other comment I would add is you want to go as granular as you can, you know, specifically for this audience, you know, where we are all multiple practices, you know, several of us, multiple regions, different payer mixes. And so for instance, you want to do this study practice by practice, almost payer by payer within the practice, because they're not all going to be the same. Obviously you're going to have different expectations, processes, collection rates on a heavy Medicaid pito practice, for instance, then you have in a suburban, heavily commercial, very little if any Medicaid, the expectations are going to be very different. And so I think it's, understand, it's really important to understand the payer mix, the region and the demographics of each site that you're looking at and not try to do this on a global basis, just covering all your, all your, all your bases at once. Great point, but to your question. So I think some of the things you find as you dig into, you know, we expected 100 or we built 100, we expected 90, we only got 84. Where did that other $6 go? I think the benefit you get out of that is by figuring out that, that, that gap, it allows you to improve your process, it allows you to improve expectations. Like one of the things that, that, you know, that we've struggled with in some of our practices as we've grown is just appropriate benefit verification. And the benefit of understanding that is you have to Holly's point about retention, if you appropriately do that benefit verification on the front end, you can have an educated conversation with your patient so they know exactly what they owe before it happens versus, you know, we thought we verified benefits. We were wrong. You were out of benefit. You know, your coverage didn't start until the next week. You were within your six month. Whatever the reason is, no patient likes it when you come back to them and say, I'm sorry, but you actually owe us this extra $300 we thought was covered. I mean, that's, there's nothing that's going to impact your retention quite like that.

But it's the dreaded balance bill, right?

Yeah.

The doctors and the practice staff members and billing teams across the world have all grown to hate that word as much as the patients do when they get it right. It's painful for everybod. Go ahead.

Yeah, for sure. But, but understanding what makes up that gap, it allows you to make your process better, but it also allows you to make your financials that much more accurate. You know, as you understand this is a gap, this is our fix. Okay, now month two, it's better. Month three, it's even better. Month four, we've closed that gap. You know, it's gone now. Let's move on to other things. So it just, it allows you to be that much more accurate and then, and then maximize the reasons you're kind of losing out the back door.

Yeah. So Holly, when you guys made this switch over to accrual and started really digging into write offs. What were some of the most common things that you saw? You weren't getting paid for that. Probably the organization thought they were getting paid for it before, but just didn't know. And it wasn't on anybody's radar screen.

So you are aware that Rodeo is a high Medicaid provider because we do have offices in areas where we feel patients are underserved. And so change of provider was a large one. Frequency is also something that we deal with quite a lot. Those are really our largest, the largest.

And define frequency for me. What would be an example or two that I could understand as a provider where a claim would get denied?

Well, maybe if the patient, I mean it's all about process. You have a six month recall and the appointment is not made six months in one day from, you know, from the last appointment.

And so if they come back at five months and 30 days.

Right. And so one of the things that happens too is a patient will call. I mean, so they'll make the appointment when they leave in the, in the front desk. The person checked them out and did a perfect job of, you know, six months, one day, made the appointment, will the patient calls three weeks before that appointment and changes the appointment and they want to come two days earlier. Those are things that do happen and you have to really watch out for. It's all about process and noting the patient's file and making sure that the person knows when they're taking that. Because sometimes it's our call center that changing that appointment for the patient, it's just like, oh, you can't do that. You can change the appointment, but you have to go forward in time instead of coming backwards.

Yeah, that's right. It's interesting. But as a provider, it's the provider's responsibility to manage that, not the patients, because the patient will show up and get the treatment and not that you're not going to get paid for it because they came early. Another one that we see are there are specific procedures that can only be done on a certain frequency, whether it's on a tooth by tooth basis or you can only do a pan once every 12 or 24 months. And so sometimes those, those are things that crop up too.

So we'll have, you know, we'll have images sometimes that are designed for frequency. And we are working on, we have not perfected this, so I'm not going to claim perfection, but we're working on using a code to indicate when the doctor knows that the claim is not going to get paid. But they're doing the image. They're taking the image for other treatment reasons.

Yeah, because it's a gateway to treatment so that they can get the most recent look before they go in.

Right, right.

So even though the payer is not going to pay for it, they need it for treatment. So they're, we're working on separating that in our record so that we can know firsthand what, you know, what's not going to get paid.

Okay, so this is, this is great. So far, I think we've laid a great foundation on the P and L. Then when we talk about the impact, we should have a line that says gross production and that should be all the services rendered and it should be at the fee schedules that are expected to collect. Then we should have two, what are called contra revenue accounts. This is an accounting term. It just means it's for revenue, but it's going to be negative revenue that shows up or a contra, it's against revenue. Right. And the first one generally you put in is sort of this write off or adjustment piece, which is what do we plant, what did we bill? Insurance at gross revenue level. But we're not going to collect because either we've done something wrong from a frequency like something's happened so that we're not going to qualify to be paid. And then the second contra revenue is going to be related to collecting from patients. And that's generally referred to as a patient as a bad debt reserve. So Mike, would you maybe jump into what is bad debt reserve? What does that mean when it shows up as this contra revenue account?

Yeah, and I think you explained it pretty well. It's, it's, you've done everything right. You know, you had a good fee schedule, you've made the adjustments, you hit everything. You know, so yes, we should absolutely be paid $98. But you know, for whatever reason you don't and you know, and it happens regularly. It's all the things we've talked about. So the way we quantify that is we actually look at a historical collection average, you know, based on those clean claims. You know, what do we, what do we get paid on these things, subject to all the other limitations we've already covered? You know, let's just say it's all right, we get 99% of that paid. So there's 1% for numerous reasons that it's just not going to happen. But again, you want your financial statements to be as accurate as you can, so go ahead and reserve for that 1%. You know, in Case of kind of thing, patient balances, you know, whatever it may be. But you're right, you know, largely patient balances, unable to pay, you know, maybe it's a chargeback type issue, something like that. But just again, to improve that accuracy as much as you can, it is important to, when you're making that estimate of what that number is, to look at a as long a period as you can reasonably. You don't want to look at just month over month. I mean, there's just too much fluctuation that could happen, you know, Covid weather, you know, whatever could impact one month. So you want to make that a trended number with some history behind it. But yeah, you do want to make sure, because just reality is you're not going to collect 100 cents on the dollar on every single claim that leaves your door.

Yeah. So the ultimate goal is you get that gross production, right? Then you get that insurance write off or adjustment element. You get the patient bad debt reserve. And then that nets, that should net because you have a positive gross production number and then two negative numbers. And then that nets to what we call net revenue. That's why it's called net revenue. You're netting the gross production against those contra revenue accounts. We have this beautiful net revenue line that's our estimate of for the services provided that month. What are we going to collect? So Holly, could you maybe talk for a second about when and Mike, you started to go down the road of a reserve model like of looking back historically and figuring out, because you have to make an estimate, you don't collect all the services you provide in that same month, there's a lot that slips to the next month or months beyond. Could you comment on how like where you go to get that information? And because it's generally not available with the push of just one button. And then once you've got it, how do you think about organizing it so that you can start to make these good estimates on a move forward basis?

Well, I mean your practice management system, you can run reports to see what your. If you run reports based on your data, service and history. So you can see January of 2021, I provided $100,000 worth of services and that was a year ago. So I can also see what I collected for those services. And you can start to kind of analyze and look at your history and claim by, you know, whether you go claim by claim or start with reports and then, you know, and then dig down into the claims to figure out what happened. One of the struggles that we did have here is that, you know, there were many years of time where we were collecting money from the insurance companies or collecting money from patients, and we were posting it to the patient account, which you know is accurate, but then we weren't taking the claim all the way to zero. So, you know, if we billed $100, we collected $80, we would post the $80 payment and then just move on. And so it would look like there's $20 sitting still owed on that account. And so there's, there's a lot of work that has to happen in your data to make sure that you've taken that claim all the way to zero so that you can see what, why it's going to zero. Is it an insurance adjustment or, you know, some, some reason that the insurance company denied the claim or denied a portion of the claim, or is it because you billed higher than your fee schedule or maybe your patient just didn't pay? And so I would say your practice management system is kind of the ruler of all, but you got to make sure that the data in the practice management system is complete.

And what I'm hearing you saying, because the term that's used for this is payment posting, right? So besides your office staff needing to pick the right fee schedules and make sure the right procedures are selected, right. Working with the doctor and all those different things, the next thing is, is when the payments come in, you need somebody who's going to go through and look at that EOB and go patient by patient account and reconcile to the penny what you thought you were going to get on your gross production number all the way down to zero. How much did the insurance deny, how much was, you know, how much did the patient pay, how much did the insurance pay? And you have to take that date of service to zero. And if you don't, you're always because accrual accounting on revenue, it has everything to do with not when services were provided, it has everything to do with when you get paid for services provided. And so your payment posting has to be dialed in and accurate so that you can run those reports and say, I jump back a year and I say, hey, January of 2021. We'll use that as an example. I want to go back and I want to see for, I want to see my gross production number and I see, want to see what I collected for every service that was provided during that month. And then, and then that's how you learn. But if you don't have the right data in, it's a little bit of a garbage in, garbage out, like we're going to get that assumption. So one of the very first things you've got to do besides getting the fee schedules in, is you've got to build up a payment posting team that is very focused on what you said. You know, what you said, Holly and Mike, it's something you and I have talked about in the past as well. You have to reconcile each patient encounter down to zero when that EOB comes through or when that patient pays their cash. And if you're writing something off or anything else, Mike, Holly, what are your reactions to that? What feedback do you have?

Yeah, and I think just operationally, I think that's one of the things as you make the change, I think will be a struggle. Holly alluded to it earlier. Accrual accounting is a lot of work. I mean, it's real easy to take a bank statement at the end of the month and say, okay, well, there's my income, there's my expenses. Let's just figure out how I need to divvy those expenses up and I'm done. That's pretty straightforward. But to do accrual appropriately, like you said, everybody has to be trained, everybody has to do the right steps, everybody has to take their piece of the puzzle all the way to the conclusion. Or, or you have bad data and all of a sudden you've got misstated financial statements. And I think that goes kind of upstream as well. I think the managers have to hold the staff accountable. Did we get all of those EOBs posted? Do we understand the reason codes for why we didn't get paid 100% of what we thought? It's hard work, but at the end of the day, it gives you the best possible.

And I would like to add that if someone's listening and they have, you know, years of data in their system where they haven't adjudicated or taken their claims down to zero, you still can come up with an estimate just based on if you're able to pull the information out and develop what I mean, in the industry, what's referred to as a cash waterfall, where you have your production numbers maybe on, you know, visually on the left side of your spreadsheet, and then you have your collections for that date of service, you know, month one, month two, month three, and you can kind of look at how long it takes you to collect your claims, and you can come up with an estimate to start with, you know, and that's something that's better than nothing to get you to, you know, In January of 2020, I billed out $100,000. It's been a year, and I collected $95,000. And then, you know, the next month, I can see a very similar 5% reduction. You know, I collected 95% of what I build. And the next month, maybe it was 93. And you can look at a long history, 12 to 24 months of that to come up with an idea. But. But what that doesn't do is tell you why. Why did I only collect 93% or 95%? And then another hard part, I think we've all talked about the being able to. Once you can see your adjustments, being able to operationalize that, and, like, when you develop that, why, then you can go to the people providing the service that the dentists and the front desk and the DAs and your operations folks and say, look, you know, we're not giving this payer what's required to get paid. And here are things that we need changed at the time the patient's here for us to be able to get paid. And that is a hard. That's a hard change for operations and providers. It really is. And, you know, and I would say for anyone listening to, expect resistance to that, because they're not really used to the finance folks telling them, you know, hey, look, if we can do these things better, we can collect more dollars. I've stood up in clinics and said, what I'm here to do is to show you what it is that we need to do to be able to collect for the services that you've performed. You've worked, you've done these things for the patient, and you should be paid for it. All we have to do is follow the rules. It's like playing hopscotch with the payers. We just have to check all the boxes and just make sure that it's there. Without that visibility, it's really hard to have that conversation in how to improve your collections for the operations.

I like that that quote's gonna go down in the annals of time. According to Holly Williams, the switch to accrual accounting is as easy as hopscotch without the peggers.

Exactly.

Hopscotch without the boxes. But it's a great visual. It's a great analogy. Go ahead, Mike.

Now, one other thing, and Holly touched on it, and it is. It kind of goes back to everybody pulling their weight in the process. But even, like, for instance, I know there's PMSs out there that will allow you to just post to a patient account rather than posting down to the transaction. Level, if you do that, that waterfall doesn't work. And so you've got to have your folks making sure. And to the point of pushback. Again, it takes longer, you know, to, to post that payment to this particular claim on this particular date than it just does to post it on Ken Kaufman's account. And so your staff just needs to be trained, understand it. But to the point of it's not just, you know, this is what we have to do, but this is why if we do this, we have a better trail, we can better take action and just, you know, it's, it's, again, it's a better product at the end.

Yeah, that's a great point. It's. And again, just to clarify that, Mike, for the listeners who might not know the terminology, when you're posting a payment in most practice management softwares, you can post it at the account level, which is just, hey, this patient, here's the total they owe or here's, here's what's there. You post the account level versus you can actually go all the way down to each line item on that EOB for that patient and apply what's being paid per service that's provided. You can go, you go line by line when you do that and you record the date of payment because the data services already recorded. But when you capture that claim level, EOB posting and the date it's paid, now there's data you can go find. And the one thing is, we're getting ready to wrap up the episode because we're running out of time here. I want to get clear on this look back process, meaning if you don't look back and let's say January 2021, you estimated 5% was going to be your gross production and 5% off. So if you got $100, you're going to end up with $95 collected. Well, when you go back and look what happens if you only collected 90, your financials are actually wrong historically. And there are adjustments. You do what's called prior period adjustments to get yourself right. And like you said, Holly, you don't have to be perfect at the beginning. Just get started. And then what happens is each month, each quarter, each year, your team gets smarter and smarter and smarter about what those averages are, what those percentages are, what those estimates of your revenue need to be. And you just get better and better. But you've got to start somewhere. And so I don't want anybody to feel discouraged because they feel like perfection has to be achieved. On day one, you always have this ability to look back and you need to too, so that you, so that your numbers ultimately end up right. And you're just going to learn and learn and learn. It's like Emmett Scott always says, those who listen to the podcast, you know this, but he says there's only two outcomes, either win or you learn. And so let's, let's accept that we need to learn for a little while and we're going to get better and better until you may have an entire quarter go by and no prior period adjustments have to happen because you got that good and your team got that smart in the way they built their cash waterfall and how everything flows in. Mike and Holly comments to that

Well, I think one of the things that we're talking about is the reason for moving to accrual basis accounting is you're probably going to have to be audited at some point. And that's exactly what the auditors are going to do. They're going to look at your cash waterfall for the entire year and say, did you collect what you said you were going to collect? And that's one of the tests that they do for reasonableness and so always going back. And you'll learn through this process. Maybe it takes you an average of 15 days to collect your AR, or maybe it takes you a little longer. You'll learn through that process when the proper time is to go back and double check the month. You know, so maybe in March you look at January and you say, did I collect everything? I thought, oh, maybe I haven't. Let me go find out. Do I have some claims that are stale, that need to be in appeals or do I need to make an adjustment to the financial.

Very nice, Mike. Any follow up there?

Yeah, I think that's the one biggest, the biggest thing that I think coming from a medical background into a dental background is one of the big processes that was huge in medical is monthly AR reviews. You understand your aging, you understand the payers, you understand your biggest risks. And again, I think you'll get pushback from a lot of dental practices because it's not something they generally are comfortable doing. But it's great information, it's great learning. It allows you to have a better product, it allows to get more people involved in the process. But, but again it's, you have to look back. And I think as you make this change, I think you'll figure out pretty quickly, you know, not just the AR aging review, but you'll figure out some tips and tricks that, like Holly said, you know, Maybe it's, you're looking every 60 days, you're looking back. You know, maybe on this one particular site you figure out, well, I can look back in two weeks because it's, you know, it's a heavy Medicaid practice and I get my claims paid every nine days, you know, whatever it is. But you'll start to learn where you really need to spend your time versus more of a higher level review. And you know, as long as you, as long as you come back and make sure even those assumptions stay the same over a longer period of time, you know, it becomes pretty, pretty normal.

Course it's great, great comment and I love to how you just kind of put the teaser out for the next episode because the next episode is about the balance sheet where we're going to talk about the AR balances. And so we're going to, we're going to do a deep dive there for sure. So as we wrap this up, just a quick summary. I have gross production, which is based on fee schedule. I have my two contra revenue accounts. That's a debit. I have two credits. I have one for the insurance write offs or adjustments I'm expecting based on historical performance. And I also have that for patient balances and that I offset all the debit and the two credits together to come to my net revenue number. That is the magic and that's the impact of the P and L. You now have this clarity of not what's collected, it's what we plan to collect based on services provided in that month. Mike, I'll give it to you for a second for any closing thoughts today and then Holly, and then we'll wrap this up.

No, I think my closing thought would be it's not going to be easy. It's not going to be overnight. I mean, there is going to be a transition period. And don't get discouraged. You're going to learn every month you're going to learn something. Man, I wish I knew that last month. But you know, like you said, month three, there's 10 of those things. Month five, there's four of those things. Month seven, there's one of those things. You know, it's, it's, it's a process, but it's, don't get discouraged. You got to get to the finish line.

Very nice, Holly.

Well, and I agree with Mike. It is, it is a little bit tough. But don't look at this as something you have to do. Look at it as something that's going to help you. One of the things that I can say is once you move to accrual basis, you can watch your collection rates at each of your sites and you can see a problem before you feel it. And that's really important. I mean because once you felt it in cash flow and then you have to figure out what's wrong, it's really tough to recover from that. But if you can see it before you can feel it, you can correct it quickly.

Spoken like the two brilliant professionals that you are, Mike and Holly. Absolute pleasure to have you guys on the show and we are making great progress. We have got two episodes done, we have got three to go for this five part series on everything you need to know about the switch from cash to accrual accounting. Many, many thanks to you for joining today. This is a wrap and we will see you all at episode three shortly.

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