How Much Is Patient Billing Costing Your Practice?

Is the way you’re billing patients holding your practice back?

To ensure the smooth functioning and profitability, an efficient patient billing process needs to be a core competency for practices. After all, when the dust settles after insurance reimbursement, there’s usually a sizable amount still owed, and collecting on that can require a herculean effort.

So as the industry continues to evolve, dental professionals should constantly seek ways to optimize their billing procedures to enhance accuracy, speed, and overall productivity. 

Manual billing methods are gradually being replaced by AI-powered, automated systems, which offer a suite of benefits that have revolutionized the patient billing landscape.

But this change is glacial in its pace, and in opposition to that change there are still practices that centralize their operations around manual billing.

In this Dentistry Huddle post we aim to provide a comprehensive analysis comparing the cost structures of manual billing processes with their software-powered automation counterpart within the dental industry.

By drilling down into the line item costs and using industry benchmark data, we shed light on the potential of automation in enhancing billing operations.

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Defining a manual dental billing process

Let’s start by defining what we mean by a “manual billing process”. Manual billing is characterized by traditional paper-based procedures and manual batching and data entry. It is still exclusively used by over 30% of healthcare systems. Reminder notifications for patient payments are conducted via phone call, manually triggered text messages, paper reminders, or a combination of these methods.

This type of process has been the backbone of dental billing for years; however, this method often presents numerous challenges and costs. Qualitatively, practices using a manual billing process have an increased risk of errors, time-consuming administrative tasks, and potential delays in claim submission and reimbursement. 

These manual billing processes can also be susceptible to compliance issues and data security concerns, potentially exposing sensitive patient information to risks.

Conversely, by “automated billing process” we refer to a digital system that can use artificial intelligence (AI) or algorithms to offer a wealth of advantages that streamline billing procedures, improve accuracy, and enhance overall efficiency.

In this report we delineate the cost breakdown of a manual billing process, and show the potential savings of diverging from the paper-pushing status quo.

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Our scenario model dental private practice

Let’s take a standard dental practice that has an optimized but manual billing process. 

They have a great active patient count for their size (1738 patients), their annual production is $1.2 million, every patient receives timely follow up on statements for their treatment (one statement every 2 weeks), they have minimal staff turnover, and they hit all industry benchmarks for aging accounts receivable: 0-30 days (75%), 31-60 days (15%), 61-90 days (7%), 90+ days (3%). Their collection rate is 91%.

This practice mails out paper statements and reminders to their patients and makes collection calls to patience with balances past due.

In this scenario, we assume that there are two dental hygienists, and that staff is operating Monday-Thursday (8 hours), Friday (4 hours), and Saturday (4 hours). This represents a 40-hour work week. Their average appointment length is 1 hour.

Between 2022 and 2023, the average dental practice has had a 86.1% scheduling rate. With these assumptions, we can assume that that practice will see 275 patients per month.

How does all of this translate into manual billing cost? 

According to the American Dental Association, in 2023 42.6% of patient visits resulted in a direct patient bill. For every bill, there is a statement, and for every unpaid statement there are reminders.

Our data have shown that on average 2 reminders are required for A/R approaching a due date, 3 reminders for A/R 31-60 days past due, and 4.5 reminders for A/R older than 60 days. We can round this out to 2.5 reminders per statement.

Crunching the numbers, our model practice will send 117 initial statements with an additional 293 reminders. This results in 411 mailings and touchpoints. 

What’s the cost of each mailing? Accounting for printing materials, postage, setup time and labor, we find that each touchpoint with the patient can cost between $1.10 and $1.32.

Of course, not all reminders will be heeded, and some patients will require a collections call to follow up on A/R past due. If the aging date threshold for this call is 31+ days, then 25% of the patients with outstanding payments will be followed up with 2 collections calls on average. This sums up to be 59 calls per month.

In many practices, this call is often the duty of the office manager. In 2024, the average hourly wage of a dental office manager was $38/hour. Let’s estimate that between leaving messages to unresponsive patients and having a conversation about their bill, each call is 5 minutes long. At this rate and with the expected number of calls per month (usually batched to a day that they dread), up to 5 hours can be spent on this task every month.

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Summing the costs of manual patient billing

Let’s take a step back and zoom out to the overall tally of costs so far. We’ll categorize these costs as material costs, labor costs, and opportunity costs.

On the materials side, we consider the cost breakdown of 411 mailings at $1.32 per mailing. This amounts to $543 per month.

For labor cost, the 5 hours per month spent contacting patients at an hourly rate of $38 yields a monthly labor cost of $190. 

We should also consider adding an additional 5 hours per month spent auditing patient accounts and queuing billing notifications if this practice has a means of digitally sending one-off billing messages. This brings the total labor allocation to $380.

Finally let’s talk about the opportunity cost of this process, i.e. the cost of losing potential gain from other alternatives. In certain ways, this is difficult to put a number on. The hours spent on collection calls, patient reminders, and statement preparation could be reallocated towards improving patient experience, practice marketing, or researching cutting-edge solutions to modernize that practice. 

From an investing standpoint, the time value of money is relevant here, as cash can be put in other investments, software, or equipment that can yield better results for your practice.

Putting it all together, from what we can calculate, our model dental practice with a manual billing process spends $923 per month on collection. That amounts to $11,076 per year.

Remember that this model is only for a single private practice. For DSOs and dental groups, the annualized overhead from maintaining a manual or traditional billing system can be greatly magnified.

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Considering collection rates

We mentioned at the beginning of this scenario that the collection rate of the average dental practice is 91%. With the production of this practice hovering around $1,200,000 (the average for US dental practices in 2023), and 42.6% of this representing patient-portion A/R, this practice will likely collect $502,000 of patient portion A/R compared to the expected $551,000 (if collection rate was 100%).

That 9% difference is costing the practice over $49,000 per year.

That $49,000 is enough to put some practices into a situation where their cash flow can be in jeopardy. Always remember that it’s important to maintain healthy cash flow to maintain practice health.

At Pearly, we have found that practices with a manual billing process are at or below the 91% collection rate. Alternatively, practices that embrace billing software can leverage collection automation, which ensures that fewer patients fall through the cracks. We have seen accelerated cash flow and collection rates up to 98% with practices that follow best practices when implementing software. 98% brings that expected patient portion revenue up to $540,500–a much more desirable result.

And to improve cash flow for practices A/R needs to be collected as quickly as possible. In order achieve this, we have found that the #1 approach is:

• Increasing communication touchpoints with patients
• Using omni-channel billing to cater to patient preferences
• Dynamically varying notification language throughout a billing cycle
• Conditionally escalating aging A/R that meets practice-set parameters

With billing software like Pearly, your practice manager can accomplish all of these objectives while simultaneously decreasing the amount of time spent contacting with text messages, emails, or outbound phone calls.

Why inbound patient phone calls are a good thing

But what about inbound phone calls? Because practices using RCM software can have a scheduled follow-up process, patients automatically receive notifications in a pre-determined sequence. 

If a patient is past due with a bill, an office manager or other RCM staff no longer has to manually reach out to notify that patient about the outstanding balance. 

The consequence is that patients with questions about a bill can reach out to the practice to inquire about the payment–often on a schedule that matches a practice’s bandwidth.

In this scenario, this is actually a customer success opportunity (not a burden) and leads to an overall reduction in calls. In fact, we have found that for every inbound call that a practice receives, there are 3 outbound calls that that practice would have made. The time saving benefit from this dynamic is apparent.

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Takeaways for your dental practice

For every additional payment made, your collection rates improve. If those payments are made a day sooner, you’re also in a better cash flow situation.

But from a bottom line perspective, collection rate is king. If your practice has an optimized manual billing process, we have shown that you are spending more to collect less. By implementing and fully utilizing automation and a digital billing process, practices that we work with increase that collection rate to upwards of 98%.

Going back to our example, a 98% collection rate on $554,400 in patient A/R is $543,300. Compared to that same practice with a 91% collection rate, this is an additional $39,000 toward profitability instead of written off as bad debt. Moreover, if you consider those overhead billing costs, the revenue collected takes an additional $11,076 hit to profitability.

Even if your practice has an optimized manual process, you are likely leaving money on the table in the form of unnecessary material and labor costs. 

On top of that, you’re missing opportunities for creating a modern payment experience, which can boost patient loyalty and satisfaction.

When there are digital options available, no patient wants to have to mail back a check or a credit card authorization form.

Modernization offers a virtuous cycle with very little down side.  Given how comparatively inexpensive and hassle-light it is to make the transition to billing automation software like Pearly, it’s advantageous to prioritize modernizing a manual process.

As the dental industry marches toward digital transformation, the shift from manual billing processes to software-powered automated systems represents a significant opportunity for improved efficiency, accuracy, and (as we’ve emphasized) financial performance. By embracing this solution, dental practices can improve their profitability, alleviate administrative burdens, enhance patient satisfaction, and drive sustainable growth.