The method hospitals use to pay associates (using gross production vs. collected production1) is a hotly debated topic among practice managers and on industry message boards. No matter how you do this, accurate reporting is a top priority.
At Instinct, our goal is to help hospitals run better and make more streamlined decisions—whatever your process.
We get a lot of questions on the recommended workflow around this and since you have enough to worry about these days, we wanted to share a quick guide to help you going forward!
Before we start, know that we offer reports that help you pay associates in one of two ways: on either gross production or collected invoicing production. To learn more about these reports, check out our Provider Summary and Details Report Careville guide!
Here’s the summary: Our recommendation for most centers is to pay using gross production workflow, effectively getting the best of both worlds while offering a simplified overall reporting and accounting workflow.
Let’s lay it all out there with the two ways to pay/account using Instinct reports.
🚨Crucial point up front: Your practice must use ONE of the two methods (not both) to ensure accurate provider commission reporting.
Workflow Option 1: Paying Providers Using Gross Invoicing Reports
In many PIMS, gross invoicing reporting is the only way to get provider reports short of combining a bunch of reports or jumping through accounting/reconciliation hoops.
💰Financial nerd alert: what we’re calling gross is technically “net” provider reporting since it reports on line items post-discount (if discounts are on an invoice). Since we don’t think you’d ever pay commissions pre-discount, we refer to this as gross at Instinct.
If you use our gross invoicing provider report, you’ll pay associates as they produce sales for the practice. You’ll only pay on closed invoices (we recommend keeping invoices open only if they are still being reviewed). Once the invoice is closed, the close date is used to determine the month of production reported for the invoice and associated providers.
This is clean and simple. Once you get the report, you’ll pay a percentage of the number of sales to your associates month by month (or quarter by quarter). Invoice close dates are not flexible (you can’t reopen invoices in Instinct), so you close the period automatically and never have to worry about modifications in past reports as time goes on.
How to Handle Unpaid Invoices
If a client doesn’t pay an invoice and you send them to collections or write it off, you’ll simply create an adjustment invoice at that later time (a new invoice with negative quantity line items for what was never collected).
If you choose to take these unpaid invoice items out of the provider’s commissions (because you only pay on collected invoices), you simply put the negative line items under the provider on the adjustment invoice. If not, you can put the negative line item under a generic hospital provider. Admittedly, this is more of a practice management consideration and one of the hotly debated aspects of this topic!
Either way, once this invoice is closed, it will show up in the collections report for the next month (or quarter), effectively resulting in a “true-up,” so everything will align over time.
💡Bonus/optional: As an extra layer to protect practice cash flow in times of higher accounts receivables, you can set up employment agreements like many do where a percentage of each month (or quarter) commissions are held and paid out in Q4 as a true up. For example, many centers calculate and report quarterly commissions to associates but pay out 75% each quarter and the other 25% is held and true-uped in Q4 every year for this purpose. This gives you time to write off invoices that go unpaid.
✔️ Bottom line: This is the reporting and commissions structure we strongly recommend for most practices.
Workflow Option 2: Paying Providers Using Collected (Payments) Reports
This is an alternative way to pay your providers using real-time invoice collections reporting combining sales and payments by invoice and provider. It is a nuanced report that introduces many complexities, but we offer it because some practices with advanced accounting systems have requested it.
🚨 Note: this report should never be used to compare totals in other reports in Instinct. Best practice is to avoid comparing these because of the many nuances, including the multiple reporting date ranges at work for this report (see below).
This report shows sales by providers on closed invoices like the gross report but only reports on invoice items that have payments applied to them. That works well when an invoice is fully paid off, but introduces several complexities at times when invoices are partially paid.
Some of the complexities of this method include:
- Invoices can have multiple providers
- Invoices are often partially paid over time
- Tracking payments and refunds on line items over time is necessary
- Payments/refunds can be taken/applied before and after an invoice is closed
- Payments/refunds can be moved if applied erroneously
- Invoice status can change from open to closed across reporting periods
- Reports have several dates to consider and reconcile (invoice close date, invoice line item date, payment/refund date) and these dates can conflict and span multiple reporting periods
If you choose to use this method for paying your providers, you will spend more time dealing with these complexities and must be careful not to interpret the report for other purposes.
How to Handle Unpaid Invoices
If using this report because you are paying providers based only on real-time collections, you need to adjust invoices that are not paid using a method that deducts them from the generic hospital provider (not the actual provider). If you put negative items under the actual provider, you will effectively be taking money away from providers that you never paid out in commissions, since you are only paying on paid invoice line items in the first place.
✔️ Bottom line: We only recommend using this report if you work with an advanced accounting team who fully understands the nuances of this type of accounting and has the time to devote to it.
If you are reading this and want additional assistance, including training and switching how you pay providers based on this information, we’re here for you and can help you make the adjustment! Just reach out to us at support@instinct.vet.
Reference
- Wilson JF, Nemoy JD, Fishman AJ. Contracts, Benefits, and Practice Management for the Veterinary Profession. Indianapolis, IN: Priority Press (2000).