This sounds obvious, but you would not know it from looking at how most bookkeepers handle dental practice books. They treat insurance payments as simple receivables. They do not track production by provider. They have no idea what a write-off versus an adjustment versus a disallowed charge means in the context of insurance reimbursement. And when the dentist asks "am I making money on Delta Dental patients?", the bookkeeper has no answer.
Dental and medical practice accounting sits at the intersection of healthcare revenue cycle management and small business bookkeeping. It requires understanding both, and most generalist bookkeepers understand neither.
We support CPA firms that serve dental and medical practices at Madras Accountancy. Our team is trained on the specific accounting requirements of healthcare practices, including insurance AR aging, provider production and compensation tracking, and the financial analysis that practice owners need for growth decisions. For the broader picture of our outsourced accounting services, see our guide. For CPA firms already serving medical practices, our medical practice accounting guide covers the service model.
In a normal business, accounts receivable means "I sent an invoice and I am waiting for payment." In a dental or medical practice, AR is a multi-layered system where the amount billed, the amount expected, and the amount received are three different numbers for every single procedure.
A dentist performs a crown. The fee schedule says $1,200. The insurance company's allowed amount is $980. The insurance pays 80 percent of the allowed amount: $784. The patient owes the remaining $196. The $220 difference between the fee schedule and the allowed amount is a contractual write-off, not a bad debt, not lost revenue, not an error. It is the expected adjustment based on the insurance contract.
If your bookkeeper records the full $1,200 as revenue and then writes off $416 when the payment arrives, the practice's revenue is overstated by 35 percent for the period between billing and payment. If they record only the $784 insurance payment as revenue when it arrives, they miss the $196 patient responsibility that is still outstanding.
The correct approach is to record the gross charge ($1,200) at the time of service, post the contractual adjustment ($220) when the insurance EOB arrives, record the insurance payment ($784), and track the patient balance ($196) until collected or written off.
Our offshore team at Madras handles this workflow by processing insurance EOBs (explanation of benefits) daily, matching them to the practice management system's claims, posting payments and adjustments, and aging the remaining patient balances. The volume can be significant. A 3-dentist practice generates 200 to 400 claims per month, each with its own payment and adjustment pattern. This is exactly the kind of high-volume, process-driven work that outsourcing handles efficiently.
The AR aging report is one of the most important financial reports for any dental or medical practice, but it only works if the data behind it is accurate. We typically see practices where the AR aging is inflated by old balances that should have been written off, insurance claims that were denied and never reworked, and patient balances that have been sitting for 6 months or more without follow-up.
Our team at Madras produces a clean AR aging report monthly by category: insurance AR by payer (0 to 30 days, 31 to 60, 61 to 90, over 90) and patient AR by balance range. For insurance AR, any claim over 30 days without payment is flagged for follow-up. For patient AR, balances over 60 days are flagged for the practice's collection process.
In our experience, the single most impactful thing a CPA firm can do for a dental practice client is clean up the AR. We have seen practices with $200,000 in reported AR where only $120,000 is actually collectible. The remaining $80,000 is old claims that were denied and never appealed, patients who have moved or changed insurance, and contractual adjustments that were never posted. Cleaning this up gives the practice owner an accurate picture of their financial position and often reveals collection opportunities that were buried in the noise.
Multi-provider practices need to know how much revenue each provider generates. Not how many patients they see. Not how many hours they work. How much they collect after insurance adjustments and write-offs.
Provider production tracking in dental practices typically measures gross production (fees charged at the office fee schedule), net production (gross production minus contractual write-offs), and collections (actual money received attributable to that provider's work).
The compensation model often ties to one or more of these metrics. An associate dentist might earn 30 to 35 percent of net production. A hygienist might earn 35 to 40 percent of hygiene production. Partner compensation splits might be based on collections with an adjustment for overhead allocation.
Getting these calculations wrong has real consequences. An associate who is underpaid based on production data will leave. An associate who is overpaid because the practice does not track write-offs accurately is costing the practice money. Neither outcome is acceptable.
Our team at Madras builds provider production reports monthly by extracting production and collection data from the practice management system (Dentrix, Eaglesoft, Open Dental, eClinicalWorks, Athenahealth), matching it to the general ledger, and producing provider-level P&Ls that the CPA can deliver to the practice owner. The quality control process includes cross-referencing practice management data to bank deposits to catch discrepancies.
Practice owners want to know how their overhead compares to industry benchmarks. Our team produces monthly overhead analysis that breaks total expenses into the categories that dental and medical practice benchmarking organizations track.
For dental practices, the key benchmarks include staff costs at 25 to 28 percent of collections, facility costs (rent, utilities, maintenance) at 5 to 7 percent, dental supplies at 5 to 7 percent, lab costs at 8 to 10 percent, marketing at 2 to 5 percent, and total overhead at 55 to 62 percent. When any category is above benchmark, the CPA can have a data-driven conversation with the practice owner about where the excess is and what can be done about it.
For medical practices, benchmarks vary more by specialty. Primary care practices typically run higher overhead (65 to 70 percent of collections) because of lower reimbursement rates, while surgical specialties often run lower overhead (50 to 60 percent) because of higher per-procedure revenue. The important thing is comparing to the right benchmark for the practice's specialty.
We produce these benchmarking reports quarterly and trend them over time so the practice owner can see whether their overhead is improving or deteriorating. In our experience, the practices that review benchmarking data regularly maintain tighter cost control than those that only look at their P&L once a year at tax time.
Dental practices are being acquired at a pace that would have been unthinkable 10 years ago. Dental service organizations (DSOs) and private equity firms are buying practices at 5 to 8 times EBITDA, and sometimes higher for multi-location groups with strong management.
A practice considering a DSO transaction needs clean financials that tell the story buyers want to see. That means trailing 12-month adjusted EBITDA with owner compensation add-backs clearly documented, revenue by payer with collection rates by payer category, provider production metrics showing the practice can operate without the selling dentist, overhead benchmarks compared to industry standards (staff costs at 25 to 28 percent of collections, facility costs at 5 to 7 percent, supplies at 5 to 7 percent), and a clear picture of growth trajectory.
CPA firms that serve dental practices considering DSO transactions can use our team to prepare these packages. We handle the data compilation, financial analysis, and schedule preparation. The CPA provides the advisory guidance and valuation expertise.
For medical practices, MSO (management services organization) transactions follow a similar pattern but with additional regulatory considerations around the corporate practice of medicine doctrine.
The preparation process typically takes 3 to 6 months. In our experience, the practices that start working with an outsourced team 12 or more months before a potential sale get significantly better valuations because the books are clean for a longer historical period. A buyer looking at 3 years of clean, consistently prepared financials has more confidence than one looking at books that were cleaned up 90 days before the listing.
The question CPA firms always ask: does outsourcing dental or medical practice bookkeeping create HIPAA issues?
The short answer: our team at Madras does not access patient health records. We work with financial data: insurance payments, billing totals, provider production numbers, and general ledger entries. Patient names may appear on EOBs and deposit details, but we do not access, store, or process clinical information.
That said, any financial data that includes patient-identifying information (names on EOBs, patient account numbers on payment records) should be handled with appropriate safeguards. Our data security infrastructure includes VDI (no data on local machines), encrypted connections, and access controls that limit what team members can see.
If the CPA firm wants additional HIPAA protections, we will sign a Business Associate Agreement (BAA) and implement any additional controls the firm requires. We are transparent about what we access and how we handle it.
The monthly close for a dental or medical practice follows a specific sequence that accounts for the insurance reimbursement cycle. Here is the workflow our team follows.
Week 1 (days 1 through 5 after month-end): Process all outstanding EOBs and post insurance payments and adjustments through the last day of the month. Reconcile the bank account against deposits. Post any manual payments (checks received in office). This step must be thorough because the revenue number is only accurate when all insurance payments for the period have been posted.
Week 2 (days 6 through 10): Reconcile the practice management system revenue to the general ledger revenue. Calculate provider production for the month. Post any accruals (lab expenses incurred but not yet invoiced, supply orders received but not yet billed). Reconcile payroll entries.
Week 3 (days 11 through 15): Prepare the financial statements, provider production reports, and overhead benchmarking analysis. Review the AR aging and flag any items for follow-up. Prepare the monthly financial package for CPA review.
The CPA reviews the package and delivers it to the practice owner, typically with a brief call or meeting to discuss the key numbers. Total offshore hours per month for a 3-provider dental practice: 15 to 25 hours. For a 5-provider medical practice: 25 to 40 hours.
For a single-location practice with one or two providers, a practice manager who handles basic bookkeeping alongside their other duties may be sufficient. The accounting is manageable if the practice management software is set up correctly and insurance payments are posted timely.
At 3 or more providers or 2 or more locations, the volume and complexity justify dedicated bookkeeping support. This is where outsourcing becomes the right move. The practice needs daily EOB processing, monthly provider production reports, quarterly financial analysis, and annual tax preparation support. Our team handles all of this at a cost that is typically 40 to 60 percent lower than hiring an in-house bookkeeper with healthcare experience.
For CPA firms looking to serve dental and medical practices more effectively, or for practice owners who need better financial reporting, reach out at madrasaccountancy.com.
Yes. These are the three most common dental practice management systems, and our team works with all of them. We also work with medical practice systems including eClinicalWorks, Athenahealth, and NextGen. The financial data is extracted from the practice management system and reconciled to the general ledger in QBO or Xero.
This is one of the most important and most commonly botched processes in dental accounting. We reconcile monthly by matching the practice management system's production report to the revenue posted in QBO, matching deposits in the bank statement to insurance and patient payments in the practice management system, and reconciling the AR balance between systems. Discrepancies are investigated and resolved before the month is closed.
For a single-location practice with 2 to 3 providers, expect $400 to $800 per month for full bookkeeping including EOB processing, bank reconciliation, provider production reporting, and monthly financials. Multi-location practices with 5 or more providers run $1,000 to $2,000 per month depending on volume.
Yes. We prepare the financial packages that DSO buyers expect during due diligence: adjusted EBITDA calculations, payer mix analysis, provider production trending, overhead benchmarking, and historical financial statements formatted to buyer specifications. The CPA firm handles the advisory and valuation work. We handle the data.
For a practice with clean existing books, expect 3 to 4 weeks to full productivity. For a practice with messy books or a backlog of unposted insurance payments, budget 6 to 8 weeks because the first phase involves catching up on historical data before the ongoing monthly process can begin. We run a parallel period during onboarding where our team processes alongside the existing bookkeeper to ensure nothing falls through the cracks.
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