Preservation of the Independent Dental Practitioner: Adopting a higher level of operational competency to become a better businessperson

Jan. 13, 2016
Stan Michalski III, DDS, discusses operational competency and practice management, which involves looking at our practice structure and relative percentages, such as overhead control, supply chain management, auxiliary use and compensation, as well as use of consultants and marketing tools.

In the first piece of our series on the Preservation of the Independent Dental Practitioner, we discussed the need to develop three sets of competencies to remain competitive. Last month, Dr. Kevin Kwiecien discussed clinical competency. In continuation of our series, Dr. Stan Michalski of Michalski Dental Coaching will cover operational competency and practice management, which involves looking at our practice structure and relative percentages-such as overhead control, supply chain management, auxiliary use and compensation, as well as use of consultants and marketing tools. Next month, Dr. Mike Skramstad will provide our final piece on clinical competency.

-Mustafa Shah-Khan, DDS

Dinosaurs once roamed freely and ruled the earth. But now they're extinct. Will the traditional, fee-for-service, independent dental practitioner die off as well?

As fewer dentists choose the private setting, new graduates have fewer opportunities to associate and eventually buy into an existing practice. Insurance companies positioning themselves between provider and patient-plus a host of other nonclinical obstacles-have made the owner/operator a diminishing (if not dying) breed. This is the "New Normal" in dentistry. But is all hope lost? Absolutely and emphatically not!

To compete effectively as an independent practitioner in the New Normal, dentists need to adopt a new, higher level of operational competency. Practice statistics need to be scrutinized and factors need to be adjusted so that the practice can achieve the maximum return.

In the New Normal, the independent practitioner needs to think not just as a health-care provider-but as a businessperson as well.

Three areas that need attention are:

1. Fixed costs, which are essentially the same each month regardless of production, including rent, salaries, debt service, advertising, etc.

2. Variable costs, which fluctuate proportionally with the amount of business conducted, including supplies, lab fees, credit card processing fees, etc.

3. Production and collections.

Most dentists know how much they produce and collect, but very few have a good handle on their costs. In a 60% overhead environment, $2.50 in collections is required to net $1, so saving "wasted dollars" is an extremely efficient way to increase profit.

Fixed costs

Fixed costs are just that-fixed-so there is little that can be done to change them, with staff costs being the exception. If your total staff cost is greater than 25%-28%, including benefits, you are either paying too much or not producing enough.

Increasing production and collections will reduce fixed cost percentages. In many offices, we find that the fixed costs are not too high, but the production is too low.

Rent or debt service on office space should be 5% or less, and advertising costs should be between 5% and 10%. You can include insurance write-offs in advertising costs; by participating in a plan and accepting a reduced fee, you are, in fact, advertising.

Variable costs

Variable costs rise proportionally as production increases, but there are many ways to save money on these.

Consumable costs

Group purchasing organizations, or GPOs, are a great tool, analogous to the Sam's Club or Costco model of purchasing. They allow a group of dentists to wield buying power that a single practitioner simply does not have. One such group is Synergy Dental Partners. You will receive the same products you get from the large supply houses but at substantial savings. Take control of your supply budget-it should be no more than 5% of your overhead. Decreasing supply costs by 2% in a $500,000 practice will add $10,000 directly to the bottom line. In a typical practice with 60% overhead, it would take $25,000 in production to net the same $10,000!

When we suggest that a practice consider a GPO, a question we often hear is, "Who is going to service our equipment?" This is a legitimate question, but not to worry: The technicians who previously provided your service can continue to do so, but there are other options, too. Dental Fix Rx and The Dentist's Choice are two national service and repair providers that offer excellent service and extremely competitive fees.

Credit card processing

Credit card processing is another "hidden" variable cost. Cash has gone the way of the dinosaur, and personal checks are not far behind. Credit card transactions make up 33% of all payments in practices we coach, while personal checks account for 9.1% of payments, and cash accounts for less than 1%. The average effective credit card processing rate is 3.1%. Providers such as Dental Card Services can lower your effective rate to 1.8%. This, too, can lead to "found money" you may have had in your practice that you did not know was there.

Laboratory fees

If your practice has contracted with any insurance plans, then you are certainly receiving reduced reimbursements; therefore, the profit margin is severely squeezed on procedures requiring a lab fee. Do not be afraid to negotiate with your lab. They don't want to lose your business, and lab fees should account for no more than 8% of your overhead. Also, CAD/CAM costs should be included in laboratory fees and not placed into clinical supplies.

Production and collections

A multitude of factors can lead to increased production and collections. One is making the financial side simple and easy. CareCredit is a great tool for this. With CareCredit, the practice receives payment immediately (for a small fee), while patients are able to take care of their responsibilities over time. This is a must-use service.

Lastly, know your practice intimately. By that, I mean you should monitor the practice's financial status. Use a spreadsheet to track significant statistics, such as production, collections, insurance write-offs, hygiene production, quadrants of scaling and root planing, new patients, and other pertinent categories.

In dentistry, we are fortunate that our practice-management software can provide these statistics. The trick is in knowing what to look for and where the information resides. Two of the larger practice-management software programs are Patterson's Eaglesoft and Henry Schein's Dentrix.

Eaglesoft has an excellent Reports module. It is simple and efficient: Reports module > Providers > Procedures by Provider > Process. Now, you can choose the date range and any or all providers. Dentrix also makes quick work of knowing your numbers: Office Manager > Reports > Management > Practice Analysis. From there, the date range, procedure code, and provider are among the options you can select to fully customize your report.

Keeping a monthly clinical monitor, knowing what your business numbers are, and acting accordingly to keep them in equilibrium are necessary for the independent practitioner to become operationally competent for continued success in today's New Normal.

Increased clinical competency through continuing education
Practicing in the 'new normal': The preservation of the independent dental practitioner

Stan Michalski III, DDS, practices in a multidoctor, multilocation practice in Charlotte, North Carolina, and is an in-office coach, author, and speaker. Dr. Michalski is also the founder of Michalski Dental Coaching. He can be reached at [email protected].

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