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How PPOs are affecting the value of your practice

Dec. 18, 2013
By participating in PPO plans, you agree to take a certain discount on fees; however, your fixed overhead costs remain the same regardless of the fee you collect.

by Jim Philhower

Did you know that taking a 20% PPO write-off on a $200 procedure with a 60% overhead cuts practice profits in half?

By participating in PPO plans, you agree to take a certain discount on fees; however, your fixed overhead costs remain the same regardless of the fee you collect.

Let's review the math on a sample procedure:

The example above is one of the better scenarios for a PPO practice. The average general practitioner practice overhead is actually 72%.

Let's take a look at another scenario with a higher overhead and larger fee discount:

Performing this procedure actually results in a loss for the office. This example illustrates how important it is to review the insurance plans you accept on a regular basis to ensure situations such as this are not occurring in your practice.

Whether the majority of your procedures are closer to Example 1 or Example 2, it's impacting the value of your practice. If you are planning to sell your practice within the next five years, a comprehensive insurance review is essential. When you are determining the value of your practice, remember that value is not based on your stated fee schedule but on actual practice collections.

There is a myth in the valuation world that dental practices only sell at a price between 60% and 65% of their last year's gross revenue. This is simply not true. In general, dental practice values can vary anywhere between 50% and 100% of their last year's gross receipts based on the practice's location.

Conversely, a region of the country that has a limited number of purchasers translates to lower practice values. On average, our experience valuing practices finds the values range averaging 50% to 75% of last year's gross. Some exceptions apply that may drive values lower or higher.

Jim Philhower, a 28-year veteran of the dental industry, is the director of North America Dental Sales Leadership and Development for Henry Schein Dental. Jim teaches dental teams throughout the world techniques to help reach their practice goals. Contact him at (800) 372-4346 or send an email to [email protected]. Learn more at www.HenryScheinBusinessSolutions.com.

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