You regularly review your financial statements, your balance sheet looks great, and you’re tracking cash flow. What’s the next logical step for a dental practitioner looking to grow an independent business? If you’ve tuned in to the chatter, it seems like every dentist is purchasing a patient database to expand their practice.
It’s a buyer’s market when it comes to purchasing patient databases, which makes it a tempting way to bring in new patients. However, this doesn’t mean it’s a good strategy for your practice. Is your office ready to add more patients? How will your staff handle the increase in patient visits? What is a patient actually worth to your bottom line?
Before buying a patient list, it’s critical to review the business’s client lifetime value (CLV) to see if the practice is optimizing its existing patient care. CLV is a factor used to evaluate a business in almost every sector outside of medicine. The calculation requires answers to a few key questions, such as how long patients stay with the practice and the total amount produced per patient. The exercise itself can help you project what adding a patient does to a practice’s bottom line. Each aspect of CLV gives insight into whether it’s worth a practitioner’s time (and money) to acquire new patients.
CLV can also help identify missed opportunities in a practice, such as collection efficacy and patient loyalty, and can provide a rough outline to help evaluate multiple factors.
Patient satisfaction, billing, case acceptance, and collections
The ideal lifetime patient is one who pays 100% of what is billed. However, as any dentist knows, this isn’t reality. To maintain a profitable business, when overlaying insurance payments and delinquent accounts, it’s critical to assess patient satisfaction, missed opportunities, and the efficacy of collections.
If patients are turning over quickly (i.e., leaving), now is not the time to rev up new patient acquisition. A better return on investment would likely come from improving existing patient experience, which will increase the length of patients’ time with the practice.
If overall practice billing is low, focus on continued care. There are several metrics in addition to total billed that may highlight opportunities for providing better service, such as days between treatments and case acceptance rate. Days between treatments will indicate if patients are missing routine care. Routine hygiene appointments are low-hanging fruit for any successful dental practice; focus on this process before adding more moving parts. Another factor is case acceptance rate. If it’s generally below 70%, take a deep dive into your treatment proposals. While you may be tempted to reel off a case acceptance percentage without seeing the hard numbers, know that almost all business owners overestimate this stat. For reference, a premier provider has an 80-90% acceptance rate.
If CLV is low despite patients staying for a long time, visiting regularly, and accepting proposed treatments, review collections. If collections are below 80%, billing should be a top priority.
After reviewing the practice’s current patient database and determining CLV is positive, you must plan to accommodate the additional patients. What capacity is needed? How much time should you plan on? Would extending hours be enough, or do you need to add another associate and chair?
The first thing to consider is unscheduled time. Instead of a lump sum of unscheduled time per week or month, break it down into the length of each unscheduled period. That is to say, note how many 10-minute periods are unscheduled, 20-minute, 30-minute, etc. If you have many unscheduled 10-minute periods, you’re not operating anywhere near capacity. If this is the case, increasing patient load won’t result in more billings. If you have many short unscheduled times, you’d benefit from blocking to regain those billable hours (and minutes). If you have mostly larger chunks unscheduled, you know that time is usable patient time. There’s no faster way to lose money on an investment such as a patient list purchase than to buy it and ruin your first impression because no appointments are actually available.
If you have positive CLV and open blocks of unscheduled time, you are likely to benefit from buying a patient list. However, if you’re busy, that doesn’t mean you have to decline a great deal. If you know you’ll need to expand, you can forecast what the change in chair hours will be. This is where we come back around to CLV.
In order to forecast how much time the new patients will take in chair hours, the simplest correlation is average hygiene appointment time (the minimum that everyone should need) and days between visits. If each hygiene appointment is around 40 minutes, each patient visits every 292 days, and 1,000 patients are added, expect to have 1,250 additional appointments each year. This equates to about 104 more visits monthly, which represents 70 chair hours.
This is a simplified model, and a detailed forecast will bring in factors based on hygiene-to-doctor visit ratio (omitted in the calculation above), existing CLV, the CLV of the purchased list, and patient demographics. That said, even a rough estimate is better than going into the purchase without a plan for patient care.
Ready to make a deal?
If these calculations support the purchase of a patient database, congratulations!
When should you run for your checkbook and when should you run for the door? Calculating the sum CLV of all new patients is a great way to test the waters. Just as you calculated CLV to evaluate your own practice, evaluate what your larger practice would be. Acquiring a new list of patients seems to be a numbers game, and it is. But this is an important investment in your business and worth the research to make a solid, informed decision.
Editor's note: This article appeared in the October 2021 print edition of Dental Economics.