We ask two experts the same question on a complex issue.
The practice I want to purchase has some low-paying PPOs. How do I determine if I should drop those plans?
KEN RUBIN, CPA, PFS
Purchasing a practice with low-paying PPOs can either be a wonderful thing or a terrible thing, depending on how tight of a stranglehold that managed care has in your geographic location.
Often, well-meaning national consultants will automatically tell their clients to drop all low-paying PPOs, if not all PPOs. On more than one occasion I’ve seen this advice devastate a practice that suddenly loses a huge portion of its patient base and now has a multitude of empty chairs and bored staff members on the payroll, and the owner is rightfully panicking to meet the bills.
If the practice you’re considering purchasing is located in an area that is highly competitive in obtaining profitable patients, then you probably will not want to drop the undesirable plans unless the practice is already over capacity with patients. Also, it is probably worth it to keep the low-paying PPOs if the current owner refers out a lot of profitable procedures on these low-paying PPO patients that you can capture in-house.
In order to determine if you should keep the low-paying PPO plans, somebody will have to crunch some numbers. This is a common task for dental-specific CPAs and certain consultants.
Additionally, with enough lead-in time and proper scripting, some of the low-paying PPO patients will be willing to dig into their own pockets to pay for dentistry and will stay with the practice in order to receive the quality care they’re used to. This is instead of taking a chance on some unknown dentist that they find in the PPO booklet.
Lastly, if you do decide to drop these plans, be sure to let patients know that if they do go somewhere else and they are not happy with the new PPO dentist, they’re always welcome to come back to your practice.
PRESTON LOVELACE, JD, MS
There are three major factors to determining the importance of a given PPO to your dental practice. These are (1) the need for time on the practice schedule, (2) the total portion of practice income derived from a given PPO, and (3) the fee schedule of that PPO.
Before dentists drop any plans in their practices, they should first determine if they need to get rid of low-paying plans to make room for higher-paying patients. If the schedule is half empty and the staff and doctor are available, reduced income from low-paying plans beats paying the staff to sit idle. Some income is better than no income when it comes to defraying overhead expenses. Keep the PPO plans until you have the opportunity and the need to make time on the schedule.
Conversely, if the schedule is bursting at the seams and fee-for-service or “regular insurance” patients cannot get a timely appointment, then it’s time to drop some of the low-paying PPOs.
First, determine the percentage of practice income represented by each PPO plan. Some practice management software packages track income by insurer, but even if yours does not, you can look at the 1099 tax form each insurer sends at the end of the year. If a given PPO produces a large portion of the practice income, you may want to hold on to that PPO and focus on renegotiating the fees.
Fee negotiations can be confusing and frustrating, which has given rise to several third-party vendors who will negotiate your fees with each PPO. Whether you hire someone to do this or you do it yourself, there are a few essential things to remember. First, fee negotiation is an ongoing process. Your usual and customary fees creep up with inflation and need adjusting every couple of years, and so should your PPO fees. Determine when fees were last negotiated and the difference in the practice’s regular fees and the current PPO reimbursement. These two factors should guide you in your fee negotiation.
If you do drop a PPO, focus your efforts on retaining the patients from that PPO. Have a script ready for the staff member who schedules these patients so that no one is surprised that your office is now out-of-network. Many patients will give you a chance to keep them, but your staff needs to be ready to offer discounts, payment plans, or other incentives to help defray patients’ increased out-of-pocket costs.
Preston Lovelace, JD, MS, is the president of ADS Lovelace and Associates Inc., a practice management and transition firm based in Louisiana. He lectures at the LSU Dental School and many state and local dental associations. Contact him at (225) 614-7700 or firstname.lastname@example.org.