Managed Care and Your Bottom Line

Deciding whether or not to join a managed-care plan is a challenge facing many dentists today. Managed care has been evolving and growing for over 20 years. Currently, there are 19.5 million HMO-patient enrollees nationally, a 15 percent increase since 1994. While HMO plans have been increasing steadily, dental PPOs have been moving ahead twice as fast. Both types need to be evaluated before a dentist becomes a provider.

Carol Tekavec

Deciding whether or not to join a managed-care plan is a challenge facing many dentists today. Managed care has been evolving and growing for over 20 years. Currently, there are 19.5 million HMO-patient enrollees nationally, a 15 percent increase since 1994. While HMO plans have been increasing steadily, dental PPOs have been moving ahead twice as fast. Both types need to be evaluated before a dentist becomes a provider.

HMOs typically require that a dentist accept a certain capitated amount per patient per month, with the provision that many services will be provided to patients at no charge or at greatly reduced fees. PPOs typically feature a network of dentists who accept reduced fees per service.

Examine Fees and Expenses

For dentists to decide if a certain plan will "fit" in their offices, fees and expenses must be compared. The typical dental office in the United States today operates with about a 60 percent overhead. If the office earns $100, $60 goes to pay expenses. If the office accepts a 40-percent reduction in fees, profit is eliminated-only overhead can be paid. Any further reduction will result in a true loss of revenue for the office.

For example, a common fee for a one-surface, anterior resin restoration (Code 02330) is $65. A typical HMO plan might offer a $10 patient copayment on this service, with a $5 per-person, per-month capitation payment to the dentist. A typical PPO plan might feature a $54 fee. A dentist who accepts $15 for a $65 procedure reduces his fee by 77 percent. A dentist who accepts $54 for a $65 procedure reduces his fee by 18 percent. With an 18 percent discount, overhead still may be paid and a slight profit realized. A 77 percent discount would result in a serious shortfall.

Utilization makes a difference in the profitability of any reduced-fee plan. For a capitation/HMO plan, the dentist might make a profit if patients do not come in for treatment. In a PPO plan, a dentist might make a profit if he can provide the services more quickly, a little less expensively, with full utilization of auxiliaries and on condition that reduced-fee patients not displace full-fee patients.

Populations of HMO patients who have previously had dental insurance or HMO coverage may not require many services and may be in "maintainable" dental health. Despite this, it often is difficult to cover overhead, even if the HMO patients only come in for hygiene/recall services. If the average recall-appointment fee is $80 (to include standard adult prophy, periodic evaluation and 1/2 fee for bitewing radiographs taken once per year), then one such appointment uses up the entire capitation payment for one patient for one year ($5 per month per patient) plus $20 more. Further appointments for that patient will cost the office.

Dentists who have empty treatment rooms during the course of a normal work day may find themselves tempted to begin accepting patients from underfunded managed-care plans. If the chairs are empty anyway, what can it do but benefit the office if a patient is receiving treatment-even at a deep discount? The fixed costs of the office exist when the dentist opens the office door for the day. But, there is a potential problem.

Capacity and the Bottom Line

The problem can be illustrated by exploring the business concept of "capacity." In dentistry, we basically have two things to "sell"-our expertise and our time. Both are supported by our basic costs of doing business-i.e., our fixed (capacity) and variable expenses. This is a fact of life in all business endeavors.

A typical example might be the man who leases a truck and goes into the moving business. He charges a standard rate, say $50 an hour, and normally books the truck three days a week. Then, business slows down. Finally, a customer comes to him and offers only $25 an hour for two days of moving services. The busines owner is happy because he is bringing in an extra $400 a week and he is not letting his "unused capacity" or fixed cost of leasing the truck go to waste. Unfortunately, he is ignoring his variable costs of gas, wear and tear, and labor. If he looks at his actual profit, he really might do better to let the truck stand idle for two days.

Dentists who have unused capacity in the form of empty chairtime during the day often consider "selling" this unused capacity at a discount to make sure that it doesn`t go to waste. It is very important when evaluating discount plans that the bottom line of final profit is not ignored. Unused capacity may be better left unused if the income generated by low-margin or no-margin services eliminates profits.

Carol D. Tekavec, RDH, is the author of two insurance-coding manuals, co-designer of a dental chart and a national lecturer. Contact her at (800) 548-2164.

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