Planning for profit in 2003

Nov. 1, 2002
As the recession deepens, now's the time to take a proactive approach to your future. By implementing certain business tactics for the coming year, you can seize available opportunities to prevent decline during these economically uncertain times. The following strategies are recommended to increase and maintain your practice profitability. Don't make the mistake of simply working "in" your practice, as it's critically important to work "on" it as well.

By Charles Blair, DDS

When the stock market correction began about three years ago, the economy remained fairly strong, sustained by continued consumer spending. Unfortunately, the attacks of Sept. 11 and the following anthrax scares resulted in consumer confidence plunging to its lowest level in years.

This drop led to a significant decline in consumer spending, which has translated into rapidly rising unemployment and a deepening economic recession. Moreover, major tax cuts and multiple Federal Reserve interest rate cuts have yet to restore the failed economy.

Virtually all doctors have felt the effects of decline, although to varying degrees. Particularly hard-hit have been those doctors in highly competitive areas, those with significant managed-care penetration, and those performing a higher number of "high-priced," uninsured dental procedures.

Alternately, practices in other areas of the country continue to thrive, with plenty of demand for needed dentistry. Significant decreases in the total number of dental graduates, along with the fact that 40 percent of those graduates are female (many choosing to work only part-time), have dramatically affected manpower. Thus, the profession as a whole remains strong, as many doctors continue to invest in new technology and facilities.

Regardless of how significantly your practice has been affected, implementing these recommendations will be a proactive measure that can ensure future profitability

• Create a written marketing plan for 2002 and 2003, supported by a budget of up to 2 percent of gross collections. Increase internal marketing efforts by regularly soliciting and rewarding referrals from your best patients and staff. Moreover, use "message-on-hold" telephone advertising, zip code mailers, and a practice-marketing notebook in your reception area that summarizes your services, education, and experience, and also profiles each staff member. This will increase patient awareness of your services and help boost treatment acceptance rates, while reducing magazine subscription costs. In some areas, ethical radio advertising has proven to substantially increase the number of new patients seeking cosmetic dentistry.

• Use downtime to contact inactive patients and invite them back to the practice. Follow-up with patients who have not accepted previously discussed treatment plans. When hygienists have a broken appointment, it is an opportune time for them to contact patients who need upper-level treatment.

• Specialists should focus on existing doctor referrals, cultivating new relationships, and restoring relationships where referrals have declined. Also, cultivate relationships with the staff of current or potential referring doctors by regularly providing staff luncheons, continuing-education programs, and donut/bagel/muffin deliveries with business cards. These staffers can be a gold mine of referral sources. When applicable, general dentists should ask their respective specialists for referrals from time to time.

• Take advantage of the increasing disparity between practice sellers and potential buyers. The future will be a buyer's market, particularly in small towns and rural areas. If your current practice volume is lacking, consider purchasing a selling competitor's practice and merging it into your own. This is the most cost-effective means of adding "full-fee" new patients to your practice because of the relatively low incremental overhead associated with the added volume.

• Conduct a daily review of all procedures performed vs. procedure and dollar amounts actually charged to uncover possible errors, such as failure to charge for certain procedures or ones that are coded incorrectly. Review current CDT-3 coding to assure compliance with the latest ADA codes for maximum reimbursement. A new CDT-4 code will be effective in January 2003. Be sure to read about and implement it!

• Increase practice efficiency by scheduling quadrant dentistry whenever possible. By reducing the number of total visits for a given treatment plan, doctors can dramatically increase their income per visit for greater profitability, efficiency, and patient convenience.

• If hygiene appointment openings are scarce, extend intervals between recall visits for healthy patients, which will allow hygienists and doctors to see more new patients and those with major treatment needs.

• Increase treatment acceptance (conversion) rates by providing flexible payment options through third-party sources. These may include preauthorization of monthly charges to the patient's general credit card, electronic bank transfers to automatically debit patient checking accounts, and specialized dental care financing options such as CareCredit (800-300-3046), Orthodontist's Fee Plan (800-637-7526), and Dental Fee Plan (888-337-4171) for "bigger ticket" cases. Remember that much of the success (or failure) of third-party financing is dependent on the verbal skills of your business staff. For implementation materials, contact these companies directly. Another way to increase conversion rates is to provide references and testimonials from satisfied patients. This is particularly useful with cosmetic cases.

• Develop a written practice budget for 2003 and conduct a thorough line-by-line review of expenses. Determine if each item contributes to productivity and/or efficiency. Trim or delete those that do not.

• Launch a continuous improvement program in your office by offering incentives to employees for ideas that increase practice productivity and efficiency, reduce overhead costs, and/or increase profitability.

• Critically reassess your personnel needs to determine which employees are absolutely essential. Check for daily, weekly, or seasonally slow times, and adjust labor needs accordingly with flexible scheduling for hourly employees. Reduce or eliminate clinical staff and minimize clerical staff (when the doctor is not seeing patients) by offering unpaid time off for staff members who prefer this option.

• Carefully evaluate staffing needs following turnover to determine the necessity of replacing the departed employee. Analyze whether the position could be filled with a part-time staff member.

• Take major steps for practice improvement by analyzing and addressing areas of weaknesses (hygiene department, new-patient entry, treatment conversion rate, etc.) (See Dr. Blair's "Profits Plus" workshop mentioned below).

• Upgrade your staff by taking advantage of rising unemployment to aggressively recruit a star performer to replace a marginally productive employee.

• Reduce labor costs through electronic claims submission, electronic statements, voice-activated computer technology, and hands-free telephone headsets in clerical areas. Also, implement computerization in clinical areas, which will permit clinical staff to enter information. This eliminates costly duplication of effort, failure to charge-out all procedures, and miscoding of clinical procedures. It also increases the practice volume that the front desk can handle.

• Increase hygiene department profitability by implementing a productivity-based compensation program. Make sure all hygienists are properly trained in soft-tissue management, and that they see the correct number of patients per day.

• Improve affordability and reduce staff retirement-funding costs by adding a "Safe Harbor" 401(k) and cross-tested allocation features to your existing profit- sharing plan.

• Reduce practice labor costs by paying all employees on an hourly basis. Also, utilize part-time employees for greater productivity per hour, job flexibility, and lower wage and benefit costs.

• Take advantage of declining real estate rental rates in some areas by renegotiating your existing lease for more favorable lease terms (lower rate, increased upfit allowance, right of first refusal, etc.) in exchange for a lease extension.

• Take advantage of record low interest rates for purchase or construction of a new office building if additional space or new location is needed to improve your practice.

• Establish an annual budget for clinical supplies equal to 6 to 7 percent of the prior month's gross collection (7 percent for orthodontists) and 2 to 3 percent of the prior month's gross collections for office supplies. Total office and dental supplies should not exceed 10 percent of collections. Appoint one staff member to be in charge of ordering supplies within this budget, and base future pay raises on their ability to control costs within these industry average percentages. Consider dealing with only one supply company, which will give your practice an "A" customer status, lower prices, and favorable repair response. Seek out a knowledgeable territory representative, not just an "order taker." Generally, the higher-producing reps offer more value-added service, such as providing business and practice-management ideas and resources. Your rep also should be willing to give you candid feedback on your practice.

• Negotiate with your existing lab and supply vendors by agreeing to do all of your business with them in exchange for a discounted price, and negotiate a 2 percent discount for early payment or payment within 10 days. This discount is often a better deal than obtaining airline miles for credit card payment.

• Take advantage of record low interest rates to refinance existing practice loans, including office-building mortgages. Dramatically reduce financing costs by obtaining a rate of no more than prime plus one-half percent. Consider refinancing your home at lower rates as well.

• Critically review all maintenance and service contracts on telephone systems, computers, and copiers. In many cases, doctors are better off without these costly agreements. However, don't drop software maintenance contracts if they include upgrades.

• Doctors operating two retirement plans should merge them effective Jan. 1, 2002, in order to maintain the maximum annual allocation for the doctor ($40,000 in 2002), while eliminating the additional legal, accounting, and administrative expenses incurred from operating two separate plans.

• Reduce outside CPA costs preparing routine monthly financial statements in-house, utilizing a third-party retirement plan administrator, and an outside payroll company for preparation of payroll checks, payroll tax returns, W-2s, and W-3s.

• Take advantage of declining auto purchase costs and zero percent financing to buy a used sports utility vehicle (6,000 lbs. or more Gross Vehicular Weight Rating) to be used as a business car for maximum tax benefit.

• Review current personal life insurance coverage needs and replace older, more expensive policies with 10-year level term coverage to lock-in the lowest-cost coverage in history. Switch business disability and business overhead insurance coverage from private coverage to dental group coverage to substantially drop premiums while maintaining necessary benefit levels to avoid possible court battles for disability payment claims. Furthermore, consider extending elimination periods to 180 days if the doctor has sufficient investment assets to self-insure during the interim.

Control staff health insurance costs by increasing the deductibles and co-payments, instituting a waiting period for eligibility, and covering only full-time employees. Alternatively, simply allocate a fixed-dollar amount annually to a medical reimbursement plan or cafeteria plan and allow employees to be reimbursed up to this limit for their uninsured, out-of-pocket medical expenses, including personal paid health insurance premiums, co-payments, deductibles, and items not covered by health insurance.

• Bid out all business insurance (auto, business interruption, and fire and casualty) at least every two years. Consider switching automobile, homeowners, and personal umbrella insurance coverage to GEICO (888-283-2849) or USAA (800-531-8100) to reduce premium costs.

• Replace costly telephone answering services with in-office machines that have voice-mail capability and remote access to improve customer service while dramatically reducing costs. Renegotiate business and personal long-distance telephone rates to secure a long-distance rate of .7¢ a minute or less during all hours and days. Sam's Club has a special AT&T card with a true rate of 3.4 cents a minute for in- or out- of state calls.

• Concentrate continuing-education expenses in areas that will advance your skill level to expand your procedure mix and improve and increase your production while decreasing patient load.

• Critically review your practice fee schedule to determine the percentile rank for your current fees in your specific zip code. Determine your desired fee percentile by taking into account the quality of care your practice provides, as well as overhead cost. Raise all fees to this percentile immediately.

Regrettably, many dentists have carefully watched their investment portfolio decrease over the past few years, while missing a sure-fire investment opportunity — their own practice! The average practice makes an unfortunate number of errors in insurance coding, lacks many proper protocols, and typically operates with a "schizophrenic" fee schedule. Unfortunately, this translates into $100 to $500 a day left "on the table." This means a practice grossing $500,000 is losing $25,000 to $75,000 to the bottom-line annually!

Those practices that need help the most tend to seek it the least. Far too many dentists make decisions based simply on cost, rather than choosing the most "revenue-savvy" solution. We highly recommend that doctors obtain professional assistance in assessing the critical areas of their practice, including setting a proper fee schedule, protocols, and procedure mix.

For more information regarding Dr. Blair's "Peace of Mind Revenue Enhancement Program" and "Profit Plus" workshops, contact Debbie Hains at (704) 424-9780.

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