HOW TO PROFIT FROM... practice survey

We have some inside information about Dr. Typical. Are you ready to quench your curiosity? Doc is a general dentist in a solo practice. The office, which is located in a suburban area, has two treatment rooms. Dr. Typical works 35 hours a week and currently is in the middle of the 19th year of practice. Dr. T. personally sees 40 patients per week and produces $360,000 annually, including hygiene, with an overhead of 68 percent and a collection rate of 96 percent.

The inside scoop on Dr. Typical

Joseph A. Blaes, DDS and

Charles Blair, DDS

We have some inside information about Dr. Typical. Are you ready to quench your curiosity? Doc is a general dentist in a solo practice. The office, which is located in a suburban area, has two treatment rooms. Dr. Typical works 35 hours a week and currently is in the middle of the 19th year of practice. Dr. T. personally sees 40 patients per week and produces $360,000 annually, including hygiene, with an overhead of 68 percent and a collection rate of 96 percent.

As a percentage of collection, Doc spends:

- 7.6 percent for facility-related expenses.

- 9.8 percent for laboratory expenses.

- 7.3 percent for supplies.

- 2.2 percent for marketing/promotional expenses.

- 12 percent for administrative expenses.

These expenses add up to a total of 38.9 percent of collections. The total labor expense is 25 percent, including all taxes and benefits. Dr. Typical employs one business office person, one chairside assistant and one hygienist. Doc spends an additional 4.1 percent on all taxes and benefits.

Dr. T.`s hygienist sees 8.5 patients in an eight-hour day and produces $6,835 per month (or $82,000 annually). In a normal day, the hygienist has one cancellation, or an 11.76 percent cancellation rate. Most consultants consider 8 percent to be a maximum.

The office accepts credit cards for payment, but only 5 percent of the patients pay this way. Most accounts receivable are paid at the front desk (35 percent), and the rest are paid by mail (65 percent). Doc doesn`t offer a health-care type of payment option.

Dr. Typical spends $2,000 per year on continuing education, puts $8,000 in a retirement plan and takes three weeks of vacation.

So now you know how Dr. Typical is doing. Are you comparing the numbers in your practice with those listed above? The practice surveys conducted by Dental Economics and other dental magazines are a once a year thing, and it is fun to see how we stand.

But what are you going to do the other 364 days of the year? Is it business as usual? Do you plan to make some changes and more closely monitor your numbers? If so, what numbers are important? In a departure from our past practice survey articles, Dr. Charles Blair and I are going to spend the rest of this article describing the numbers you need to monitor to help you thrive in these tumultuous times.

How we created Dr. Typical

But first, let`s examine how we came up with the data for Dr. Typical. When I see a dental magazine tout its "annual practice survey," I get excited. I want to see how my practice is doing in comparison with others. What is this strange drive that we have to compare our businesses with our peers? We question each other at meetings about our practices, and we always wonder whether or not we are hearing the whole story or just the "best part."

We all have problems that we are trying to resolve in our practices. We generally do not share these problems with our peers for fear that they will think less of us. The vast majority of dentists remain isolated in their solo practices and only a few hire consultants to deal with their problems. Ironically, the higher-grossing practices do hire consultants while those with the greatest upward potential do not.

In preparation for this issue`s 1998 Practice Survey, I met with Dr. Blair of Blair, McGill and Hill. Charles writes the monthly Tax Q&A column for Dental Economics and is very aware of what is happening in dental practices today. He is an expert on monitoring and benchmarking a dental practice.

We decided that this year we would eliminate the pollution of specialists in the practice numbers and only survey general practitioners. In looking at our past surveys and surveys produced by others, we have found that one in five of the practices surveyed is a specialty practice. These numbers only tend to pollute the survey since specialty practices have lower overhead percentages.

Dr. Blair and I feel that the doctor`s production per hour and the hygienist`s production per hour are extremely important numbers in the practice. Also, remember that a high-dollar per-visit rate means the doctor is not on roller skates. In order to get numbers that are not skewed by practice-sharing or group practices, we have utilized solo practice data only.

CEOs savor the numbers

Why even bother about monitoring the numbers in our practices? A few years ago when I went home at night, I knew what I had produced. I had a deposit for the bank with the money that I collected and I usually had enough to pay the bills and have some left over for me. What else did I need to know? Well, management guru Tom Peters probably said it best: "What you measure, you improve."

At the Hinman meeting in Atlanta, I interviewed Connie Podesta who gave two wonderful presentations. If you see her on a dental program, be sure to attend and take your staff with you. She pointed out to me that dental schools have been producing CEOs for years, but they have not been giving them any basic CEO training such as courses in sales, marketing and managing people. She said that the CEOs in other businesses all have this training.

So how can a dentist compete? Connie believes that a dentist must either set aside a certain amount of time to manage the practice or hire someone to do it. Most dentists do not take either step, and the business suffers. Thanks, Connie, for that great insight.

Most CEOs eat, sleep and breathe the numbers of their business. Many dentists do not know beyond the basics. We would like to recommend some basic numbers that you should monitor. If you have a computer, this makes it easier. But do not give up if you do not have a computer or if your computer will not give you the numbers we are asking for. All of this can be done with paper and pencil.

On page 32, then, are the basics so you can begin the important process of knowing the numbers of your practice.

There are many other numbers and areas in the practice to monitor but I find that change is easier to take in small doses. Begin by monitoring the numbers we have suggested. When you are comfortable going beyond that give Dr. Blair a call.

I know that my practice became much more fun and profitable when I began to understand how to monitor what was happening in the practice. Actually, I was not doing anything different than the manager of the McDonald`s down the street from my office. He was reporting those figures to the owner of the franchise (the CEO). Shouldn`t you know at least as much as a McDonald`s CEO?

11 numbers to monitor in your practice

1) Gross production:

Monitor the gross dollar amount of the doctor`s production and the hygienist`s production each day in the practice. Keep a running tally by month, quarter and year for comparison purposes.

2) Collection:

Monitor the gross dollar amount of what you collect every day in the practice. This is an extremely important number because it tells you whether or not the practice is healthy. You should monitor where the money comes from - the front desk or the mail.

Dr. Typical receives only 35 percent of the money at the front desk; this should tell you that, even after consideration of insurance assignments, patients are leaving the office without paying. This is a problem because accounts receivable tend to be higher in these types of practices. Your accounts receivable should be less than 45 days production.

You should know what your collection rate is. In other words, what percent of what you produce is collected? Dr. T. collects 96 percent. This means that 4 percent is not collected, and Dr. T. is losing $14,400 per year. It is even worse when you consider what percent of the money collected is at risk. The 35 percent collected over the counter is not at risk, and the typical 35 to 40 percent of insurance money is not at risk. I hope I got your attention with that number because a 4 percent loss on that remaining 20 percent billed at risk is in reality a 20 percent loss rate.

3) Accounts receivable:

You must know how much money you have on the books on a daily basis, and you must carefully analyze how old your accounts are. Money that is owed for more than 60 days is a problem because it becomes difficult to collect. Accounts receivable should be less than one month`s production. To control this, call early instead of sending a series of collection letters.

4) New patients:

You should monitor how many new patients enter the practice per month. You should know, on average, how much that new patient is worth to the practice. This will give you an idea of how much you can spend to attract new patients to the practice. This is often referred to as the "front door" of the practice and can give an early "warning" if you don`t have enough new patient flow. You need to monitor the number of patients leaving the practice ("the back door") so that you know if you had a net gain or loss.

It is important to do an exit interview to determine why these patients are leaving the practice. This can give you an early indication of problems within the practice. Most businesses do a lot of customer surveys to get a better understanding of what their customers expect.

5) Dentistry presented:

You must monitor the dollar amount of the dentistry presented by the doctor and the dollar amount presented by the hygiene department for recare patients.

6) Dentistry accepted:

Monitor the amount of dentistry accepted. This should be defined as dentistry appointed and completed. These two numbers will tell you how much you must present in order to maintain your production at current levels and how much dentistry is rejected.

7) Broken appointments:

Many times patients will book an appointment as a way of getting out of the office. They have no intention of keeping the appointment and will either cancel or not show up. A typical practice can lose $30,000 to $40,000 per year through appointments that are broken and not rescheduled. Do not prebook the "C" patient in hygiene; let them call you when they are ready (they will break a hygiene appointment in a heartbeat).

8) Doctor production per hour:

This is one of the most important numbers in the practice, but it is not commonly monitored. This number provides an accurate picture of how the doctor`s time is spent. Use the following formula to calculate: Doctor production per hour equals total doctor production divided by the total hours worked. It is important for this figure to be increasing continually, especially with fee increases.

9) Doctor dollars per visit:

Divide the total doctor productivity by total doctor visits (exclude hygiene checks by the doctor). The goal is a high hourly production plus high average dollars per visit. I may have a $300 per hour production on 20 patients while you could be doing the same hourly production on five patients.

10) Hygiene production per hour:

Here`s another extremely important number that is not commonly monitored. With this number, it is easy to determine if your hygiene department is operating at a profit or as a loss leader.

11) Hygiene dollars per visit:

Use the same formula as the doctor. You can achieve a higher hygiene dollar per visit by improving the hygiene service mix, such as periodontal services, sealants and whitening.

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