Roger P. Levin, DDS, MBA
Our consulting group has experienced many different client situations through its work with more than 575 practices annually. One situation that is becoming more common is when a practice seeks to eliminate all dependence on dental insurance. The best business approach demands a thorough analysis of the impact of such a decision before implementing changes. To achieve this, answer questions such as:
• What percentage of your patients has dental insurance?
• In which plans is the practice participating?
• What production percentage does each plan contribute to the practice?
• What percentage of profit comes from patients with insurance?
The following case study is representative of a practice insurance scenario we have seen a number of times and serves as a cautionary note to doctors.
Situation analysis
A 47-year-old general dentist attended a cosmetic dental seminar and became convinced that he should immediately eliminate all dental insurance. The following Monday, he implemented this decision. As a result, the practice dropped from $845,000 in gross annual revenue to below $480,000. The dentist was no longer able to take a salary and was gravely concerned about the future of the practice. He presented to Levin Group in dire straits, seeking to remedy his situation.
Analyst's findings
1 The doctor had eliminated 55 percent of practice revenues from insurance patients by eliminating all dental insurance in one single day.
2 Over the next six months, the practice suffered a dramatic drop in gross revenues because more than 94 percent of the patients with dental insurance left the practice.
3 The doctor had not performed any analysis to determine the impact of insurance on practice production, collections, and profitability.
4 The doctor had already released two staff members in an attempt to control expenses, but fixed overhead was high. At the original collection level of $845,000, overhead was approximately 69 percent, which is 9 percent higher than we recommend. Overhead reached 118 percent when practice collections dropped dramatically; the practice lost money as a result.
We made the following recommendations:
• Four of the better paying insurance programs previously eliminated were reinstated. Analysis indicated that approximately 35 percent of practice production had come from these higher-paying insurance plans.
• The doctor purchased the patient base of a retiring dentist in his community. One of our transition services attorneys determined that the new-patient base alone would provide a 500 percent return on this investment in less than three years, assuming at least a 50 percent patient retention. Normally, 70 percent of patients are retained in this type of purchase.
• The doctor enhanced his comprehensive diagnosis and case presentation skills so as to increase services and revenues per patient statistics.
• A letter was sent to all insurance patients letting them know which plans would be accepted, giving those who had left the practice unwillingly an opportunity to return.
Results
Over a 12-month period, this practice increased production from $480,000 to $670,000 by implementing the recommended solutions. Now in the second year of the program, this practice is on track to exceed $750,000 and is projected to reach its original production numbers in the third year.
This doctor made a knee-jerk decision that affected 55 percent of his revenue. It is critical to make major decisions for your practice based on analysis and expert guidance. A decision to simply eliminate an area such as dental insurance is significant and can have severe consequences. This practice was on a track to hit bankruptcy if the doctor had not been willing to make immediate alterations to the initial insurance decision.
Roger P. Levin, DDS, MBA, is founder and CEO of Levin Group, Inc., the leading dental management consulting firm specializing in implementing documented business systems into dental practices. Levin Group is dedicated to improving the lives of dentists through proven dental practice management and marketing consulting programs that help practices reach higher levels of success and profitability. Levin Group can be contacted at (888) 973-0000 or at www.levingroup.com.
