Making an Impact

The CEREC is the most expensive piece of technology in dentistry today. Could it possibly be cost-effective and a smart fit for your practice? The answer may surprise you.

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The CEREC is the most expensive piece of technology in dentistry today. Could it possibly be cost-effective and a smart fit for your practice? The answer may surprise you.

Charles Blair, DDS, and

Mason A. Blair

Could the most expensive technology in dentistry (costing between $70,000 and $90,000) be cost-effective and business-wise? Read on, you may be surprised!

Technology and computerization are moving forward unrelentingly into the dental profession. The successful practitioner must decide specifically which piece of high-tech equipment will be a cost-effective investment for his or her practice, considering the following factors: increased productivity, cost, stress reduction, customer service, quality, return on investment (ROI), and ease of use. The most important aspects of purchasing high-tech equipment should first be the overall benefit to the patient, followed by the effect to the practice`s bottom line, improved doctor efficiency, and maintaining pace with new treatment options and advanced technology.

The CEREC in-house lab is an unparalleled breakthrough in dental technology. This technology was first introduced to the United States in 1987, and the CEREC 3 model debuted earlier this year.

This unique in-house lab fabricates ceramic restorations for inlays, onlays, crowns, and veneers chairside, or in the doctor`s lab. The CEREC enables the dentist to produce milled ceramic restorations - which are metal-free and biocompatible - without impressions, temporaries, or fabrication assistance from an outside lab in one single appointment. The homogenous ceramic block is produced in a controlled manufacturing environment, which results in uniform and consistent quality of the material. Many clinical studies have shown the favorable longevity, characteristics, and fit of CEREC restorations.

Three major components make up the CAD/CAM (computer aided design/computer assisted manufacturing) technology - an infrared camera for imaging the preparation, a computer hardware and software system, and a three-dimensional milling machine. The new modular units are compact, self-contained, and mobile for multi-operatory use, making them ideal for both the solo and group practice.

While a multitude of articles have been published over the years on clinical studies of CEREC, very little information is available on the business aspects and economics of this technology. This article addresses the cost-effectiveness of CEREC to assist the dentist in making a wise purchasing decision.

Business impacts of CAD/CAM technology

The incorporation of CEREC into the practice affects four major business areas - patient impact, practice economics, marketing, and the effect on doctor/staff as to growth, renewal, and morale. This clinical technology also requires thought and training in both the practice-management and business areas.

Patient impact

The major advantage of the CEREC system to the patient is obvious - the single appointment. This is especially appealing to today`s busy patients, many of whom come from dual-income families and juggle busy routines with very little leisure time. This technology does not require impressions or temporaries, which spares the patient possible sensitivity and any bite shift, loosening, or possibility of a lost temporary while awaiting the final restoration.

Since the entire process is completed in one appointment and fully controlled by the doctor, lab remakes and additional appointments are eliminated in most situations. While full-crown coverage is available, the more conservative CEREC inlay, onlay, and 3/4 crown restoration conserves natural tooth structure. Aesthetically, there is no contest between ceramic and amalgam, a common alternative. Patients appreciate the durability and longevity of these conservative restorations, but most importantly, patients appreciate the convenience and appearance.

Economic overview

CEREC`s economic impact is multi-faceted. First, cash flow accelerates when some of the current operative (amalgams and composites) units are converted to onlays and crowns. This creates higher revenues per patient visit and higher dollars per hour, which produces more income with lower patient flow. Secondly, the "one appointment scenario" eliminates the possibility of a broken second appointment, extra bookkeeping, and confirmation of the second appointment. Eliminating the second visit results in a considerable savings of time and money, due to less OSHA setup and associated clinical time. In addition, the extra time saved can be utilized for additional production. Finally, current lab bills are eliminated for inlays, onlays, and crowns converted to CEREC restorations.

Marketing impact

Successful integration of the CEREC CAD/CAM technology into the practice includes selective internal and external advertising, patient education, increased use of an intraoral camera, and staff communications.

Suggestions for internal advertising include brochures, signs, before-and-after photo books, on-hold phone messages, and announcement letters to patients. External promotions could include newspaper articles, as well as advertisements in the Yellow Pages and on radio and television. Many CEREC owners have received free publicity from the media, which highlights the convenience of one appointment and the uniqueness of CAD/CAM technology.

An enhanced marketing image is a significant benefit derived from implementing this technology into the practice. Patients perceive a practice with this type of high-tech equipment as "leading-edge" and "up-to-date." This positive image will help generate a higher quality of patients through first-, second-, and third-generation referrals. CEREC patients will tell others of their esthetic, high-tech, one-appointment experience. In a nutshell, the single-appointment protocol and esthetic results prove highly advantageous for the practice through satisfied word-of-mouth patient referrals. If a CEREC restoration is not indicated for the referred patient, then extra cash flow will be generated from the non-CEREC dentistry performed.

There is a market demand for cosmetic/esthetic dentistry and a segment of the population is willing to pay a fair fee to receive cosmetically appealing, long-lasting treatment. Attraction of additional higher-income, full-fee patients to the practice is an added bonus since those who demand the best available alternative provide more discretionary patient income for the practice. Thus, higher new patient flow, expansion of available services, and increased treatment-acceptance rate reduces exposure to the insurance dependent and/or discounted-fee, managed-care practice.

Doctor/staff renewal and growth

Incorporating an in-house lab system in the practice also has distinct advantages for the doctor and staff. CEREC is best suited for the doctor who is interested in high-tech, desires a new clinical challenge, maintains a leading-edge practice, and enjoys the responsibility and sense of accomplishment in design and control of his or her own "handiwork." Many users enjoy the challenge of the creative process. They are excited and rejuvenated by the variation from their daily routine. Additionally, the doctor is exposed to members of leading-edge peer groups, who are also using and striving to perfect their techniques with CEREC.

Through utilization of an intraoral camera, the hygienist has the opportunity to identify prospective CEREC patients and educate them about the benefits. A unique opportunity exists for the clinical assistant who is looking for a new challenge and increased job satisfaction.

Many doctors choose to expand their chairside assistant`s duties to include handling of certain steps in the design and milling process. The receptionist also finds greater challenges by supporting the communication from the clinical staff, as well as handling financial and insurance matters for patients desiring these restorations. The entire staff, with a positive attitude towards CEREC, will benefit through this continued professional challenge and growth.

Insurance issues

Indirect and direct composite and ceramic restorations have proven to be not only functional, but also esthetically superior for posterior teeth. However, as a general rule, insurance companies continue to reimburse these procedures on an "amalgam" basis. The economic decision by insurance companies is not based on what is best for the patient clinically or esthetically.

Communication of insurance matters for CAD/CAM restorations is critical. In order to file insurance efficiently, the doctor and administrative assistant must develop appropriate insurance narratives applicable to these restorations. In most cases, ceramic onlays and crowns are covered with appropriate documentation.

Patient education as to the uniqueness and benefits of CEREC should be discussed chairside by the doctor and staff. The intraoral camera and CEREC go hand-in-hand. Use of the intraoral camera drives the point home.

With the intraoral camera, the doctor should take photographs to accompany the insurance claim and X-rays, along with an in-depth narrative to build a strong case for reimbursement. Explaining to patients that insurance coverage is merely supplemental, and explaining that the longer-lasting treatment is worth the extra out-of-pocket expense will counter most concerns.

Understanding these dilemmas and indoctrinating the practice to proper insurance protocol of codes and narratives for justification will lessen the continual battle between the practice, patient, and insurance company.

Fee strategies and patient financing

The dentist should charge a fee based on care, skill, judgment, overhead, and expected revenues per hour. Fees for multi-surface onlays and ceramic crowns should exceed (or at least be equal to) routine crown and bridge fees. Anterior restorations (particularly a single unit), which require extra consideration for esthetics, should carry a surcharge above the customary single-unit fee. Fees should be based on these operating criteria and specific zip code percentiles.

Practice fees are rarely aligned and consistent at a given percentile. One of the authors, a "revenue enhancement" consultant, has worked with more than 700 practices establishing fee profiles, practice protocols, and service mix strategies. Most of the consultations (95 percent) resulted in increased cash flows that would pay for a CEREC! They were leaving $100 to $500 a day "on the table."

Terms like "above the usual and customary" send a message to the patient that doctor fees are too high when, in reality, UCR varies from company to company, and is based on the premium level paid by the employer. It is the responsibility of the practice to educate the patient that insurance reimbursement and coverage relates to policy coverage and fee-level reimbursement bought by their employer for their employees. There is no universal UCR!

Dentistry is discretionary. It`s a given that easy patient financing should be offered, and even more importantly to do so with higher fee profiles. Generally, outsourcing to a third-party financing company is best, with affordable monthly payments. Companies such as Care Credit, American General, and Wells Fargo Financial (formerly Norwest) offer zero-interest patient financing up to one year. For longer term financing (five to six years), Dentists Fee Plan offers up to $25,000 patient financing.

Break-even economics

Many doctors are "cost-based" rather than "revenue-savvy." They immediately focus on the purchase price of CEREC rather than the increased revenues and the direct reduction to their present lab bill.

The CEREC system is leased for about $1,900 per month on an amortized cost basis over six to seven years. The supplies, including burs, materials, and ceramic blocks run about $25 per unit milled. Thus, the break-even point is between eight to 20 units per month, depending on current lab expense per unit and the nine other factors as outlined in more detail later. With adequate unit count, the CEREC literally pays for itself, and makes money with volume. The following simplified example does not take into consideration the additional factors mentioned later in this article. As noted, the reduction of 20 units of lab expense offsets the CEREC expense of 20 units - a break-even point. This is a simplified approach, considering a direct "swap" of lab dollars.

Fear of obsolescence

Overhead expense for today`s general practitioner is 60-65 percent. The average dental practice grosses approximately $450,000 with an associated annual lab bill of $36,000 (approximately 8 percent variable cost, if routinely presenting crown and bridge). One way or the other, be it outside or inside lab cost, all GP practices incur a continuing lab expense.

Lab expense is lost forever, just as supplies and labor costs are expended in the daily production of dentistry. Some doctors will mistakenly view CEREC as a capital expenditure when, in fact, it should be viewed as a current, amortized in-house lab cost. Since the CEREC unit has some residual value, it is not a total loss, as is a recurring lab bill. If a doctor opts to obtain the CEREC CAD/CAM through leasing options, he or she is simply obligating the practice for a future monthly lab bill, which would be incurred regardless of the CEREC purchase (a fixed expense).

CEREC may be the only technology in dentistry that does not increase overhead, assuming adequate unit volume. The doctor is simply swapping dollars that he or she would have paid otherwise to an outside lab for the CEREC payment. With volume, the CEREC will make money as the variable cost (discussed later) is about $25 per unit.

Obsolescence is a natural fear when looking strictly at the price tag of the CEREC. It is a state of mind, not a reality. A product does not become obsolete if it still does what it was intended to do. The obsolescence of the equipment should not be considered a purchase barrier with adequate use over its useful, productive life.

When a CEREC component or unit is upgraded or discarded, the cost is determined by the units produced over the period of time owned, divided into the sum of payments. The payments are "toss away" amortized lab bills comparable to outside lab bills.

Review the following example illustrating this concept:

Assume a CEREC purchase price of $80,000, financed over six years at 10 percent interest. Also assume the practice averages 25 units per month over the six-year period. In addition, assume the CEREC is totally obsolete with zero value at the end of these six years. Let`s look at the math.

Unit cost over life = total payments

$80,000 at 10 percent = $106,709 = $59/unit

Unit cost over life of CEREC................$59/unit

Cost of expendables*........................$25/unit

Total cost per unit over life of machine....$84/unit

* burs, ceramic blocks, powder, etc.

The example above shows that the doctor paid $59 per unit for the use of the machine, plus $25 per unit for expendables, for a total of $84 per unit. As illustrated, obsolescence or low residual value doesn`t matter, since after paying thousands to an outside lab over a period of years - you have nothing left to show for the lab cost, either.

Learning curve

This technology requires an absolute commitment on the part of the doctor to design and mill the first 50-75 units during what we call "the comfort period." It is like learning to play a musical instrument - practice, practice, practice. The clinical skill set of the doctor and assistant improves with each successive restoration. Initial restorations should be simple (inlays) performed on staff/family, and booked with plenty of time, so as not to stress doctor or staff. More complex restorations (onlays and crowns) can be tackled with experience. Talented practitioners produce onlay and crown restorations in an hour or less, while others take longer. Doctors currently performing adhesive dentistry (direct and/or indirect) restorations are a "leg up" on this learning curve.

In addition, lease options are available which have no or low payments the first six months. These options remove the financial pressure to produce during the comfort period. Thus, the doctor can concentrate on producing the initial units in a stress-free clinical and financial environment.

Tax write-offs, financing matters, and purchase timing

It`s important to consider several tax advantages which effectively reduce the after-tax purchase or lease of CEREC.

For purchases, both an expense election and an accelerated write-off are available. Section 179 provides a $20,000 expensing election for equipment purchases in 2000. The cost of dental equipment and technology which exceeds the Section 179 limit may be written off over an accelerated five-year depreciation schedule.

Certain high-tech equipment purchases qualify for this five-year write-off, including the CEREC in-house lab system. Section 168(I) of the Internal Revenue Code specifically states that "qualified technological equipment" can be written off over a five-year period of time. This section defines "qualified technological equipment" as including any high-tech equipment used in the screening, monitoring, observation, diagnosis, or treatment of patients in a laboratory, dental, or hospital environment. Non-qualifying equipment is depreciated over a regular seven-year period of time.

On the other hand, a "true lease" can be expensed by the amount of the monthly lease payment. The true lease approach incurs a "buyout" at the end of the term (commonly 10 percent of the purchase price), as the leasing company keeps title to the equipment.

The after-tax cost is greatly reduced by the tax writeoffs as outlined, which heavily subsidize the purchase of this technology.

Leasing companies offer more flexible payment schedules than banks. These companies offer terms that can coincide with the learning curve and accelerating cash flow. Easy financing is available from multiple leasing companies for any dentist with a decent credit history.

Since elimination of current lab bills and increased cash flow funds the purchase, the timing of other equipment purchases or moving to a new office is immaterial. CEREC does not increase overhead, assuming adequate unit volume.

Conclusion

Careful consideration should be given to any investment in technology, and a CEREC purchase is no exception. Criteria to consider include practice implementation, staff acceptance, required learning curve, and positive cost-effectiveness. A commitment to educate the patient, office personnel, clinical assistant, doctor, and hygiene department to the CEREC CAD/CAM technology must become a primary goal of the practice in order to achieve optimal success. The proper integration of the CAD/CAM technology into a practice is both challenging and comprehensive from both a clinical and practice-management perspective.

The practice that is focused on patient satisfaction and meets the needed criteria for implementation of the CEREC CAD/CAM system can expect to reap great benefits and rewards (both tangible and intangible) from the purchase and implementation of this sophisticated dental technology. As the old saying goes, "You get what you pay for."

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In a nutshell, the single appointment protocol and esthetic results prove highly advantageous for the practice through satisfied word-of-mouth patient referrals.

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Patient education as to the uniqueness and benefits of cerec should be discussed chairside by the doctor and staff.

Ten cash flow factors

In order to see the "big picture" of the business aspects of CEREC, 10 economic examples are listed. Each example is an illustration of a business factor. They significantly affect overall CEREC "economics" but can be difficult to quantify without practice specifics. These examples assume a practice produces 40 CEREC units a month, for illustration purposes.

(1) CEREC "profit" over lab when CEREC unit volume exceeds the break-even point:

40 units at $120 per unit normally paid to an outside lab.........$4,800

CEREC lease payment per month.....................................<1,900>

Burs and blocks (40 units @ $25 each).............................<1,000>

CEREC "profit" over lab...........................................$1,900 per month

or $22,800 per year

savings in lab bills

(2) Operative to CEREC conversion:

24 units x ($600 CEREC - $168 composite) = 24 x $432 =............$10,368 extra cash flow

24 units x $25 consumable expense.................................<600> CEREC variable cost

$9,768 excess cash flow

Assume the practice more aggressively "sells" CEREC units vs. operative. Assume only two current units per month of three surface composites is converted to CEREC restorations. Assume the CEREC lease payment is already covered.

(3) Elimination of second appointment (broken appointment):

$125 per hour x 10 broken appointments............................$1,250

(recaptured through elimination of broken appointments at second visit)

Assume 10 broken second appointments a year with $125/per half-hour cost.

(4) Elimination of second appointment (operatory setup/OSHA expense):

480 appointments per year x $25 per OSHA turnaround...............$12,000 OSHA savings

at 40 CEREC units per month per year

Assume 40 CEREC units per month (inlay, onlay, crown, veneer). Assume $25 per OSHA operatory turn-around (materials, labor).

(5) Elimination of second appointment (front-desk administration):

480 appointments per year x $10 administrative expense per visit..$4,800 per year

Assume 40 CEREC units per month. Assume $10 per administrative costs per visit (meet, greet, confirm appointment, file insurance).

(6) Marketing (new patients attracted to CEREC):

$600 CEREC fee x 24 additional units per year.....................$14,400 increased revenues per year with two extra CEREC units per month

Assume CEREC will attract only two (2) CEREC units per month, marketing-wise. This does not include additional non-CEREC dentistry attracted.

(7) Higher fee profile (percentile):

$450,000 x 3 percent increase in fees............................$13,500 higher fee profile

The practice is busier with CEREC and demand for services; therefore charge higher fees for all other services.

(8) Stay out of, reduce, or eliminate managed care:

Assume this practice participates in a discounted fee plan for $20,000 production per year. The doctor takes a 20-percent discount off his or her regular fee.

$20,000 discounted plan revenues - $4,000 discounted fee at 20 percent.....$16,000 net fee from plan

Eliminate a $20,000 discounted plan at 20-percent fee discount: $4,000 more cash-flow accrues. CEREC adds busyness and additional patients to allow elimination of a discounted managed-care plan.

(9) CEREC raises overall doctor productivity:

Purchasing a CEREC results in both higher dollars per hour and higher dollars per visit. This is a positive factor, but is not quantified as it varies with each practice.

(10) CEREC gains extra time for additional productivity:

Eliminating the second appointment yields time for extra production. An extra 10 or 15 minutes can be very significant on an annual basis. This is a positive factor but is not quantified as it will vary with operator`s clinical speed in the single-appointment format.

Example: Assume the doctor pays $120 per unit lab cost and 20 of the existing units a month are converted to CEREC. Further assume that the monthly lease payment is $1,900 and the expendables are $25 per unit.

20 units at $120 per unit normally paid to an outside lab........$2,400

CEREC lease payment per month....................................<1,900>

Burs and blocks (20 units at $25 each)............................<500>

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CEREC cost vs. outside lab.........................................$0

Summary of added cash-flows from examples (from previous page)

(1) CEREC "profit" from cutting lab expense...........................$22,800

(2) Operative to CEREC conversion......................................$4,584

(3) Broken appointment elimination.....................................$1,250

(4) Operatory setup/OSHA elimination..................................$12,000

(5) Front desk administration cost elimination.........................$4,800

(6) Marketing (extra CEREC/other business) bonus......................$14,400

(7) Higher fee profile (3 percent)....................................$13,500

(8) Elimination of $20,000 managed-care plan with 20 percent...........$4,000 discount

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Total cash flows......................................................$77,334

Note: No calculation is offered for the higher dollar per hour and higher dollar per visit which accrues the CEREC practice in example #9. In addition, no calculation is offered for the additional production through the elimination of the second appointment in example #10 (below). The sum of the added cash flow ($77,334) illustrates the value of the combined business aspects of CEREC for examples 1-8, inclusively.

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