by Bill Blatchford, DDS
Dentists’ overhead has increased from 45 percent 30 years ago to an average of 75 percent today. Your net return is squeezed to 25 percent or less. Net income for dentists has been cut in half as a percentage of doing business. What are some viable solutions?
Dentists bought into the insurance programs in the early 1970s when we agreed to accept their fees. Thus, our fees have eroded as other expenses have continued to rise with inflation. There is something wrong in a practice when the dentist continues to treat patients from certain insurance plans, all the while worrying about the cost of the laboratory procedure and materials for the patient. If we have to compromise our standards to treat patients for low fees, why do we continue on this path?
To encourage you to make a decision to increase fees, you need to know your practice’s numbers. Many dentists do not know their overhead per hour. What does it really cost you to diagnose, prepare, and deliver a single crown? In your overhead expenses, do not include extraneous items allowed by the IRS, but that have no bearing on cost analysis of your treatment. Examples would be a car, continuing education in Hawaii, or paying $90,000 cash for a piece of equipment.
To properly figure overhead per hour, you need to amortize an item over its life and use that monthly figure. When you have a figure that could be in the $250 per hour range, share it with your team. For example, compare your overhead to produce a crown to your collection amount for that patient. Will you be surprised? If you already know it isn’t that great, why do you continue?
An extremely useful spreadsheet to help you determine who is purchasing the most and the least is the 80/20 Pareto Principle. Knowing who is on which list during the last 12 months helps you make sound marketing and financial decisions such as raising your fees, which laboratories to use, and which continuing education classes to take. Even if your computer software will not do this automatically, the 80/20 spreadsheet is so valuable and easy, you can do it by hand.
As you list your patients, also list their insurance company or plan. The group of patients creating 80 percent of your income should represent about 20 percent of your patient base. Study the top 20 percent and try to replicate these. Next, study the bottom 20 percent, because you actually lose about 10 percent on this segment. Who are these patients? What treatments do they accept? How much time and energy do you spend keeping these patients in your recare program? As you look at your overhead per hour in producing treatment, are you making any money on these patients?
Of course, the leader’s vision comes into play here, and if you are fully knowledgeable about your numbers and believe you are making a conscious choice to continue to serve the patients on this plan and not compromise by choosing a less expensive lab or cutting corners, then proceed with our admiration. If you feel like you are a victim, do something about it now.
Some doctors charge far below the norm for their treatment. We see denture fees trying to compete with denturists for $1,000 a unit. If your stated fee for a unit of dentistry is $750 and you are accepting $500 from a plan, your overhead per hour is $250. If it takes two hours and 15 minutes of treatment time, this is not good.
I find it fascinating that many doctors charge the same fee for a veneer as their accepted unit fee by insurance. Veneers are not even covered by insurance. If you are skilled with artistry and use an excellent lab, you must charge in the $1,200 range for your veneers. Why would anyone think your veneers had value if you charge $980 and someone else charges $1,350? Which dentist would produce a better result? If you are the best in your area, your fees should reflect it.The bottom line is, raise your fees frequently and justly on the items that make a difference, such as crown and bridge, dentures, and veneers. Do not treat patients if you feel you must send the work to a less expensive lab and compromise on the materials to make it work. Do your best and be compensated justly. The right patients will see the value in your work.
Dr. Bill Blatchford is a leading dental business coach who has worked with more than 2,000 offices to help dentists achieve more time off, more net, and more enjoyment. Become a member of Blatchford FILES, Dr. Blatchford’s monthly CD on winning at dental business. The first two months are free. Call (541) 389-9088 or visit www.blatchford.com for more information.