Shedding new light on the 2004 practice survey
This year we looked at survey data in a different light, focusing on five categories by the size of the service area.
by Rick Willeford, MBA, CPA, CFP
The Dental Economics practice survey has been expanded in a number of exciting ways. We hope you find it useful as you evaluate the various aspects of your practice. The expanded survey addresses the following areas:
1) Salary and Wages
2) Production and Collections
3) Fringe Benefits
5) Selected Fees
This survey is based on approximately 1,000 usable responses, collected between direct replies to the Dental Economics questionnaire and input from clients of the Academy of Dental CPAs. In the past, we presented the data by region, but it appears it may be more reliable to look at the size of the area served by a practice instead. As the size of the database (and our budget of time, money, and space) grows, we may have enough data to be statistically significant to slice and dice the data both by region and size of service area.
We came up with four, admittedly arbitrary, categories of service area:
1) Major City/Urban
2) Large Town/Suburbs
3) Medium-Size Town
4) Small Town/Rural
Needless to say, "major city" means something totally different in New York and Kansas, but you can use the percentiles accordingly.
We have highlighted the 50 percent percentile in each category. Remember, this is the "median," not the "average" or "mean." One half of the responses were below this figure and one half were above this figure. If you used an average, then a practice with a huge staff or very high production would skew the figures upward. (Even so, we did throw out abnormally low or abnormally high figures as outliers.)
Salary and wages
This is the area where we expanded the detail the most, since this is the single largest overhead category ... and, sometimes, the most contentious. Dentists constantly strive to strike a balance between what the office can afford to pay and what the staff deserves to be paid.
The results are shown as effective hourly figures per hour worked, and do not include any fringe benefits. For instance, if a person is paid $400 per week, but only works four days (32 hours), then that person's effective pay is $400/32 = $12.50 per hour. The experience level is meant to indicate an individual's overall experience, not just time in the current office. So, a person who just started with an office, but who has seven years of experience, should be included in the 5-10 Year category.
There are a few anomalies, even after double-checking our figures. For instance, under Hygienist-Medium Town, the wages actually go down in the 50 percent percentile as experience increases! Even though there were about 250 responses in the Medium Town category (presumably enough to be statistically significant), this reminds us not to put blind faith in surveys! We only had about 100 total responses under all four areas for hygiene assistants, so there is a lot of variation in those figures. Unfortunately, we did not have enough responses to create a separate category for Certified Dental Technicians/Assistants to be reliable.
Before any staff members beat up the doctor with some of these wage figures (or some of you doctors beat up on the staff!), remember one important point: You can't look at an individual's wages in isolation! You also have to consider if the practice has the right number of staff, and if the staff is producing at the appropriate level to support the overall wages. These are discussed further under the production section.
Production and collections
Most of these figures are calculated on a "per producer" basis, so you can better compare a solo practice doing $500,000 in production with a practice of four doctors doing $2,000,000. Keep this in mind if you are trying to do some cross-calculations of number of staff versus production, because you have to back into an estimated total production figure by accounting for the number of producers.
The total compensation is shown per each owner doctor and associate doctor. Unlike the hourly wages for staff, this figure does include all fringe benefits, retirement plans, etc., for the doctor. Interestingly, at the 50th percentile, there was not a huge variation among the total compensation for either the owner doctors or the associate doctors across the four demographic categories. However, the associates at the 90th percentile in the Large Town/Major Suburbs category have a distinct edge over the other areas.
In spite of the fact that doctor compensation in small towns equals or exceeds that of their city cousins, they are able to do it while producing less! While practices reporting an increase over the prior year outnumbered those reporting a decrease by about 6 to 1, the growth really jumped in the small towns. Notice that they are fighting less managed care, and they are not seeing that many more patients per day. As all the consultants are telling young doctors, "Get thee to the country!" (I know, I know; but let your spouse take all that money and drive to the big city for a ball game or shopping once in awhile!)
As far as the number of staff members in a practice goes, that may be predicated more by the number of patients you see than by your level of production. A very broad (and, hence, dangerous) rule of thumb would suggest that you should have one chairside person for each 12 patients the doctor sees each day, excluding hygiene. You should have about one front-desk person for each 22 patients that the doctor and hygienist see each day. You also should have about one hygiene day per week for each group of 200 active patients in the practice.
On the managed-care front, note that capitation plans are fairly insignificant. However, this may be due to the fact that some of the larger, multi-doctor practices may be less likely to participate in a survey like this in the first place. Other than at the 90th percentile, managed-care becomes less significant as the population size drops.
The number of active patients (i.e., the number of patients seen within 18 months) is about 1,500 to 2,000 at the 50th and 70th percentiles for the Major and Large Town categories. For the Medium and Small Town categories, it is about 2,000 to 2,500. This is consistent with what we tell potential buyers to expect when they are doing their due-diligence investigation on a practice they are thinking of buying. (There is a due diligence checklist under "Articles" on my Web site at www.willefordcpa.com. This is actually a handy tool for a potential seller to use to analyze his or her own practice.) The point is, you should get nervous if a solo seller tells you he or she has 5,000 active patients!
The number of months of production in accounts receivable still hovers between 1 to 1.5, as it has for years. The demographic size does not seem to affect this figure much. You may have to scratch your head for a moment on this one, but the top 30 percent of offices only have 10 percent of their outstanding receivables over 90 days old. (Since a high percentage is bad, you have to think in reverse.) The 70th percentile means that 70 percent of the offices have about 25 to 30 percent of their total accounts receivable over 90 days old. The 30th percentile only has about 10 percent in that category, or about one-third of the level of those at the 70th percentile!
Fringe benefits, technology, and selected fees
The areas of fringe benefits, technology, and selected fees seem to speak for themselves. The trends from large city to small town seems to be as expected.
We would like to thank all of you who participated in the survey. We also want to thank the Academy of Dental CPAs (www.ADCPA.org) for its continued support and input. Please participate next year, so we can make this one of the most useful surveys in the dental profession!