Strategic fee positioning and checkpoints for your practice

Feb. 1, 2013
For many years, dentists could practice as they pleased, even inefficiently, yet still be profitable.

by Charles Blair, DDS, and Trip Blair, MBA

For many years, dentists could practice as they pleased, even inefficiently, yet still be profitable. We've operated as a cottage industry even though many have had lackadaisical attitudes toward the business side of dentistry. Conditions have changed dramatically. Dentists are under assault by PPOs and face the rapid growth of both corporate dental practices and traditional multidoctor practices. About 80% of dental plans sold are PPOs, and more than four out of five dentists are in network, participating in at least one PPO plan. Within 10 to 12 years, many suggest dental corporations will control 20% to 25% of the marketplace. Emerging "dentist entrepreneurs" will own and operate two to five local locations. Small partnerships (two to three doctors) will increase significantly as the profession moves to the multidoctor business model in order to compete in the future dental environment.

Some Delta Dental plans are now lowering fees, while others are requiring new providers to join the lower-fee Delta PPO Network as a prerequisite to becoming a Delta Premier Provider. When the new buyer must participate in the lower-fee Delta PPO network, practice values have dropped. For 25 years I had taught dentists to stay out of PPOs, market internally, and raise their fees 5% per year, and this business model led to success. That formula, for the vast majority of dentists, no longer works.

When you underprice your fees, you're at risk for leaving money on the table. Remember, fees are always "high" in the patient's eyes. Even so, fees should be raised at least annually -- even if just a small percentage. For the last several years, dentists have been reluctant to raise their fees. A 1.5% raise was common and PPOs followed suit. Regardless of the past, in most practices, fees need to be rebalanced. Just what is rebalancing and why is it important?

Rebalancing is adjusting the lower fees upward while increasing higher fees at a more modest rate. The desired result is a fee schedule that is balanced with the existing "usual and customary" rate. If fees are very low, it may take several small increases over several years to reach proper alignment to prevent "sticker shock" to the patients. To make the necessary adjustments, accurate fee data is required.

Adding to the fee adjustment, patient attitudes and disposable income are changing. The consumer is more skeptical, and more coupon and discount oriented. Many patients have lost their jobs, their dental insurance, and if they're lucky enough to find another job, many take a pay cut. Some patients search the Internet for fee information. Fairhealthconsumer.org, a public consumer website, provides fee data by zip code and percentile at no charge, but the terms and conditions for use of the website prohibit dentists and consultants from wholesale use of the data (for instance, accessing multiple fees).

So a consumer may say, "Dr. Smith, your crown fee is too high. I checked the Fair Health website and you're at the 95th percentile." The trend is toward fee transparency, and the day will come when dentists will post fees publicly.

Dental corporations are methodical in their fee positioning. First, they set an affordable fee for the public, setting that fee just a little higher than the majority of dentists in the area. Second, they negotiate with PPOs and are often able to arrange a higher fee than the practice down the street (who may not bother to or know they could negotiate). With PPOs, it is important to negotiate your PPO fee schedule prior to joining. Your ability to negotiate depends on the network needs of the PPO. If they want to grow their network in a particular area to prevent gaps in coverage, they will be more liable to negotiate. If not, there is little wiggle room, and worse yet, the network might be closed to new doctors.

On average, dentists are successful with their fee negotiations about one third of the time. August is a good month to begin to renegotiate your fees, when PPO administrators are not as busy. In some cases you're permitted to raise the fees of 10 procedures of your choosing several percent above the norm. To determine which fees you should target, run an office printout by procedure category and choose the top 10 procedures with the highest dollar productions.

About half the population does not have dental insurance. Some practices (particularly dental corporations) have established in-house discount plans for patients without insurance. This is not a dental insurance plan, nor does the state's insurance commissioner control it. The practice sells an annual discount plan that includes two flat-rate recall visits a year. Typically, the in-house discount plan is fixed at about 80% of the full-fee schedule. Adult fluoride or tooth whitening is included in some discount plans. If the patient requires additional treatment, then a flat discount of 15% to 20% is offered.

Another option is to negotiate with local businesses and offer their employees a free "discount card." The employee would have the dental work performed and then present the discount card at checkout to receive a 10% to 15% courtesy. Another option is that the business could purchase the basic recall package at the discounted fee, and then the employee would pay out of pocket, on a discounted basis, for any additional treatment. QDP (qualitydentalplan.com) offers a consulting service to establish these discount plans.

Another strategy yielding 85% to 90% of your full fee is to enter into a discount arrangement (not actually join the PPO network), and offer a straight discount to a network's patient base. For instance, Cigna has an arrangement where the dentist is not in-network, but offers Cigna patients a special discount from the practice's full, unrestricted fee schedule. This can generate new patients without being a part of the typical 35% discount associated with participation with the traditional PPO -- at a third of the cost. In addition, a 10% to 15% discount could be offered to certain patients in cases where you're unwilling to join their low-fee PPO but want to retain or market to employees of a specific employer. This works especially well when the out-of-pocket network reimbursements are robust.

PPO fees are only entered into the practice management system to compute "patient responsibility." The PPO's UCR fee should never be submitted on the claim. Always enter your full fee. Entering an old PPO fee, after the PPO has raised its fee schedule, means you would not benefit from the increase. Another reason to have a full, rebalanced fee schedule is that when a husband and wife have two plans, the practice may receive its full fee. When secondary insurance benefits coordinate with primary, the practice can receive up to the full fee.

To conclude, the shift to lower PPO fees mandates that dentists increase efficiency and productivity at least 20% in order to make the same income. More than ever, proper coding, fee alignment, and correct insurance administration should be monitored to increase your bottom line and remain viable in the future. With all the change confronting our profession, dentists must appreciate the urgency associated with the business aspect of dentistry, and must address the subject of fees as well as the other business systems in the practice in order to reap the benefits of our cottage industry.

Charles Blair, DDS, publishes several coding resources, including the Coding with Confidence manual, Insurance Solutions Newsletter, and the online resource www.practicebooster.com. Trip Blair, MBA, is an analyst for Dr. Charles Blair and Associates, Inc. He consults with dentists on Clinical Treatment Intensity and Procedure Mix. To learn more, email [email protected]. For further information on publications and consulting services, visit www.practicebooster.com, call 866-858-7596, or email [email protected].

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