DE/ADCPA survey shows fees increased an average of 5.8%
Some 1,250 dentists responded to Dental Economics’ and the Academy of Dental CPAs’ 2005 survey for general dentists. About one-third of the respondents used the Internet to reply to the survey questions, while the remainder preferred filling out paper questionnaires provided by DE and the various ADCPA firms.
We manually reviewed the data, tossing out extreme outliers and typos we could not interpret. Needless to say, you have to be careful when looking at “averages.” (As one famous economist noted, “It does not mean that you can wade across a river just because the ‘average’ depth is four feet!”) We continue to prefer the “percentile” approach because that minimizes the effect of unusually high figures. While a practice producing $5 million per year would definitely pull up the “average” production for all respondents, it would not affect the 90th percentile point. So, the 50th percentile is the “median” and not the “average” (or “mean”). It means 50 percent of the responses are below the 50th percentile and 50 percent are above, regardless of how low the lowest figure is or how high the highest figure is.
Here are some observations about specific aspects of the survey results:
✦There are a limited number of responses in some specific categories, so you need to interpret these figures with caution.
✦As expected, certified chairside assistants are paid about 15 percent more than noncertified assistants.
✦Although it is a gross oversimplification, the typical owner-dentist seems to make about twice as much as the typical associate.
✦Note that production figures are shown per producer, so you can compare yourself with group practices.
✦At all levels, hygiene production ranges from 21 to 24 percent of total production. From my own experience, older practices tend to be 30 percent hygiene as the dentist often slows down. (This is known as becoming a “prophy palace,” where hygiene is not necessarily high. Instead, restorative and operative begins to decline.) On a positive note, hygiene production also approaches or exceeds 30 percent in practices that are doing a lot of perio procedures. You need to determine which case applies to you.
✦Some 78 percent of respondents reported that their production increased since last year. The range of increases is shown under the heading, “Pct. Production Increase.” Similar figures are shown for those practices with a decrease in production.
Collections and broken appointments
✦Surprisingly, town size does not seem to affect collection statistics and accounts receivable as much as I thought it would. For instance, the median collection percentage is 98 percent for all four geographic categories. Likewise, the median practice has about one month’s production in accounts receivable, regardless of town size.
✦The aging of accounts receivable is slightly more favorable in small towns, with 66 percent of receivables classified as “current.”
✦About 75 percent of practices regularly use third-party financing, regardless of town size. (Based on the positive results of using third-party financing - as noted in the ADCPA study discussed in the November issue of DE - this should not be surprising.) About the same percentage offer courtesy discounts if patients pay upfront.
✦Talking with consultants and my own clients, I do not see a high percentage of practices actually charging for broken appointments. However, more than one half of the respondents report that they do charge for missed appointments, with the rate being slightly lower in smaller towns.
✦Broken appointments for dentists and hygienists both decline as the town size becomes smaller. The reported median numbers of less than eight per month are not consistent with anecdotal evidence, where I see six to eight broken appointments per week!
✦The low number of crown and bridge units done per month, along with the related percentage of total production, seem surprisingly low. However, they do not seem entirely inconsistent with conversations I have had with the average bread-and-butter dentist, where 20 crowns per month is still a large number.
✦Even more surprising is the low number of veneers and inlays/onlays reported by the median practice, especially in this age of “cosmetic dentistry.” The “extreme makeovers” have apparently not made it to the typical practice, so you do not need to feel that you are out of the mainstream.
✦The number of planing/scaling procedures for the median practice seems quite low, given today’s emphasis on “soft-tissue management” by many consultants and speakers.
✦The number of active patients may seem lower than expected, but I have always told dentists that 1,500 to 1,800 quality active patients per dentist are plenty for most fee-for-service practices. (Truth be known, many comprehensive practices do very well with fewer than 1,000 patients.) Remember, we are defining an active patient as someone, other than an outright emergency, who has been in for treatment in the last 18 months.
✦I am surprised to see the median number of new patients is about one half of what I would prefer to see in a fee-for-service practice. This figure would be fine for a truly comprehensive practice that likes to spend an hour and a half for each new patient evaluation.
✦The number of patient visits per day seems consistent with typical practices and doesn’t vary much with town size.
✦Notice the typical staff complement is 1.5 hygienists, two chairside assistants, and one to two business staff members. The vast majority of practices are still solo operations, and this does not vary much by location size.
✦Only about one-third of the large city/town practices have associates, but that percentage increases as the town size decreases. Even so, the typical practice only has one associate, if it has one at all.
✦The vast majority of associates are treated as employees as opposed to independent contractors. It is a shame that so many practices - and their CPAs - have rolled over in the face of the IRS and taken the easy way out. There are many advantages to the host and to the associate if the associate can be an independent contractor. Talk with a dental CPA who is familiar with the exceptions and possible safe-harbor provisions in this area.
✦It is interesting to note that a majority of respondents appear not to pay their associates on a commission basis. Smaller towns appear to pay based on commission more than the larger towns. Personally, I prefer to see associates paid with a commission-based compensation system, which is essentially how the owner is rewarded ... and paid.
✦Of those who do pay a commission, the vast majority base it on collections instead of production. Most hosts feel “if they haven’t collected it, they aren’t going to pay it.” However, if collections are indeed 98 percent, then there does not seem to be much risk in paying the associate based on production. In fact, it may simplify your life - and be fairer to the associate - if you pay him or her on production. For one thing, the associate has very little control over the collection efforts at your front desk. Also, I have seen a number of cases where the associate gets shortchanged due to miscodings of collections.
✦The fringe benefits paid for an associate vary widely, but at least three-fourths of the offices pay for health insurance, once you get out of the major city.
✦More than 80 percent of offices pay the hygienist a fixed daily or hourly rate. Fortunately, an increasing number include some form of bonus in the compensation equation. I strongly suggest such a bonus component to keep hygienists motivated and to use as an incentive, just as you do with associates. After all, they are both producers.
✦In the larger towns, fewer than 25 percent of the offices use hygiene assistants, but that figure jumps to more than 40 percent in the small towns. Presumably, this difference may be a result of the acute shortage of hygienists in small towns.
✦Overhead percentages for the major variable expenses appear consistent, regardless of town size. Median lab fees in our survey may be lower than some figures you have seen. But these figures appear consistent with the number of crown and bridge units being done by the typical practice.
✦The median practice crown fee is still five to six times the lab fee’s charge for making the crown. Many “cosmetic” practices are facing a profit squeeze because they are paying $250+ per unit, yet they are charging the patient less than $1,000 for the service. So, their multiple is four times the lab charge for the crown or less.
✦While it is exciting to see a high utilization of 401(k) plans, it is distressing to see such a high use of SIMPLE or SEP plans. Such plans are inexpensive initially, but the SIMPLE plan limits how much you can contribute each year. While fine for a new practice, the lower limits are not sufficient to fund your retirement in the long run. The SEP plan does allow you to put in about $40,000, but that kind of plan often has very high staff costs. You should consult with a retirement plan advisor to be sure you have the best plan for your practice. Ask if a “cross-tested” type of plan may be suitable for you.
✦The debate continues about the efficacy of staff bonus plans. I think bonus plans designed strictly to create a change in behavior are probably doomed. These are the types of plans that have generated the most complaints about being ineffective. On the other hand, a bonus that is thought of as a “thank you” or as a way to share the practice’s success, is worthwhile to me. Obviously, I can’t tell which motive is behind the bonus plans of our survey respondents, but it is good to see more than two-thirds of the offices have a plan.
✦I am pleased to see that most plans are based on either production, collections, or both. While a plan based on net profit is conceptually sound, there is often too much room for manipulation or misunderstandings. As a result, these plans are not as simple to implement in a fair manner.
✦As expected, a very large percentage of offices pay for health insurance for full-time employees. There is no easy solution to the rising cost of insurance, and respondents are paying $250 to $300 per month for each covered employee.
✦The percentage of respondents paying for insurance for dependents is much lower, of course, but that figure does rise as the town gets smaller.
✦Vacation policy seems about the same, regardless of town size, and three weeks is the most that the majority of practices offer.
✦I am encouraged that a majority of offices use the “well pay” approach to sick days. That means that an employee will be paid for, say, five extra days at the end of the year if they are not out sick. If they are out sick, then those days are deducted from the well pay days. So, they are taking money out of their own pockets. On the other hand, it is well worth it for you to guarantee them extra pay if they are not off sick. It would cost you a lot more than that to replace them with temps. If you offer a certain number of sick days off with pay instead, then you are encouraging them to take time off rather than “waste” their sick days.
✦Comparing the “Selected Fees” for this year with those same procedures in 2004, I come up with an average increase of 5.8 percent. Again, this should be kept in perspective, because we are not assured that the same offices responded this year. So, we are not truly comparing apples to apples. Still, such an increase seems consistent with my own observations.
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Rick Willeford, MBA, CPA, CFP®, is president of Willeford Haile & Associates, CPA, PC, and Willeford CPA Wealth Advisors, LLC. As a fee-only advisor, he has specialized in providing financial, tax, and transition strategies for dentists since 1975. Willeford is the president of the Academy of Dental CPAs, an associate member of AADPA, and a member of Speakers and Consultants Network. Contact him by phone at (770) 552-8500, or by e-mail at firstname.lastname@example.org.