UNDERSTANDING THE BUSINESS OF DENTISTRY
The benefits of a well-run dental practice include efficiency, increased quality, financial success, and profits.
By Roger P. Levin, DDS, MBA
I am delighted to introduce this article series for Dental Economics on the subject of dental business management. Practices that use data-driven systems reach the highest levels of success. The benefits of a well-run dental practice include excellence in efficiency, an increased ability to focus on quality, financial success allowing the dentist to reinvest in the practice, and profit for the doctor who has invested so much of his or her life in education and practice development. According to Levin Group research, dentists can increase their incomes by $200,000 or more a year when the right data-driven systems are implemented. Unfortunately, many dentists are operating under a set of business premises that do not necessarily lead to the best practice models.
The business world has spent billions of dollars on improving business practices. Universities such as the Harvard Business School or the Wharton School of Business have thick catalogs of course offerings dedicated to the development and retraining of executives. These courses typically run thousands of dollars for a few days, but offer little regarding the operation of a dental practice.
Dentistry overlaps little with other business industries. For example, the car manufacturer would have similar business and operational practices as a refrigerator manufacturer such as factory management, factory design, and purchasing systems. Dental practices, however, have a number of specific behaviors and operational issues that do not occur in most other fields.
The major areas of dental-practice management
In this article series, I will examine different areas of dental-practice management to help practices decide on the best models for achieving increased production, productivity, and profitability. Data-driven systems are critical to building the best models, but many practices incur problems when they change policies or procedures without analyzing how those changes will affect their practices' current systems. Many doctors simply adopt and implement one new idea. While that new idea might be excellent, it also must be integrated with other business systems in the practice or the likelihood of success is limited. For example, a dentist attending a seminar and returning to implement a change that results in increased time for a clinical procedure might find that such a change has a negative effect on scheduling, hygiene checks, and fees that should be charged. The point is that a change in management is rarely singular and unrelated to other areas of the practice. Unintended consequences can wreak havoc on other practice systems.
There are several broad categories of overall practice management. By segmenting these management disciplines, the dentist can focus on each of these and then gradually integrate them with other areas of the practice. The key categories of dental-practice management include:
1) Operational areas refers to the daily running of the dental practice, which encompasses a range of activities and indicators, including the number of staff employed, length of procedures, protocols for filing dental insurance, time of day the charts are pulled or filed, closing out at the end of the day, and many other steps that occur during the normal workday. Operations play a significant role in determining whether a practice reaches its goal for improved production, decreased stress, and increased profitability. Operations are a direct reflection of the level of efficiency in any given practice.
During the past 20 years, Levin Group has collected extensive data through its database of 8,000 clients, independent market research, and research conducted for numerous dental industry corporations and organizations through a subsidiary known as Levin Group Research Pathways. In addition to extensive data analysis, this effort has allowed us to create hundreds of case studies that reveal how some practices achieve success and how others do not. Comparing two practices that share similar characteristics - number of doctors, number of staff, number of days worked, number of patients, number of chairs, percentage of patients with dental insurance, socioeconomic background of patients, affluence of patients, region, and location - can provide valuable information on the successful implementation of dental-practice systems.
Even when practices are similar, differences occur. Levin Group has conducted case studies where two practices looked nearly identical, but one had doubled the production of another and more than doubled the profit.
Frequently, the reason for this difference is that one practice has much better operational systems than another. Analyzing these practices reveals one practice has systems far more streamlined, efficient, and effective than a practice producing at half the rate.
To be effective, systems require measurement. As I state in my management seminars, "If you cannot measure what you do, then it's not a system." A system without a measuring mechanism is like a stopwatch without a second hand. If practices are not measuring their performances, then how can they improve?
In my experience, most practices have outgrown some or all of their systems and are being restricted in growth while believing they are operating at capacity. Levin Group has found that more than 90 percent of practices may increase scheduling capacity by 30 percent or more. For practices to reach potentials, they must replace or upgrade their systems to achieve higher levels of production while simultaneously reducing stress.
2) Financial management is critical. Nine out of 10 entrepreneurial companies go bankrupt within five years. Dentists are typically successful at remaining in practice, but not because they are well-trained and knowledgeable business people. In fact, they receive little business training in dental school or residency programs. Fortunately, demand for dental services has been and continues to be sufficient to allow most dentists to be successful.
While the risk of bankruptcy in dental practices is relatively low, most dentists must work seven to 10 years longer before achieving financial independence because of a lack of data-driven systems.
Most dentists pay little attention to financial management beyond the subject of gross revenues. Many doctors are aware of their gross revenues throughout the year on a month-by-month basis and the level of overhead incurred. However, there is much more to financial management that allows practices to increase profitability relative to production and to better plan for their futures. Financial management includes areas such as accounts receivable and collections. Uncollectable fees have increased by 3 percent to 4 percent in the past four years because of changes in the economy.
Another concern for practices is that consumer spending is beginning to slow throughout the economy, and dentists are often the last to be paid when money is owed. Why? Most practices, unlike credit card companies, do not charge interest on overdue accounts, nor do they have specific protocols for collection procedures. While many dentists believe they collect more than 98 -percent of all money owed, it usually is closer to 95 percent because dental practices carry debt much longer than other businesses. Overdue accounts are not reclassified as uncollectable until long after the original (and unpaid) service or procedures were performed.
Financial management examines all aspects of financial controls and provides information on changes that practices could make to improve performance. For example, in many practices, simply adding one more treatment room (assuming space allows) could make a difference of $100,000 to $200,000 per year. This change should be analyzed through financial protocols as well as considering a new operatory's effect on other practice systems. Financial analysis must be performed when deciding whether to add personnel, move a practice, and purchase a new technology. For example, there are many new types of high-tech dental equipment, but many require a significant investment. The purchase of a technology should be a well-thought-out decision based on improving clinical quality while achieving a return on investment.
Superior financial management allows dentists to achieve their practice potentials, and to fully fund retirement programs, accumulate savings, and enjoy comfortable lifestyles. This result gives doctors peace of mind to practice dentistry with visions toward building the type of practice each would like to have.
3) Human resources is a generalized approach to developing and maintaining an excellent staff and maximizing their contributions to the practice. Most doctors would like to treat their teams well, but working in a dental practice has limited income potential for most individual staff members. While team members are treated professionally and with respect in most offices, those who look forward to long-term careers in dental practices are motivated by more than money.
At the same time, many practices use short-term fixes such as bonuses or offers of trips if the practices reach certain goals. Dentists need to find ways to improve their teams individually and collectively while realizing they have little time to spend on team development. Few practices have an office or business manager who spends time working on administrative and human resources issues that dentists are unable to advance effectively because of the busyness of the practice. This means that systems and protocols must be so well defined and understood by the team that simply following them allows for the practice to perform in a superior manner.
Building a high-powered team requires leadership, documented systems, and training. As the business owner, the dentist is viewed by the staff as the practice's leader. Successful leaders are guided by a vision to develop and empower their team members through structured -training, continuing education, coaching, and delegation. By helping staff members reach their potentials, the dentist has positioned the practice to reach the highest levels of success. Team development has a greater chance of success if the right data-driven systems are in place. Such an office environment allows team members to learn practice policies and procedures easily and effectively.
4) Marketing is the ability to communicate which services are available to current and potential customers and why they would be beneficial. The three components of practice marketing are internal marketing, external marketing, and customer service. Internal marketing includes the use of scripting, brochures, posters, collateral materials, and other techniques. External marketing includes Yellow Pages advertising, direct mail, Web site development, and other efforts. Levin Group has found that most external marketing efforts fail to generate the desired results for dentists while costing practices a great deal of time and money. Customer service encompasses almost every area of the practice, ranging from phone calls to scheduling to case presentation. All practices engage in marketing - whether they do it consciously or not.
As more dentists incorporate elective, implant, and aesthetic procedures into their practices, internal marketing becomes increasingly important to practice success. Whitening, porcelain laminate veneers, dental implants, and even removable appliances are examples of services that many people desire but do not necessarily need. A practice focused on these types of value-added elective dental services can dramatically increase its production and profit by successfully attracting the desired type of patients through superior customer service, internal marketing, and possibly external marketing.
Properly implemented, dental marketing allows the practice to identify and attract the desired patients through internal activities and referrals from existing patients. In addition, internal marketing helps the practice identify more treatment opportunities and increase treatment-plan acceptance rates for active patients. In future articles, I will explain that a practice is always marketing to current and potential patients, and the ability to influence them in a positive way is critical to long-term success.
Dental practices have four major business areas - operations, financial management, human resources, and marketing. Practices reach the highest levels of success when they implement and integrate their systems to achieve sustained growth. This article series will take a comprehensive view of dental-practice management and the strategies needed to drive production and profitability to attain early financial independence.