2008 Dental Economics®/Levin Group Practice Survey

Dec. 1, 2008
Editor's Note: This is Part II of a two–part series discussing the results of the most recent practice survey, conducted by Dental Economics® and the Levin Group.

For more on this topic, go to www.dentaleconomics.com and search using the following key words: Dr. Roger Levin, annual practice survey, practice production, collections, overhead, wages, benefits, doctor satisfaction.

Editor's Note: This is Part II of a two–part series discussing the results of the most recent practice survey, conducted by Dental Economics® and the Levin Group. Part I of the series appeared in the November issue of DE.

The second installment of the Dental Economics®/Levin Group 2008 Annual Survey arrives at an opportune time. December is always a great time to look back on the year's successes and challenges, review what went well and what can be improved, and finalize goals and priorities for the next year. The data in the 2008 survey will serve as a useful benchmark for general practices to measure their performances against other practices throughout the country.

Of course, the No. 1 issue on everyone's mind is the economy. That probably isn't going to change any time soon. Dr. Roger P. Levin, founder and CEO of Levin Group, sees the current downturn lasting longer than previous slowdowns that occurred during the last 20 years.

"This recession is not caused by one or two things, like the tech bubble of the late ‘90s. There are multiple factors at play this time, including the subprime housing crisis, locked–down credit markets, higher energy and food prices, growing unemployment, and a loss of consumer confidence, to name a few," says Dr. Levin.

"However, this is no time to wait things out," he says. "Success means moving forward. Armed with the right information, such as this year's survey data, you can make the right decisions that lead to greater success," says Dr. Levin. "Dentistry has a great future, and it's time to start creating yours."

There's no escaping the fact that dentists are feeling the squeeze of a tight economy. As reported in Part 1 last month, overdue accounts receivable are rising, the number of active patients remain flat, and more than one–fifth of responding doctors say they are experiencing high or extremely high stress.

Fortunately, other survey results depict a more favorable picture. For example, in our discussion of overhead, staff wages, and fringe benefits this month, we learn that median doctor compensation increased nearly 12%, rising from $200,000 last year to $223,000 in 2008.

A few might take that positive data as a sign that dentistry will be able to dodge the full wrath of the turbulent economy. That assumption would be a mistake, says Dr. Levin.

"Dentistry is often one of the last industries to feel the full impact of an economic slowdown. That might be viewed as a good thing right now. On the other hand," he cautioned, "when the effects of a downturn finally hit dentistry, dental practices often take a longer time to bounce back. Practices with strong, updated systems typically feel less pain and bounce back faster."

The 2008 Annual Practice Survey, a partnership between Dental Economics® and Levin Group, was conducted during May, June, and July. To view the complete survey results, visit www.dentaleconomics.com/resources and click "Download Center."

Practice overhead

Most doctors know their production and revenue numbers, but overhead isn't often on a dentist's radar screen. Unless there's a crisis, it's something the office manager or accountant takes care of.

But now that there's a recession, more and more dentists are taking a closer look at their balance sheets. This year's survey shows that doctors are doing a much better job of controlling overhead compared to a year ago, when the median overhead was 63% of total practice revenue.

In 2008, that number dropped to 60%, which is the percentage Levin Group recommends as the maximum for general practices. A drop of three full percentage points indicates practices are paying much more attention to their bottom lines as a result of the tighter economy.

Consider that the average production for responding practices this year was $828,000, as reported in last month's article. A 3% drop in overhead for such a practice represents $25,000 in savings. What is your current overhead percentage? Where do you stand in relation to the 60% threshold? Remember, each 1% in overhead reduction represents thousands of dollars in savings to your practice.

Of course, reducing overhead requires a strategic, well–thought–out approach. A slash–and–burn style of cost cutting usually backfires. "When it comes to reducing overhead, practices need to know what they're spending and where they're spending it, so they can target the right areas for reduction," says Dr. Levin.

If your overhead is above 60%, here are some ways to get it down:

  • Follow a budget. It's unbelievable how many practices wing it when it comes to finances.
  • Set goals to reduce expenditures. Goals drive performance. Without goals, you get a whole lot of inaction.
  • Tighten accounts receivables. It's simple, really — get paid for what you do.
  • Take inventory twice a year. You'll be amazed at what you find. Use the good stuff. Get rid of the rest.
  • Review ordering patterns. Are you ordering too much or too little of something? Modify where necessary.
  • Always consider ROI when purchasing equipment or technology. How many months or years will it take to generate a return on investment? What are the alternatives?

Staff wages

Compensating staff members fairly is always a balancing act. Dentists want to pay their teams a reasonable salary while keeping overhead under control. If you underpay quality team members, you run the risk of losing them. If you overpay them, you endanger the financial viability of the practice.

Of course, team members — just like everyone else — are facing higher costs for gasoline, heating, utilities, food, and housing. If inflation continues to increase, doctors may feel more pressure to provide higher annual cost–of–living raises. One solution is to implement a well–structured bonus plan that rewards employees when the practice meets production (and collections) goals. When the practice makes its objectives, everyone benefits.

Just as we did last year, we looked at the wages for seven key staff members:

  1. Hygienists
  2. Hygiene assistants
  3. Chairside assistants
  4. Office managers
  5. Front desk business managers
  6. Business assistants
  7. Treatment coordinators

In general, median staff wages increased in most employee categories. Office manager was the only position to achieve increases at every level of seniority measured by the survey, including zero to one years (new), two to four years (experienced), five to 10 years (established), and longer than 10 years (long–term). Responding dentists are paying established and long–term office managers $22 and $25 per hour respectively — both figures are substantially higher (17% and 19%, respectively) than last year. This trend reflects several possible scenarios.

A quality office manager is an investment in the practice. She or he is a valued staff member whose managerial skills save the practice money, increase efficiency, and help reduce stress. In addition, due to the difficulty of finding qualified office managers, dentists may be willing to pay more than market rates for this position.

Wages for experienced hygienists and hygiene assistants increased in the three out of four seniority categories. This is not surprising due to the fact that the hygiene department is the second largest production center for the practice after doctor production. The hygiene department is the gateway to the practice.

Without a strong hygiene team in place, a practice is at a great disadvantage. Levin Group has seen practices where the dentist is forced to perform prophylaxis for months because the office was unable to hire an appropriate replacement when the hygienist left. That type of situation is doubly stressful because the dentist is working twice as hard to produce much less than under normal circumstances.

Experience matters

Overall, median hourly wages increased for every employee category except front desk business manager, which remained flat compared to last year's survey. This data can be interpreted in two ways:

  1. Dentists value the work of quality, long–term team members and will pay them accordingly.
  2. Dentists are afraid of losing long–term staff members and will overpay them if necessary to prevent turnover.

Every practice is different, but both of these statements can be applied to many practices. To prevent wages from spiraling out of control for long–tenured employees, Levin Group recommends a team–based bonus program that awards employees based on increases in production and collections. More than 56% of responding practices said they had implemented a bonus plan.

Unfortunately, this was down slightly from 62% in 2007. A tight economy may cause doctors to rethink bonus plans. "That would be a mistake," says Dr. Levin. "The right bonus plan can drive production and profitability while rewarding employees for their efforts. It's good for the practice, the doctor, and the team."

Fifty–four percent of dentists based their bonus plan on collections, which Dr. Levin said is the right approach. "A bonus plan should drive production, but if you don't collect what you produce, what have you gained?" Click here to view tables.

Summing it all up

This year's Dental Economics®/Levin Group Annual Practice Survey showed a very mixed picture. There were positive signs, especially when considering today's topsy–turvy economy, including upticks in median doctor compensation, doctor production, hygienist production, and practice production. However, before we break out the party balloons, the survey also revealed dark clouds gathering on the horizon.

Overdue accounts receivables are growing. Staff wages are up in key categories, though overall overhead is down. Most importantly, nearly one–quarter of dentists reported experiencing high or extremely high stress. If the economy worsens, that number could rise.

"This is a very challenging time for dentistry and the country," said Dr. Levin. "Use the information in this survey as a tool to benchmark performance, review policies and systems, and create a better practice in 2009."

Final thoughts

We hope the Dental Economics®/Levin Group 2008 Annual Practice Survey has encouraged you to think about your practice and sparked interest in making positive changes. Thank you to everybody who participated. You made your voice heard. We appreciate the time you took to complete the survey. We look forward to your participation in 2009.

To view the complete practice survey results, be sure to visit www.dentaleconomics.com/resources and click "Download Center." To read more of Dr. Levin's survey comments, go to www.levingroupgp.com and click "GP Blog."

Survey development, implementation, and analysis was performed by Levin Group, with special assistance from Levin Group's Consulting Project Manager Michael Anthony and Training and Curriculum Manager Francis Crotty.

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