2003 Dental Economics Practice Survey

by Rick Willeford, MBA, CPA, CFP

The average increase in fees for all services was 4.5 percent.

Dental Economics again collected the respondent data via DE's Internet Web site to compile the statistics for the 2003 practice, fee, and staff surveys. Click here to view survey results. In order to enhance the accuracy of our survey, we combined our statistics with data from the Academy of Dental CPAs.

Many of the results are presented by regions, defined as follows: New England, Middle Atlantic, East North Central, West North Central, South Atlantic, East South Central, West South Central, Mountain, and Pacific.

Income

Let's see what your colleagues are doing, with a few points to note in the tables that follow:

1 Income is shown including hygiene, since most offices that replied employed a hygienist.

2 Extremely high or low responses have been discarded to avoid distorting the general results. This is done by excluding the bottom and top 3 percent of all responses.

3 For group practices, each respondent was asked to state his or her own individual figures.

4 The "median" response is shown, which is the 50th percentile, rather than the "mean" or "average." The median differs from mean or average income, which tends to be weighted upward by fewer dentists who have higher incomes. The 50th percentile is the point at which half of all respondents are either above or below a line.

5 The most informative figures may be the "Average -1 SD" and "Average +1 SD," where SD represents the "Standard Deviation." Please note the terms "average" and "mean" are the same. These form the lower and upper limits of the range that includes about two-thirds of all the responses.This gives you an idea of how similar or bunched together the responses are. If the range is narrow, that means a lot of your colleagues submitted similar responses. A wide range means the answers are widely dispersed. If you fall outside that range, this indicates that you are part of the one-sixth minority that is either on the low or the high end.

Figure 1 shows income for all GPs in the 10 regions and an overall income.

Figure 2 shows income for all GPs based on practice location — urban, suburban, or rural.

Figure 3 shows income based on the number of doctors in the practice. These are individual figures for each doctor, not the group as a whole. There is a nice jump in income from $650,000 to $747,000 when you add a third doctor, but adding additional doctors does not appear to pay off. This could be due to the simple fact that some groups are formed for reasons other than increasing individual income, such as to have professional colleagues take more time off, etc.

The data does not tell us if the additional doctors are owners or associates. Even if the intent of adding doctors to the practice is to increase income, we often find that larger groups introduce more layers of bureaucracy and other inefficiencies that minimize or eliminate any perceived benefits of economies of scale.

Staff

Have you noticed that doing the dentistry is the easy part of running your practice? It's the IRS, payroll, OSHA, HIPAA, personnel, etc., that throw sand in the gears. Over time, you find that you can hire other folks to handle the IRS and payroll — and you can get your arms around OSHA rules — but the staff- and human-relations issues are a never-ending moving target.

By the way, from the staff's perspective, dealing with the doctor isn't always a lot of fun either. Many staff members have told me that they could have a great office ... if they could just fire the doctor!

Only you can decide if your staff is a group of people whom you just put up with, or if they are members of a team that makes the office work — or, some days, a combination of both. I have seen offices financially successful at both ends of the spectrum, but I also see a lot more stress in the former scenario. Developing and trusting a team requires a more proactive effort, but you end up with a more fulfilling and viable practice in the long run.

Figure 4 shows the range in hourly wages for the business staff, broken down by regions and overall.

Figure 5 shows a regional breakdown of the range of hourly wages for the clinical staff (chairside assistants, etc.) and also gives an overall number for all regions.

Figure 6 shows the regional breakdown of daily and hourly rates paid to hygienists, plus an overall number for all regions.

Fees — planning for 2004

Over the past 25 years, practice-management consultant and author Dr. Charles Blair (who has a monthly tax column in DE) has worked with thousands of dentists dealing with fee decisions. He initially did this by discussing fee matters with colleagues during his 10 years of solo practice. Later, he collected data after advising clients during his years of consulting. In his Revenue Enhancement Program, Dr. Blair works with a multitude of doctors nationwide to help them set fees.

As the first step in the process, he recommends a detailed fee analysis, showing percentile, and localized for the doctor's own zip code (first three digits only). Based upon this information, a doctor then can determine where to position his practice fees in relation to colleagues in his area, based on the quality of care provided.

Virtually every doctor's fee schedule that he has reviewed is "schizophrenic," according to Dr. Blair, with fees varying all across the board. While some fees are over the 95th percentile, other fees are under the managed-care line of demarcation (the 50th percentile). The remaining fees are scattered somewhere in between.

Doctors should determine where their practices are positioned in their area, based on the quality of care provided. Dr. Blair then suggests selecting the appropriate fee percentile for your zip code (reflecting the quality of care you are providing), and then immediately adjusting all fees below that percentile up to that level. The only exception to this rule is hygiene-related fees, which Dr. Blair recommends adjusting in two installments.

Dr. Blair has helped the average practice generate increased profits of over $86,000 annually. Yet, most doctors continue to be reluctant to raise their fees, and when they do raise them, they often don't get the job done right.

Lack of effective action on the dentist's part is attributable to ignorance and fear. Most doctors simply don't understand the impact that raising fees has on their profitability. While many dentists spend dozens of hours trying to reduce overhead costs by $5,000 to $10,000, they pay little attention to fee-positioning which is five to six times more important!

Dr. Blair observes that even when doctors are aware of the tremendous impact that raising fees can have on practice profitability; many still are reluctant to act. In order to take decisive action, doctors must overcome the fear that raising fees actually will decrease practice volume and related profitability due to resistance from insurance companies, staff, and patients alike.

For example, a dentist who implements a 10 percent fee increase — and whose practice has a 35 percent profit margin (practice overhead is 65 percent)— must suffer a 22.3 percent drop in patient volume before his practice profitability actually declines. Doctors with the highest overhead percentages have the least to lose by raising fees, since a greater decline in patient volume is required to actually decrease practice profitability.

Dr. Blair has yet to see a single doctor who, after implementing a reasonable fee increase (10 percent or less) has had a decline in practice profitability as a result of the fee change. A doctor's perception and fears in the area are way overblown! The reality is that probably 20 to 30 patients in an average-size practice will complain about the fee increase. Of these, probably 10 to 15 may leave the practice ... and half of those will return when they visit another office and find comparable fees. While the doctor's worst-case revenue loss may be $2,000 to $3,000 for the five-to-10 patients who actually leave the practice, the average revenue gain usually is 25 times that amount!

It still is amazing how many doctors have bought into the managed-care promise that by cutting fees, they actually can increase practice profitability through higher volume. Doctors with the highest overhead percentages require the biggest increase in sales to maintain profitability for a given fee cut. For example, a doctor with a 40 percent profit margin institutes a 10 percent fee cut. That doctor must increase his sales 33 percent just to maintain current levels of profitability!

Few, if any, doctors actually can make up the additional volume required to maintain practice profitability following a fee cut. You would be better off phasing out of those programs. Then, raise your fees, increase your marketing efforts, expand the scope of services that you offer ... and watch your practice profitability increase dramatically while you eliminate the headaches associated with lower quality, managed-care participation.

Fee charts

Figures 7 through 10 show the fee increases for selected fees by region and overall. The average increase in fees was 4.5 percent. In the fee charts, we are again showing the median, which is the 50th percentile. This means that one half of our survey respondents charges more and one half charges less. If the 30th percentile and the 50th percentile are the same, that just means a lot of folks are charging the same fee! It creates a bell-shaped curve, with a lot of doctors' fees concentrated in the middle.

Next year we will return to producing separate reports on your practice, staff salaries, and fees. We will feature these articles throughout the year. I hope you will participate in next year's survey to give us even more valuable statistical information, so we can provide you with the best possible numbers to guide your practice-management decisions.