Information for the Road to Success
FOUR STRATEGIES FOR FINANCIAL SUCCESS
Each individual dentist must define for himself or herself the meaning of practice success. However, from a business perspective I would define it succinctly as a practice that is as profitable and enjoyable as possible.
Creating business success is important because a profitable practice allows you to deliver on your promise to provide the highest quality care to your patients. A practice that is financially successful enables you to use the best laboratories, employ the best team members, have a state-of-the-art facility, use the highest quality materials, take comprehensive continuing education courses, and deliver a high level of customer service. A successful practice should also provide the doctor and team members with appropriate compensation to live comfortably in the present and provide financially for the future. A properly managed practice can provide you with a thoroughly enjoyable work environment and create financial independence for you and your team members. This article presents the following four specific strategies to help you develop a financially successful practice:
• Measure practice performance
• Establish an appropriate fee schedule
• Create a system for payment success
• Develop a plan for financial independence
Measure Practice Performance
While there are many business and clinical activities that can be effectively delegated within your practice, it is absolutely crucial for the doctor to maintain an understanding and control of the financial aspects of the practice. I firmly believe that the financial control of the practice should not be delegated. Team members and advisors can assist with this process; however; the doctor must maintain oversight. The reason that doctors must maintain financial control is that understanding key financial indicators will provide the doctor with necessary information to make the strategic decisions that will ensure peak practice performance. I recommend that the doctor review the following 10 financial indicators each month as a means of “taking the pulse” of practice performance:
Collection percentage: Monthly collections divided by monthly production.
Accounts receivable ratio: Total accounts receivable divided by monthly production.
Case acceptance percentage for new patients: Scheduled treatment
divided by diagnosed treatment for all new patients.
Case acceptance percentage for existing patients: Scheduled treatment divided by diagnosed treatment for dentistry identified in hygiene exams on existing patients.
Marketing return on investment (ROI): This is calculated by evaluating each specific marketing activity and identifying production dollars as a function of investment spent.
Hygiene department production percentage: Total hygiene department production divided by total office production.
Period production percentage: Perio production delivered by hygienists (4000 CDT codes; e.g., 4341, 4910) divided by total hygiene production.
Unused hygiene units: Total unused units (typically in 10-minute increments) of hygiene time for the month.
Unused doctor units: Total unused doctor units (typically in 10-minute increments) for the month.
Team wage percentage: Total staff wages (including payroll taxes and benefits) divided by monthly collections.
The information gathered in these 10 categories will provide the doctor with a very specific “scorecard” with which to understand practice performance. With this knowledge the doctor can then make changes and adjustments when indicated.
Establish an Appropriate Fee Schedule
Perhaps the most significant reason why dental offices are not as profitable as they should be is that their fees are too low. Delivering high-quality dental care requires a significant investment in materials, equipment, knowledge, and support systems; and you need to charge fees high enough to allow you to recover this investment, as well as to provide an appropriate profit margin. Over the past 30 years, third-party intrusion by insurance companies has complicated the setting of fees because of their defined fee schedules.
The great news is that dentists have the ability to determine whether or not they are going to participate with the insurance companies. I would encourage dentists to not make the mistakes that our physician colleagues have. More than 20 years ago I had a firsthand opportunity to observe how the insurance industry has adversely affected physicians’ income and quality of practice life.
In the early 1980s I provided practice management consulting services to both physicians and dentists. At that time, the content of most American Medical Association meetings and those of their constituent societies was dominated by pressure from the insurance industry to sign up for their managed care plans. Physicians were guided to sign up for these plans under the threat that patient flow would be severely cut off if they didn’t participate. Unwittingly, the physicians signed up en masse for these plans, resulting in a massive decline in their income because they were no longer in control of fee determination. I didn’t like this trend and made a strategic decision to work only with dentists because I believed that the dental profession could avoid handing over control to the insurance companies. It was a wise decision and I have never looked back, although the lessons I learned from physicians have made me an unrelenting champion of the fee-for-service format in dentistry.
If you avoid participating with managed care or preferred provider organizations, you can have com plete control over your fee schedule. Your only criteria are market-driven (i.e., you charge fees that patients are willing to pay). While I certainly do not advocate charging exorbitant fees, the reality is that most dental offices are not charging enough for the quality of care that they provide. Raising your fees a modest percentage (say 10 to 15%) can have a dramatic impact on your profitability, because raising your fees does not increase your overhead at all; 100% of the increased revenue derived from your fee increase goes directly to your bottom line.
The key to a successful fee increase (and to avoid participation with insurance companies, for that matter) is to provide your patients with such a level of service and care that they would not ever want to go anywhere else for their dental care. Do not, however, make the mistake of confusing amenities with customer service. Amenities, such as bottled water in the reception room or scented towels to freshen up after a procedure, are a nice touch but patients tend to measure customer service by the quality of the human interaction they experience in your office. I specifically recommend that the doctor make an evening “we care” phone call to any patient who received an injection that day. It is very simple: “Gary, this is Dr. Smith calling. I like to call my patients on the evening of treatment. I was just calling to see how you are doing!”
While I am sure you have heard this recommendation before, very few dentists do this consistently. This “we care” call has a “Wow!” effect on your patient and serves to strengthen the doctor-patient relationship. If patients have a positive relationship with their dentist anddental team, they will not want to go anywhere else (a byproduct being that you can charge higher fees).
Create a System for Payment Success
As you raise your fees, make sure you set up a solid system for payment success. I define the outcome of a successful payment system as one where you collect the patient co-payment at or before the time of service, and you conduct everything in such a way that the patient feels good about paying. While these are lofty expectations, they are indeed possible.
With discipline, any dentist can achieve financial independence within a reasonable period of time. I recommend a three-step process for your payment system:
• Always communicate payment expectations prior to providing any treatment.
• Provide outside financing for patient payment flexibility.
• Conduct financial discussions in private.
Step 1: Payment success requires that your office inform the patient of the fees and that specific arrangements for payment be made before any treatment begins. This ensures that there are no financial surprises in your office.
Step 2: Provide outside financing so that patients can comfortably accept optimal treatment. Outside financing allows your office to get paid upfront while the lender assumes the risk and manages the payment collection process. I like to think of this step as removing money as a “barrier” for patients, so that they can accept the best care. Many patients may not be able to pay a large treatment fee upfront, but they could comfortably manage a $180 monthly payment.
Step 3: It is simply not appropriate to discuss finances with your patients amidst the hubbub of your front desk. Patients will appreciate the courtesy of discussing finances in private and you will benefit from an increase in case acceptance when patients can have candid discussions with your financial coordinator.
Develop a Plan for Financial Independence
I define financial independence asthe point in time when the income from your investments can replace your annual income. For example, if you are making $250,000 per year you would be financially independent when the income from your investments produces $250,000 in annual income. At that point you become financially independent and can work because you want to, not because you have to. What a wonderful goal!
With discipline, any dentist can achieve financial independence within a reasonable period of time. The key to achieving this goal is to develop the discipline to consistently fund a savings plan. Depending on your particular situation, this savings plan could be in the form of a pension plan funded with pretax dollars, or a private savings plan funded with after-tax dollars. Think of funding your pension or savings plan as “paying yourself first.” Set up the funding automatically and contribute the maximum each year.
While it is beyond the scope of this article to review specific investment strategies, I strongly encourage you to be conservative in the purchase of investments for your pension or savings plan. This is not the environment in which to purchase risky (high-return)investments. If you fund a plan faithfully each year, you will become financially independent, so why risk it? If you feel the need to take a risk, take a risk in your practice by being bold enough to drop a particular insurance plan or design a strategy to deliver incredible customer service! Ask yourself, “If my practice were as good as it could be, what would it look like?” Then take the risk risk of designing your practice to be as good as it can be!
