In California, many times the fixed overhead issue is the rent. Rent should reflect 5-8% of your overhead, but this number can be higher if your location also serves as part of your marketing plan, in other words, if your building is located in an area that has significant walk-by or drive-by traffic, you may add a percentage or two.
Lab fees are an area where a lower percentage does not necessarily reflect positively. Lab costs generally reflect how much crown and bridge is being done by the practice. An excellent range would be 10-12% of your collections. A number in this range usually means that case acceptance for crown and bridge is okay. If you find your percentage is higher, it may mean one of two things. 1. You have a lab fee that is outside of the range affordable for the fees you are charging or 2. Outside the range affordable for the fees you are receiving from your insurance contracts. A lower percentage means you may not be getting the case acceptance needed for a healthy practice.
Inventory your supplies at the beginning of each year. This is a great time to start a new system. Why not create one that keeps track of supplies and that causes you to utilize supplies before their expiration dates. Then turn over ownership of purchasing supplies to a trusted team member. When dental supplies are monitored, it can result in huge savings and when team members are given the responsibility and a goal, dental supplies can be easily kept in check. Your dental assistant can be a great asset in dealing with this issue. Give a 5% budget based upon the previous month’s collections. (Remember if you didn’t earn it, you can’t spend it.) Allow a 1-2% override each month. This 1-2% override is for emergency situations and can only be authorized by the doctor.
Of course, all expenses should be evaluated. Is this expense necessary? Or could this expense be reduced without affecting patient care? But be discriminate when considering where to cut costs. Remember, cost cutting will not benefit you if it results in negatives for the patient, either in customer service or in actual quality of care.
What else should be done to increase profitability?
Examine insurance participation and marketing expenses. Fee increases should happen yearly. As a general practitioner fees should reflect at least the 80th percentile according to the National Dental Data Advisory Service while specialists should consider a 95th percentile. Why? Your fees reflect your competence. A low fee equates, in a patient’s mind, as meaning low competency. A mediocre fee equates to mediocrity. If you do not feel comfortable with increasing your fees, it’s time to evaluate why. And then take action. If you feel your dental skills need to improve before you can feel comfortable with a higher fee, then by all means use this year to gain that knowledge and competency.
Collection numbers should be evaluated monthly and reflect 98%-102 of your net (after adjustments) production, with a third of your collections coming in at the time of service by having your team collect patient portions.
Closely monitor adjustments as they can sometimes be an area where many feel they have no control. Insurance continues to dictate what fees will be paid and the percentages paid continues to decrease. However, you do have some control and it must be exercised. Reduce your patient courtesy or discount to 5% and make this for paying at the time of service with cash or a check. Create an employee day, where all employees come on a typically non-work day to receive their dentistry. All ‘work’ for the betterment of each other at no cost to the doctor. Plan the days well in advance and be sure each team member is available to work. Work to keep adjustments to production, not including insurance, at no more than 3%.
Empower your front desk team to review and control the schedule to achieve that goal.
Accounts receivable is considered normal if it is 1-1/2 times an average production month. Anymore is uncommon. Having current accounts means we are able to collect more of those dollars in general – less is being written off for bad debt.
Who is average? Studies have shown that most of us consider ourselves above average. So why not strive to own an optimal practice with optimal overhead?
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This article was originally published by Tri-County Dental Society Bulletin