Cost Control and Result Control Part One

Bringing digital technology to your offices

According to our 2009 survey, as of this year more than 50% of dentists (54%) now have digital x-rays. Bringing computing to the operatories entails considerable expense. Usually as digital x-rays are added, other technologies are added or upgraded too, such as intra-oral cameras, patient education software, and digital record keeping. Financially speaking, this often comes out to over $12,000 per treatment room.

The pace of bringing digital technology to the operatories is increasing. Many of you will be making these investments over the next three to four years.

Since we have and will have many clients who will be investing over $50,000, $100,000 and up in this technology, I have two main suggestions to get more bang for your buck:

1) Get professional help in specs and get bids for the equipment – “cost control”

2) Commit to additional training so you get “result control”

Intra-oral cameras for example

In business, costs are inevitable. A consistent theme of my advice to clients is that you have to have “result control.” That is, if you buy intra-oral cameras, you want to make sure they’re used. Half of intra-oral cameras are used less than five times per week. Almost every office with intra-oral cameras struggles with getting them to be part of the hygienists’ routine (and the hygiene department is where they can have the greatest benefit in helping the patients understand their problems and value your solutions). Lots of offices have the capability to do chartless record keeping but less than 10% are truly chart free. With this technology in the treatment rooms the hygienist (for example) can post charges, set their next appointment, use the intra-oral camera, enter the treatment plan and use the patient education software. However, usually only two or three out of these five things are routinely done.

Professional help because the devil is in the details

Most dentists have neither the inclination or the time to keep up on computer software and hardware. I have seen many installations where there was no competitive bidding whatsoever. Or, once the equipment was installed it was glitchy... the digital x-rays would go down in one room now and then, the intra-oral cameras wouldn’t work well, there would be server problems, wires and cables in the way, poor monitor placement, etc.

With technology the devil is in the details: video cards, cabling, monitors, monitor position, support, warranties, digital x-ray choices, etc.

There are reputable and competent technology installation firms out there, such as Erickson Technologies 651-452- 6758 and Sunset Dental Technologies 612-326-8693. However, many clients have used the local “computer guy” or just bought the hardware from the software vendor or supply company.

I recommend you check out Ted Takahashi with T2 Consulting 952-891- 5177. Ted does not sell anything and makes no commission or “finder fees” on any technology recommendations. What he does is draw up the specs so you can get competitive apple to apple bids. He knows what works and he’ll help you pick the right stuff. And, furthermore, you’ll be assured that the installation will be truly functional from day one.

Don’t let the suppliers take your business for granted!

Whatever route you take, just remember to focus on both cost and result control! Don’t let the suppliers take your business for granted! There almost always is some bargaining room if you go through a bidding process.

Group Practice: Doctors, You Are Sitting on a Gold mine

Step outside, please.

If you can step outside yourself for a moment and look at your labor as a Doctor separately from your role as an owner, you can see what a desirable investment your dental office is. Now let’s look at key points in increasing the profitability of a practice (whether you own just one or 20):

1. Hygiene productivity makes a big difference on the bottom line. Your sweat aside, it’s largely where the profit of ownership comes from!

An approximately $10 per hour (or patient visit) increase in hygiene translates to an almost 10% increase in profits. The average hygiene production per hour is $139 in the Metro Area and $122 for Outstate. Why would any Doctor (owner) in his right mind pay market rates for hygienists that are producing at less than the market?

2. Lower Costs: Some of these group practices have negotiated better prices from the supply houses and labs.

3. Negotiating with PPOs: Because they have a network of practices, they are sometimes able to negotiate better reimbursement.

4. Standardized Systems, training and supervision.

5. Serious Business Ethic: These groups are less tolerant of sub-standard performance than private practitioners often are.

Your Advantage:

You don’t have the group buying or bargaining power that these large groups do but you have one key advantage. You’re an on-site owner! You are totally invested in your practice, both financially and personally. And one more thing, you have the best management team in the upper Midwest (if not the country) eager to support you and add to your success (us). Our depth of experience and perspective in advising and receiving data from over 200 offices gives you a powerful ally in the marketplace.

Our Job:

Group practices aren’t the enemy, but as long as you own your own practice, you are competing with them and their economies. It’s our job to help you continue to thrive in an increasingly competitive marketplace.

So, relish the fact that you own your own business. Be resolved this year to leverage our recommendations and your business systems into greater profits.

Be resolved to let your staff know that you want them to be happy and focused. And, be resolved to hold them accountable for working the systems as planned and be resolved to reward them well for performance.

You and your staff will prosper in direct proportion to how well you follow through on our advice.

The Growth of Multi-Location Group Practices

Like Arby’s?

Years ago we thought the trend would be franchise practices in retail settings. It hasn’t exactly happened that way but there has certainly been a growth of multi-location group practices.

In most cases, the model is less formalized than say an “Arby’s.”

Of course, there are the more “corporate” type of large clinics in multiple locations, such as Metro (37) and Park (23).

But, if you look at the recent activity in the Midwest, what you see are groups such as Midwest Dental and Heartland (word is Heartland is coming to our area). Midwest Dental owns more than 77 upper Midwest practices. Heartland (centered in Illinois) has about 300.

Then there are smaller multiple location groups such as Main Street Dental (5 locations in southern Minnesota) and Family and Cosmetic Gentle Dentistry (12 locations) in the Metro area.

There are other niche-type practices such as The Smile Center (7) and Emergency Dental Care U.S.A. (7 Nationally).

Midwest Dental and others are eager to buy and they’re growing. Heck, Heartland Dental even owns a corporate jet! You have to be making some serious moola to have one of those. Let’s take a look at how some of these groups do it.

The Economics of Multi-Location Group Practice

Purchasing a Practice:

Example:
Practice/Collections/Month	$100,000
Practice Operating Net per month (at 36%)	$ 36,000
Dr. Production per month (2/3 of $100,000)
Non-Owner Dr. Compensation	$ 66,000
(30% after lab and write offs)	$ 19,800
Practice Sale Price (36,000x12x1.75)
Debt Service/Mo. on Practice	$756,000
($756,000 x 8 years x 8%)	$ 10,687
The Pay Off:
Practice “Operating Net” per mo.	$ 36,000
Doctor Compensation	$-19,800
Debt Service	$-10,687
Operating Profit/mo.	$ 5,513
Annualized:
Operating Profit	$ 432,000
Doctor Compensation	$-237,600
Debt Service	$-128,244
Operating Profit Per Year	$ 66,156

The Bottom Line:

For an outlay of $128,000 a year in debt service, the owner(s) receives $194,000, a 50% Return on Investment. Where else can you get that kind of R.O.I?? So what seems to be on the surface a sort of slim net of about 5%-6% on collections per month when leveraged really adds up over the course of the year. Now add to that some solid management for practice profitability and growth and the numbers really pop.

It Starts with Goals:

You hear it from me every year. Now it’s time to reflect on the past year. Note your accomplishments and challenges. Outline your goals for the coming year. Write down what you’d like to see happen. Share them with us and we’ll help you make them happen.

Most of our clients with written goals reach most of their goals. It costs so little and it can be so rewarding. Just take an hour right now and do it.

The Latest Word on Practice Overhead:

KDV* has just released its bi-annual general practice overhead survey. It’s a sample of 70+ full-time, mature practices. As such, it’s the best and most detailed information of its kind available for our area. Some highlights:

• Average Net Income was $259,842. This was down from the $275,302 average in 2008. KDV said this marked the first decrease in 25 years of preparing these statistics.

• Overhead as a percentage of fees received increased a point to 65%. So the average net is now 35%. What is yours? Remember, average is not necessarily your aspiration.

• Staff gross wages are still about 26%-27%. If you can’t clearly compare your statistics to the industry standards and don’t have a clear look at your bottom line, we can help. Get QuickBooks Pro really working for you. No serious business owner would go without clear financial reports. This overhead survey is a very valuable perspective to help you in budgeting. It will be posted online at AdvancedPracticeManagement.com on the “Surveys” page. You’ll also find other useful information there on the current Dental Economy, Technology and Insurance Participation.

Our Fee surveys are also online and were recently updated in October.

* Davich, Wilson and Morrow, who have been doing these overhead surveys for 25 years, merged with KDV (KDV.com).

Area Economic News

Insurance and PPO Participation


This was the second most frequent issue mentioned by respondents. Participation in major PPO’s in our area has remained much the same this past year. About 30% of area practices participate with Delta PPO and 17% Met Life (down slightly from 19% last year). About 30% of practices participate with the Premier Group and 19% with Cigna.

This year, 7% of practices said they dropped a PPO and another 7% said they plan to drop a PPO. 7% had joined a PPO in the last year (which would account for the statistics staying pretty much the same) and only 1% plan to join a PPO.

If you’re participating with Delta PPO or Met Life, there’s a better than even chance that you do not need to suffer the large write offs. Although these plans have their place, many offices continue participation much longer than they benefit by doing so. Often these plans have a 30% or more discount from Dentists’ normal fees meaning those providers are treating every third patient for free. Ouch!

Ironically, some of the practitioners who are in the best position to leave their PPO are the most “addicted” to them. We can help you look at this rationally. There are serious risks and rewards involved.

Technology

61% of area dentists now have websites, up from 41% last year. 59% of offices now have digital radiography. 65% have intra-oral cameras (but getting them used regularly can still be a challenge). 45% of offices have laser caries detection (e.g. Diagnodent from KAVO).

Wages and Fees

An unweighted comparison indicated Metro fees were up just 1%. Outstate fees were up 3.1%. Wage increases were low to non-existent.

See the complete surveys and more on our Fee Survey page.

We put wages and benefits in the “Members Only” area, so if you’re a retainer client and don’t know how to find that, just call our office and we’ll give you the secret path.

If you haven’t already been there, our website is chock full of information. We have past bulletins that cover a wide variety of subjects, articles I’ve written, detailed surveys on area economic trends plus a very good survey of Dental Office Overhead by the firm KDV.

When I ask our clients what the major thing they want from us is, the answer is “An informed third-party perspective.” Our goal is to provide just that. We work hard to make sure that our website has relevant information to give you the perspective you want and need.

The All-Time Top 10 Outrageous Cancellation Excuses

Speaking of downtime, a few years ago we surveyed offices for their patients’ most outrageous cancellation and failure excuses.

10.) “Tooth hurts really bad but have to go hunting.”

9.) “The cat turned the alarm off.”

8.) “My mother passed away.” (3rd time in 10 years).

7.) “Too many bears. I’m not leaving the house.” (Duluth patient)

6.) “My teeth look fine. I’ll call you when they aren’t white any longer.”

5.) “Eclipse might hurt my baby. I won’t go outside.”

4.) “Did I make that appointment…really?”

3.) “I found a dead squirrel on the road on the way to my appointment and needed to bring it to the police department so they could properly bury it.”

2.) “My dog ate the reminder card that was on my refrigerator.”

1.) “I thought my appointment was yesterday.”