As everyone is feeling the impact of inflation in their personal lives, the impact for a dental office can be even greater. The specialized equipment and materials used in dentistry when combined with the lack of large-scale competition, can drive higher price points on the essentials required to operate a dental practice. Over the last few years, supply chain interruptions and shortages have contributed to increased costs. Unfortunately, as these supply interruptions have eased, they have not been accompanied by a decrease in costs.
At the start of last year, most offices updated their break-even point (BEP), which is the average monthly amount of money required to pay the bills for the practice. At the mid-year point, many practices re-calculated their BEP and realized there was a 10-15% increase in the monthly BEP. This rate of inflation in a dental office has not been seen in many years, if ever.
With costs rising so quickly, it is essential to employ various strategies to control your overhead which include: cutting costs, increasing production to offset the costs, regular monitoring of the results and accountability. In a general dental practice, the largest areas of overhead include staffing, supplies and lab. The combination of these three areas accounts for a significant portion of the total overhead. Controlling these three categories is an important part of overall overhead control.
Many offices are contracted providers for one or more insurance plans. With the increase in inflation, it is important to evaluate the profitability of those contracts. Utilization of the Paragon weighted average insurance comparison spreadsheet, developed by David Runkle, is a great analysis tool to determine which plan(s) you would want to consider eliminating. After completing the analysis, discuss the results with your Paragon consultant and formulate a plan and strategy for moving ahead. Additionally, if you choose to continue your participation status with a plan, you should request an increase in reimbursements annually. These increases usually only happen every couple of years and only if they are requested.
Regular evaluation of write-offs by category is critical to determine if any particular area can be reduced. In most offices which are in-network providers, insurance write-off will be the largest category. When it comes to overhead control, even small gains in several areas can result in a substantial improvement in the total overhead. Do not assume write-offs are beyond your control. Look at each category and set targets to reduce the percentage of write-offs as a total percentage of production.
Cost Cutting Strategies
Cutting costs and controlling expenses will help minimize the escalation of your overhead. There are a number of ways to achieve this goal. Remember, even small improvements in a number of areas will result in a measurable overall improvement. Budgets are a good starting point to help control costs. Each area of overhead should be examined and appropriate budgets established. Once budgets are established, you will need to regularly monitor your actual expenses compared to the budgets. If a budget is exceeded, evaluate why and make an action plan to rectify it. The ability to stay within budgets will help to control the total overhead.
Shop your fixed expenses, those items you pay a fixed amount, monthly or quarterly. Some examples of fixed expenses include: insurance, phone and internet service, landscape service, laundry and office cleaning. It might be possible to reduce some of these individual items by changing companies or selecting other lower cost options within the current company.
Evaluating variable expenses, those expenses which vary from month to month, such as lab fees and dental supplies is another important aspect of cost reduction. Compare lab fees. You might be able to find a less expensive lab but be careful not to cut quality if you change labs. If you are not getting the same quality from a new lab, it could ultimately cost more in the long run.
Not only is it important to reduce waste of supplies and materials, but also look for lower cost or generic supplies, where appropriate. Compare costs of disposable vs non-disposable items. Keep in mind, non-disposable items, which are usually less expensive, have added “soft” costs of time and sterilization. The main advantage of disposable items is convenience, which usually comes with a higher total expense.
To help control supply costs, delegate ordering to one person. Not only will this prevent duplication of orders and reduce ordering unnecessary items, it will also provide accountability for ordering. Do an inventory update on a regular basis. When storing supplies, make sure to rotate inventory to use the older supplies first and avoid expiration of older materials. When possible, place bulk orders to prevent incurring shipping costs. Avoid impulse purchases or the “free item with a purchase” orders if the free item is not a usually purchased item for your practice. For non-dental items consider warehouse shopping to get a better price point.
Evaluate the cost-benefit analysis of giveaway items. Often in the hygiene department, multiple items are given to every patient. While this is a very nice gesture it is very expensive. Reducing the numbers of items given at the hygiene appointment and documentation of the items given will help cut overhead. Once a documented item is given to a patient, in the future you can provide them with a list of the items you want them to purchase and possible places they can locate them. Most dental professionals recommend an electric toothbrush for their patients, yet they continue to give a toothbrush at every recare visit. Evaluate the total annual cost of the giveaways, set a budget and discuss ways to achieve the budget. Remember, PPOs are not increasing the reimbursements and as the costs of the giveaways keep rising, they drive up overhead and decrease profits with little or no associated gain for the practice.
Staffing costs are the largest single item of overhead in the average general dental office. Your team is an investment. Without a quality team it would be very difficult, if not impossible, to provide all of the quality treatment you do for your patients. Even so, you do want to control your staffing costs. It is important to be lean or right sized in staffing. Not only is being over staffed expensive, it can also result in lower production due to inefficacy. To attract and retain quality team members be competitive in your compensation package. At least annually, review the “Paragon Staff Compensation Worksheet” with each member of your team. This worksheet will demonstrate the true value of their package to the employee. Stress the importance of regular bonuses with your team. Bonuses should only be paid on true profits. If this is the case, the team is bonusing when the practice is profitable, and this is a cause for celebration.
Evaluate the return on investment (ROI) on all marketing campaigns and cut any ineffective campaigns or re-direct the marketing dollars to other proven campaigns in your practice.
It goes without saying, be sure to pay all bills on time to avoid any additional fees and interest.
Strategies to Increase Production
It is important to effectively utilize time in your practice. All schedules should be kept full and productive. To accomplish this goal all power blocks must be protected and filled appropriately with power treatment. Comprehensive treatment plans and longer appointments, to accomplish treatment in fewer total appointments, will allow more profitability and lower production costs for the treatment.
Consider a cancellation policy to prevent appointment abuse in your practice. As a minimum, every last-minute cancellation or no-show should be documented in the patient record and easily identified when scheduling future appointments. For major treatment, requiring a deposit to reserve the appointment, will reduce the number of last-minute changes in the schedule.
Adopt a team attitude of zero-tolerance for open time in the schedule. Make the schedule the number one priority for the entire team. Develop a downtime activity list with a focus on preventing future downtime. Daily, at the huddle, discuss the best potential use of downtime should it occur.
Establish a protocol, according to your practice philosophy, for all diagnostic tools (including x-rays, scans, photos, perio charting and any other tools you use) and follow that protocol with all patients. Additionally, look for ways to increase your treatment portfolio and value-added services.
Same day treatment not only benefits the patient, by saving them a return trip, it also benefits the practice by filling the schedule and reducing overhead for the patient receiving the same day procedure. Kid’s Day is an efficient way to group children together and maximize appointment time while reducing small gaps in regular schedules. Develop strong follow-up systems for unaccepted treatment and recare. A strong current recare system and 100% pre-appoint of recare appointments is important for continue growth and production in the hygiene department.
Today, perhaps more than ever, it is essential patients understand the affordability of treatment. With tighter budgets, more patients will want to spread out the payment for treatment. Many will even prefer longer payment plans with interest to allow them to complete treatment and extend payment up to 60 months with outside financing. Do not assume you know the patient’s financial situation, and how they want to pay for treatment. Discuss all the potential options, even those requiring the patient to pay interest, and let the patient decide what works in their individual budget. This will ultimately increase the amount of treatment acceptance.
Stay current with insurance follow up to increase your cash flow. Improve chart documentation to include a diagnosis, reason for treatment recommendations, and the reason for return. These items will help with insurance narratives and prevention of appointment cancellations.
Evaluate your fees, make sure they are rising with increases in inflation. If you have an in-office membership club when you increase your fees make sure the membership fees are also raised at the same time. Do not make the costly mistake of putting off that increase until you need to print more brochures.
There are numerous strategies, to cut costs and increase production, presented in this article. Implementation, accountability and follow up are important to see the results. Share this information with your team and have a follow-up team meeting to discuss it. At that meeting, ask the team for their best ideas to control overhead and/or increase production. Make a master list of the ideas. As a team, decide who will take charge of each item and the frequency for reporting on the progress. It is possible to control overhead and increase profit in this tough economic climate. You and your team can make it happen.
HOPE REKTORIK, SENIOR CONSULTANT