Supersizing Practice Value
By Allison M. DiMatteo, BA, MPS
The Economics of Productivity—
What Do the Business Models Say?
Everyone wants to know the formula for the magic bullet—the perfect equation of total number of patients and daily production, plus less overhead, to yield maximum profitability. There isn’t just one, and any equation is difficult to solve because each practice, the geographic area it’s in, and each area’s potential patient demographics are different.
Even trying to base an equation on average billings by region is challenging. Standard Metropolitan Statistical Areas (ie, areas of consistent density, whether rural or urban, throughout the country) are tied to economic factors affecting multiple areas, not just a specific region. According to Tom Limoli, Jr, president of Limoli and Associates, a company that assists dental offices in streamlining the insurance reimbursement process, what’s occurring with billings and collections is happening in all regions of the United States as a reflection of economic patterns.
What other variables are at play? The number of hours dentists and their teams work per week, as well as the number of team members and the type of dentistry that the practice provides (eg, general, family, cosmetic, implant, full-service). It’s also important to understand that the only producers in the practice are really the dentist(s) and the hygienist(s), notes Roger Levin, DDS, founder and CEO of Levin Group.
“I have three full-time hygienists and one assistant, and my associate has one assistant, and together we have one full-time front desk and one part-time front desk team member,” says Robert C. Margeas, DDS, a private practitioner in Des Moines, Iowa, and editor-in-chief of Inside Dentistry, who tries to run his practice with no more than 50% to 55% overhead. “My overhead is much lower than another practice that has two dental assistants, two or three front office staff, an implant coordinator, a treatment coordinator, and a finance coordinator. Every practice’s overhead is different.”
Keys to Profit Optimization
Considering that starting up a dental practice—depending upon location—can require an investment of between $350,000 and $500,000, managing overhead and ensuring sufficient production to not only survive, but thrive, is essential. However, when taking into account investments in technology and equipment, as well as how many chairs/operatories will be incorporated, Levin says the startup investment could be as high as $800,000.
According to Lisa Philp, chief visionary officer for Transitions Group North America, the largest expense that practices incur is generally salaries, which should not run higher than 30% of production. “Overhead reduction can be achieved by managing salaries,” Philp explains. “High overhead is often indicative of insufficient production on the top end.”
But, as every practice owner knows all too well, some weeks and months are busier and—more importantly—more productive than others. It can be a numbers game of how much production is needed per hour of a day to run a profitable practice (Table 1).
“I’ve never had a production goal within my practice,” Margeas explains. “How do I know who’s walking in my front door? I don’t know how many patients are coming in, or what type of care they’ll need. We’re not selling widgets; we’re providing healthcare. Some days are slow, and some months are busier than others, but it all evens out at the end of the year.”
In other cases, profitability is about how many new patients must be added to the practice each month. According to Levin, the average production per new patient should be two to three times the average production per active patient.
“We average about 30 new patients per month that come in for hygiene, and we have a 3-month waiting period,” Margeas says. “I don’t think that’s good, because if a patient wants to get in for a cleaning, you need to be able to schedule them within a week or two, or they’re going to go elsewhere.”
Does that mean bringing in more team members? When the practice’s current doctor(s) are over-scheduled, that’s the only time to bring in an associate, advises Franklin Shull, DMD, a private practice owner in Lexington, South Carolina. Ultimately, doing so is all about timing and having both current dentist(s) and team members on board.
“The perfect associate may come along, but the practice may not be ready to keep another dentist productive,” Shull says. “On the other hand, the practice may be ready, but the right person cannot be found. Forcing either of these situations to occur creates an uncomfortable and difficult environment.”
Shull explains that successfully bringing in a new associate requires constant effort from all parties to make the professional relationship work. Practice team members, who know and understand the practice “feel” and often see things the owner dentist might overlook, should be an integral part of the timing and decision process. The owner dentist must be ready to relinquish some of the spotlight. In other words, the new associate must have opportunities to grow and work through a variety of cases, not just the leftovers.
“All parties should do their homework and be ready to work on a relationship that will benefit everyone involved,” says Shull, who along with his partner, have brought in three associates over the past 20 years, with positive results.
Though the long-term impact of bringing on an associate is an increase in practice productivity, Shull cautions that owner dentists need to realize that practice profits usually fall in the first year an associate is hired. However, to minimize negative impacts to the practice’s bottom line when recruiting and retaining team members, demonstrating respect and fostering a good work environment are key.