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Owning a Dental Practice is More Expensive Than Ever

The operating expenses of owning a dental practice have skyrocketed in the past three years. Materials, supplies, and PPE are more expensive due to supply chain issues and inflation. And as the demand for good hygienists has grown sharply, so has the cost of your office’s payroll.

If it costs more to run your business, then it makes sense that you would charge more for your services. But for the majority of dental practices, simply raising prices to increase profit margins isn’t an available option.

According to the ADA, 80% of the US population had dental benefits in 2020, with PPOs being the most popular plans by far. A more unbelievable statistic is that dentists who participate in any PPO networks, on average, participate in 28.3 different networks (whether they realize it or not).

Dentists sign with PPOs expecting to expand their access to a larger patient base. In exchange, they agree to let insurance companies discount their service fees, usually down to 20-40% of their UCR office fee schedule. If practice owners don’t have any real control over how much they can charge for their services, how can they increase profit margins in the face of ever-increasing operating expenses? The obvious answer may be that if you can’t raise your prices, you must increase your production. Higher daily patient volume, shorter appointment times, focusing on efficiency instead of quality.

Increasing production may be the obvious solution, but is it the correct one?

How do you assess the value of your dental business? Where does the money really come from?

Are the patients your revenue source? Does a higher patient count make your business inherently more valuable? What happens to your quality of work if you start seeing patients as dollar signs?

Production does not equal profit

Did you know that an empty chair can be more profitable than one with a patient in it?

Here’s a different way to think about the situation. Your revenue doesn’t actually come from your patients, and your profit isn’t determined by how many of them you can see in a day. What really matters is the insurance plans your patients are bringing into your office.

If the majority of your patients are bringing you plans that won’t reimburse you enough, then it doesn’t matter how many patients you see in a day. Your production is irrelevant if you’re losing money on all the work you’re billing for. You could be at 100% capacity every day and still be losing money if you aren’t billing plans that will pay you at least your break-even point, if not more so you can actually profit.

The question isn’t how many patients can you see per day, it’s how much are you making from the plans you bill for each patient?

A straightforward way to figure out which plans are profitable and which ones aren’t is to compare your per-hour, per-chair fixed expenses against the reimbursements you receive from each plan for a standard cleaning and exam. If a given PPO reimburses $110 for a standard periodic cleaning and exam, but your per chair hourly breakeven point (after considering the cost of supplies, materials, overhead, and labor) is $140, then you’re effectively spending $30 to see that patient. Now, multiply that by every patient you see in a week, a month, a year. Small discrepancies quickly compound to hundreds of thousands of dollars added to your annual write off, which ultimately devalues your business.  

Don’t blame yourself for your patient’s choice of insurance plans

When we stop thinking about patients as revenue, and start to focus on the plans they choose, it’s more clear what needs to change to raise your revenue and increase your office’s profit margins. You don’t need to see more patients, you need to see more patients with the right plans. Or, you need to stop seeing patients who have plans that won’t pay you enough to keep your doors open. Your patient saturation is one of the most important factors that determines your revenue – how many of your patients belong to what plans, and how much will each of those plans potentially reimburse you for your work.

There are insurance plans that offer lucrative fee structures, and there are insurance companies with set Maximum Allowable Charges for out-of-network providers that are higher than what they’re willing to pay for in-network care. With access to valuable and accurate market data, Solutions 101 can help you navigate your practice to a more profitable insurance contract situation.