Practice Overview of Costs

Efficiency and effectiveness count more than anything else when trying to control overhead dollars.

I. Staff and Salaries and Taxes Staff salaries make up 25-30% (in most practices) of dental overhead. The highest overhead expenditure in the dental office is staff turnover. A practice can go down, $10,000.00 - $20,000.00 in one month’s production as the result of losing key personnel. Along with drops in production, it takes three months to train new people. RDH should produce 4 – 5 times their salary.

II. Rent and Utilities These should be billed out at 6-8%. Since moving to a new facility is not a money saving idea, this fixed cost is certainly not an option or change in order to decrease expenses. Generally little can be done to change this percentage. The best idea is to get the most from your facility.

III. General Expenses These include telephone and insurance (for example) for a total of 5-7% expenditure. There is some “leeway” in this area; for example, insurance can be shopped for, however if you are totally satisfied with your services do not take on a change.

IV. Equipment Leases and Debt Service This area should be at 6-8%. This is also a non-negotiable deal unless some sort of refinancing occurs.

V. Practice Management This area expenditure should be between 3-5%. The practice management section not only covers consultants, but legal and accounting services as well. This is one area that must remain constant for continual growth of the practice.

VI. Lab fees A dentist cannot charge low fees and maintain a respectable profit margin. Low lab fees (less than 10%) is not good and indicates a problem of low acceptance of treatment proposed 10-17% show as a healthy practice: a. Treatment plans are necessary and will increase organization of sequencing for optimal usage of time (for dentist and patient) fewer but longer more productive appointments reduce overhead, stress, paperwork, room breakdown, sterilization etc. b. Case acceptance, impromptu consultants are fine for small cases but not larger ones, they require thought, study and documentation at least a discussion of 20-25 minutes. Presenting cases without forethought is like taking a two-day camping trip with a sack lunch.

©2011 Roz Fulmer, “Making a Difference…Today!” 1 VII. Supplies and Inventory Control Dental supplies should represent only 3-5% of collections per month. Office supplies should represent only 0.5 - 1% of collections per month. Offices have done monthly budgets of allotment for spending which depends on the collections the month before. This saving technique has helped many offices get within the proper percentages.

VIII. Promoting/ Advertising This area does have the possibility of variance. The acceptance percentage is 1%. Depending on the needs of the practice this may not even be a necessary expense.

The following represents areas to be reviewed when working on lowering the overhead cost of your practice.

I. Fee adjustments Increasing fees is the most effective way to maintain a profit since salaries, and supply costs continue to increase despite efforts to control them. Most dental offices do not have up-to-date fee schedules. They feel bad about raising fees. Any increase in staff must be tied to a fee increase. Fees must be raised a minimum of 8% per year to keep up with the cost of living. Consider the increase of OSHA requirements that have fallen on your practice for the year. ($10.50 per patient visit) update from the A.D.A.

II. Collections and Scheduling (and Production) How much revenue must you produce per hour to turn a profit? These numbers must be passed on to the front desk to increase efficiency and reduce overhead stress.

Scheduling must be done for daily production goals, and both just to meet M.A.S. The goal of scheduling should be to do more or higher profit dentistry in the same number of hours or less without compromising quality of care or patient rapport.

Since most of your expenses are fixed, a decrease of overhead, by lowering one of your fixed or variable expenses becomes nearly impossible. If rent is $1000.00 monthly and collection is $10,000.00 monthly, then rent is 10% of collections but increase collection to $20,000.00, and then rent is only 5% of collections.

Increasing production needs to be a team effort. The presentation of dentistry must be in full swing and the hygienist must be fully involved for acceptance to increase.

II. Increasing Hygiene Services Increasing hygiene services is very necessary in all offices. What is necessary?  Full implementation of a soft tissue management program can boost hygiene revenues by 40% or more.  Full implementation of 3 month recare. Research shows that this is an excellent standard of care for well over 50% of the patient population.  Updating of FMS, Pan’s and BW’s on a regular basis.  Adult and child fluoride trts and oral cancer evaluation (Velscope, Omi3000, etc).  Dental sales – dentistry, toothbrushes, fluoride etc.

©2011 Roz Fulmer, “Making a Difference…Today!” 2 IV. Recare System Better than 75% of all dental practices only have a 50% efficiency rate in hygiene, therefore every 6 months 50% of your patient population has the capability of falling through the cracks. Example: If you have 1000 active patients and work 16 days monthly, you should have hygiene 4 days a week with 10.4 patients seen daily. Many offices suffer from the “back door syndrome” in this area. Patients are constantly slipping through the back door. A well-run and well-monitored recall system can alleviate this problem. Utilize the Hygiene Eye- opener Worksheet and begin analyzing the numbers of recare each month.

V. Supplies and Inventory  Avoid impulse buying  Start comparative shopping.  Set up a good organized inventory system (the tagging system seemed to be the most effective)  Set up a budget of 3-5% of the previous month’s collections.

VI. M.A.S. and Goal Setting The recalculation of the break- even point is crucial and must be done quarterly to semi- annually to keep you up with increasing costs and to be able to work at a new level. Getting the team committed to new goals with new incentives is necessary to keep up motivation.

VII. Consultations/Team Meetings/Morning Huddles/Team Evaluations Without these planning meetings the practice will slowly recess back into its own old patterns, Team evaluations are often left out in many practices, but they are crucial to entire practice growth. Creation of an Agenda is a sure way to have a successful meeting.

VIII. Office Manual An office manual is crucial when it comes to team organization, growth and happiness. This is some of the information the manual must cover:  Vacation, Wellness days  Evaluations every quarter as this is a “How well am I doing” evaluation, not a time for a raise.  Benefits (medical, retirement)  Maternity  Time off without pay

IX. Promotion/Advertising It is crucial to monitor all advertising returns. This can be done manually by recording the referral source of each new patient. At the end of the year, evaluate what advertising source reared the most new patients (or was profitable for the office). When advertisers want you to renew your marking with them, utilize the information from your monitors to decide if it will be cost effective for you in the future.

©2011 Roz Fulmer, “Making a Difference…Today!” 3 X. Ways to Cut Expenses  A less expensive lab.  Shop for dental supplies and only order monthly, not weekly.  Have a budget for all purchases.  Before renewing any marketing – total monthly monitors.  Increase the production by following practice Standard of Care Guidelines.  Increase the quality, not quantity.

Gross production Efficiency and Annual production. Varies. effectiveness of practice and generally doctor’s stress level.

Production per hour Effective Production divided $500.00 plus. utilization of team, by hours available for facility, treating patients. appointment book control, delegation, procedure mix.

Collection Effectiveness of Collections divided 96%-99% percentage financial by production for a arrangements, given period. policy and follow- up.

Receivables ratio Flexibility of Receivable divided Less than one financial policy. by monthly months. production.

Ninety day Turnover of Good receivables, 90 33% less receivables ratio receivables related days old by total to in-office receivables. financing.

Payment on current Collection skills at Percentage of 25%-45% charges front desk over the month’s collections, counter. collected at patient’s visit.

New patient Effectiveness of All new patient 90%-100% appointment ration initial telephone exams divided by contact. number that make appointments.

New patient contacts Marketing Number of new 10-15 patients per per month effectiveness. patient examinations. $10,000/mo. Prod. Depends on style of practice. Case presentation Effectiveness of Case presentation Ratio first appointments. divided by new 90%-100% patients seen.

Average NP Comprehensive Total amount of $1000.00 plus treatment potential treatment plans. treatment recommended divided by number of cases presented.

Case acceptance Sales skills. Total amount of 70%-90% ratio treatment accepted divided by total amount recommended.

Treatment Acceptability of All treatment 85%-95% completion rate treatment plan. performed divided by all treatment accepted.

Recall rate Follow-up Patients who come 85%-100% effectiveness. for recall divided by patients placed on recall during a given time period.

True Receivables - 0 - 60 – 85% of total True Receivables – 61 to 90 – 15% of total

Acceptable Over.% 60-65% 60% 59% 50% 50% 50% 50% Fixed costs: Staff Gross Salaries 20 -27% 30% + 9-14% and Benefits

Facility 5 - 8%

General Expenses 5 - 6% Telephone Insurance Equipment lease 6 - 8% Debt Service

Practice Management 3 - 5% Debt Service

Fixed Expense Goal 46% + or – 7%

Variable Expenses: General Prostho. Ortho. Perio. Endo. O.S. Hyg.

Lab Fees 8 – 10% 10-12% 2-4% ------

Office Supplies 0.5 - 1% Same per area of the practice

Dental Supplies 3 – 5 % 3-5% 3-5% 2-3% 2-3% 2-3% 1 %

Continuing Education 1.25% Travel Expense

Promotion 1%

Repairs/Maintenance .50%

Other 1%

Variable Expense Goal 20% + or – 3%