By Wes Read CPA, CFP®
Jun 26 2020
What’s your most expensive marketing cost? SEO, add clicks, local magazines, a consultant? Not even close. It’s your contracted carriers. That is your most expensive cost to grow your patient base. Case in point. If you do 30 crowns a month with Delta PPO and receive $600/crown you’d earn $18,000/month in collections. However, if you decided to drop Delta what might happen. Let’s assume you lose 33% of your patients and now you only do 20 crowns, but you receive your full UCR of $1,300/crown. You’d earn $26,000. And you’d have more time to outside the operatory. Here’s the kicker. Your overhead expenses shouldn’t change much. This is a key point. Your costs do NOT go down by being in network. In fact, because you’re doing fewer crowns, your labs and supplies actually decrease. In our example your profit is twice as much for doing less work. Therefore, the absolute only reason you’re in-network with the PPO’s is to get butts in the chair. And yep, that’s marketing.
I’m not saying it’s easy to get those butts when you’re not in network. I’m just saying it’s extremely expensive and can dramatically slow down your path toward financial independence. You need cash to pay down debt, fund retirement plans, build your emergency reserve, purchase your home, and make meaningful financial progress. But that cash isn’t abundant when you’re getting less than $600 a crown.
Every day I feel the pain of the GP. Decreasing reimbursement rates. Increasing pressures from Dental Corps. Where do they go? What do they do? After all, someone needs to pay the $400,000 of student loans. Here are a few strategies I’ve observed GPs using to fight back. Their “Game Plans” so to speak. I’ve included my corresponding comments:
This is not a bad option. But it is the most tiresome option. And you don’t want to upsell just to increase your numbers. Additionally, as you do more crowns, your team and you spend more time in the operatory and your hard costs (labs and supplies) increase. Your profit margins are thin on a $600 crown! You have decent collections, but you always wonder where your money goes.
Incidentally, I find it interesting that here in California where there is an abnormally high number of in-network PPO practices there is also a disproportionately high level of dentists claiming disability. They are doing so to the point where some disability insurers are leaving the California dental market entirely and those that remain are increasing their rates dramatically.
After all, how much profit are you referring out the door? Yes, I get the mindset. And this is your call. However, it is no small decision to start doing implants. Even with guided technology, it requires a great deal of training, experience, costs, and time to do this well. It strikes me as odd that GPs can do any specialty work without the formal post graduate education, but specialists can’t do GP work even though they do have the formal education. That aside, I’m not necessarily saying you shouldn’t bring specialty work in house. I risk half my clients firing me if I said that. However, I will challenge the belief that doing specialty work in house is the most effective and safest way to achieve higher profitability.
Like game plan 1, this is extremely difficult. And success rates in game plan 3 are tragically low. I won’t ramble here. Most of you know my take on this subject. Just read my prior newsletter here.
Now we’re talkin! Your collections nearly double and your overhead remains largely the same. Why isn’t everyone doing it?
Well, let me answer that question. Specifically, why isn’t everyone dropping their in-network status with the insurance carriers? Because next to public speaking, it’s their worst fear. Because it means now they have to get butts in the chair on their own. Because now they have to “sell” dentistry. Because now they have to learn the art of effective patient communication. Because now they have to run a business instead of a practice. Because now they have to be great leaders. None of this is easy. It’s like Indiana Jones taking that step over the chasm to his apparent death, only to find there is actually a safe, sturdy bridge across. On the other side, the cup of life.
And oh is it worth it! Dentists that are less reliant on the PPO work less, earn more, and reach financial independence faster. And the road there is more enjoyable.
So perhaps an 8% marketing budgets isn’t high. Perhaps taking leadership and communication classes would prove more valuable than another clinical CE. I recommend you learn how to convey the deep value that you provide to your patients. Be deliberate in developing a marketing plan and measuring the success of each marketing effort. Hold your team meetings, set goals, and motivate each team member to be excited to come to work each day. Help them succeed, and they will help you succeed. Walk into your office daily with energy and optimism. Take that step of faith, or as I tell my kids when I drop them off at school each morning, “Think it. Believe it, Achieve it. Because you can!”
And I’ve seen practices do it. And yes, they lose patients. But those that make that transition carefully and communicate the change effectively to their existing patients have seen improvement to their cash flows. But it’s not as simple as suddenly dropping the in-network status and crossing your fingers. You must have a plan.
In my next newsletter, I’ll discuss specific ways to determine how and when to drop your in network status with the PPOs. In the meantime, be thinking about this subject and how it relates to your practice!