Increasing Your Dental Office’s Profit Margin and Improving Your Bottom Line

James V. Anderson, D.M.D., CEO of eAssist Dental Solutions/Dental Billing

Financial management experts in dentistry are chock-full of answers when it comes to making dental practices profitable. But without knowing where to start — or who does what and when — you may be left feeling overwhelmed.

I understand that it can look daunting and you may have doubts. Stop and analyze it from the perspective of starting from the ground up — constructing a building that will be key to your life and legacy. Lay one brick at a time.

Go back to your original business plan. Before you opened your door, you had a vision of what your best practice would look like. How has that picture changed? Even if you are not as profitable as you thought you would be, or your profit and loss statement is more loss than profit, these things can be changed.

Let's analyze the following and look at what’s happening today.

Focus on Reducing Variable Costs

What are your total expenses now? Are you within the industry benchmark margins? Make it a goal to have each expense line up with industry benchmarks. You can maintain high-quality care while saving money.

Let’s start by diving into the two types of costs. For both costs, you should think about ways you can reduce them. Reduced costs result in dollars saved that directly increase your profits.

1. Fixed costs, like rent, insurance, taxes, and utilities should account for about 4–7% of production.
2. Variable costs, such as payroll, lab fees, dental supplies, office supplies, and miscellaneous expenses should run around 45–55% (total 59–62% benchmark goal). Variable costs fluctuate but can also be negotiated to a lower number.

When looking to lower your variable costs, you may find it helpful to consider the following questions:

• How is your inventory management? By working with your Henry Schein Field Sales Rep, you can effectively manage inventory while staying within a targeted annual % of production.
• Do you have too much inventory on the shelf? That’s cash sitting idle. Buying in bulk should be done only if you’ll use it before it expires. Dental Service Organizations (DSOs) have the edge because they must buy in bulk and save a lot. Are your supplies stored in too many places? Organize your supplies in a central location so the team knows where to find them without creating another storage area. You’ll be surprised to see how many supplies are tucked away out of sight.
• When did you last review your outsourced lab fees (benchmark 6%)? What do you pay for a single-unit PFM crown or a zirconium crown? The total cost of a dental crown equals your professional fee, dental laboratory fees, and additional materials expenses (variable).
• Are you raising your fees to keep up with rising costs? Your standard or regular fee schedule must be updated yearly — not to be confused with your contracted fee schedule in the network. A gradual rise is expected as costs increase; it's when you have a fear of what you charge that keeps your fees stagnant for years, killing your profits. Raising your fees by 10% after many years will undoubtedly anger your patients, so make sure to raise them only as operating costs rise.

Create Time for Quality Patient Care

Dental practices are often busy and understaffed. Staff turnover in critical positions will directly affect collections and scheduled appointments. For example, patients may walk out the door without a treatment estimate or an appointment. This happens when the treatment presentation is cut short because a patient arrives at the desk or the phone rings. Or, if patients are told, "We will email the estimate" or "We will call you for your next appointment." Additionally, patients often walk out the door after an appointment if no one asks for payment.

Time must be created for quality patient interactions to avoid the above scenarios. The fact of the matter is that more revenue is lost at the front desk than at the chairside. Create time at the desk by outsourcing critical tasks.

Outsource your insurance verification, insurance billing, and insurance appeals to professional billing companies. Dental billing experts keep updated on the latest CDT coding and ICD-10 codes to ensure more accurate billing and quicker turnaround on claims.

Employing a professional firm for accounting and payroll is also good prevention against embezzlement. Consider outsourcing patient billing so that time is well-spent on statements and phone calls. These duties can be done remotely, saving the practice thousands of dollars in payroll and taxes.

For most average practices, these duties take about four hours a day at the front desk. Four hours should be spent filling out the schedule, talking to patients about treatment, and upkeeping your website and social media accounts. Furthermore, outsourcing dental billing and posting can save you thousands of dollars in the event of practice turnover. When outsourced, billing and posting can keep going without interruption — for the ultimate peace of mind.

Update Computer Software/Hardware

What would you do if your computer system went down? Do you have an emergency disaster recovery system in place? Have you verified uncorrupted backups? You risk losing thousands of dollars quickly if you do not keep your hardware and software systems up to date. Research with IT experts about a cloud backup system and a secondary onsite server, antivirus software protection, as well as intrusion monitoring with hardware and software firewall systems to protect your practice. Take the necessary steps to ensure your computer system does not fail, even briefly.

Maximize the Use of Your Computer Software

The best dental practice software delivers ways to measure all metrics that run a successful dental practice. Most practices use about 25% of what the software offers in practice management tools. Ensure all key people know the software and can enter patient data, insurance information, and produce a treatment estimate. With the help of your dental software, you can monitor the following monthly:

• Account balance aging (30, 60, and 90 days)
• Unpaid or pending insurance claims aging
• Daily over-the-counter collections
• Total collections
• Totals by provider

Focus on Patient Acquisition and Retention

Marketing and advertising, if addressed correctly, can enhance patient acceptance and improve new patient numbers. However, if your internal systems are dysfunctional, they can do more harm than good. For instance, if an unknown patient calls, and the call isn't answered or goes to voicemail — or worse yet, they are put on hold and forgotten — you will have unfilled hours in your schedule that can wreak havoc on your daily production.

Studies show that patients like the following:

• Online scheduling for greater accessibility and convenience
• Teledentistry options for those who have transportation or health issues
• Patient contact systems with texting or emailing appointment reminders
• AI (Artificial Intelligence) tools for enhanced diagnosis. AI tools are now more consistent than dentists in diagnosing tooth decay from bitewing and peripheral radiographs. AI algorithms are trained using billions of data points to make decisions based on available evidence, giving them an edge over humans in identifying specific conditions. Treatment acceptance rises when patients' trust in what is diagnosed is demonstrated
• Low-cost, high-speed 3D printers, which allow dental practices to control total expenses and improve the patient experience.
• Virtual reality (VR) during dental procedures. Users reported a consistent drop in perceived pain when using VR. It has been shown to calm patients and reduce anxiety, which can also help create empathy between the dentist and the patient
• Digital dentistry, such as intraoral cameras and digital radiography, for more precise patient monitoring and visualization, and better treatment planning communication

Follow Best Practices for Continual Cash Flow Management

These best practices include the following:

• Written financial estimates and agreements for every treatment plan
• Payment options that include two sources of outside funding
• Insurance verification and insurance estimates that are as accurate as possible
• Collection of estimated insurance copayments and coinsurance at the date of service
• Collection in full for prosthetic services at the final impression (in-network insurance rules may only allow you to collect coinsurance)

What I have discovered over the years is that there are some 20+ operating systems in the average dental practice (solo or small group). Each one is dependent on the others for success. It's like dominoes: if one goes down, the others may follow.

It's far easier to stay proactive and solve problems or challenges as they arise — as opposed to waiting until a severe breakdown occurs. Continue learning and improving upon ways to save money, manage costs, and earn more. Before you know it, your bottom line will be one you can take to the bank.