Did you know... $75 billion is spent on dental insurance every year and only 60% goes toward actual dental care? In fact, from 1990 to 2015, the dental industry grew 70%, yet dentists' earnings remained flat. (Dental Economics, April 2019)
Falling reimbursement hits dental practices hard and affects the ability of dentists to build a bright future for themselves and their team.
Most dentists don't accurately calculate the impact of dropping reimbursements and don't act until insurance has done significant damage to their business income.
See the impact and learn how to reduce it below.
Let's say all of your PPOs drop their reimbursement rate by 15%. How does that affect the bottom line of the practice?
An average dental practice producing $1,000,000 a year with an overhead percentage of 60% will have a net income of $400,000 per year.
$1,000,000 revenue - $600,000 overhead = $400,000 net income
In this practice, if all PPOs cut reimbursement by 15%, most dentists believe that income will also drop by 15%, resulting in $340,000 net income.
Here's what actually happens:
A 15% drop in total reimbursement creates a 38% drop in income.
It’s highly unlikely that every PPO plan you participate in will elect to cut reimbursement by 15% at the same time. However, most will continue making cuts, so it's important to be prepared by understanding how each PPO impacts your practice.
One of the most common questions we get asked by practice owners is whether to drop PPOs and transition to a fee-for-service model. While we have many clients that operate successful fee-for-service practices, we've found that PPOs are a great tool for patient flow.
Patients will often switch dentists in order to remain with a preferred provider, so if you drop a PPO, you will likely lose those patients. (A few might stay because they really enjoy the practice, but most will leave.)
For these reasons, we consider PPO participation to be a marketing expense and for most practices, it's not advisable to drop all PPOs.
Keep in mind, PPO participation doesn’t have to be all or nothing. If you choose to drop select PPOs, we recommend doing it one at a time as to avoid any major disruptions in practice performance. Also, be sure to have a plan in place in case patient flow drops and you need to bring new patients in the door.
So, if you continue to participate in PPOs, how do you protect your income?
The first step is to dig into the numbers and learn exactly how reimbursement affects your bottom line. Then, work to improve your performance and profitability so you become more resilient should reimbursements drop further.
Understanding these factors will help you determine how dependent your patient volume is on a given PPO. For instance, if a huge number of your patients come from a PPO, dropping it could drastically impact your practice.
The best way to combat dropping reimbursements is to improve your dental practice performance. While reimbursements cut into income, there are plenty of ways to increase production and profitability to offset these cuts.
(Click here to learn how to calculate and improve profitability in your practice.)
Schedule a call with us and we'll talk through your vision for the future of your practice and put together an action plan to create the results you want.
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