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3.17.06 Issue #210

 
   

Bonus Schmonus!
A Mckenzie Management Case Study


Nancy Caudill
McKenzie Management
Senior Consultant
McKenzie Management
877-777-6151
nancy@mckenziemgmt.com

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This case study is an illustration of a family dental practice maybe similar to yours. The names have been change to protect the guilty!

Dr. James’ Story:

Dr. James e-mailed McKenzie Management out of desperation!  His note read, “I have reviewed your guidelines for a healthy practice overhead.  22-27% of my total net collections should be allocated to employee salaries and benefits.  Holy Macaroni!  Mine is 32% and increasing.  What is my problem and how do I fix it?”

Upon visiting Dr. James’ practice and analyzing his practice statistics and staff salary history, here are the facts:

Office Facts:

  1. % of net production to net collections averaged 94% for the past 3 years
  2. Hygiene retention was at 60%.
  3. Staff salaries were increased yearly by 1% from the previous year because they asked.
  4. A bonus program was in place to reward the staff monthly when the net collection exceeded $60,000.
  5. Fees were increased annually at around 5%.
  6. Total practice overhead was 65%.

In-office Observations:

Janice, Dr. James’ Financial Coordinator, did not have a job description.  She would call a few past-due recall patients when she had time.  She tried to call a few outstanding delinquent accounts when she had time.  Most of her time was spent on the phone with insurance companies, verifying benefits and eligibility for every patient that was scheduled for the next day.  She also answered the telephone and scheduled patients.

Kathy, the Schedule Coordinator, did not have a specific job description either.  She sat in the “hot seat” and was answering the telephone, checking patients in and out, managing the patient records and confirming the next day’s patients for the doctor and the hygienist.

Critical Issues for Dr. James:

Many dynamics were taking place in the office that Dr. James was not aware of.

  1. He was experiencing a false sense of security when he compared his production from one year to the previous year because he wasn’t taking into consideration that the increase was as a result of the annual fee increase, NOT because of increased growth of the practice.
  1. He felt obligated to increase his staff’s salary every year because they asked.  He did NOT evaluate his % of collections to gross salaries to determine if he could “afford” to give raises.  In his case, his % did not warrant an increase.  Industry standards are 19-22% and his was 24%.
  1. Staff benefits (including tax withholding, bonuses and other benefits) should not be more than 3-5% of total collections.  Not only was he offering a monthly bonus with no guidelines based on the industry standard but he also was not considering the other benefits that he offered, such as medical insurance and a 401-k for his employees.  These costs were driving his benefits % upward towards 8%.
  1. The practice was not growing because the hygiene retention was low.  New patients were coming in the front door but more were going out the back door due to the fact the there was not an employee at the front desk that was given the responsibility of “growing the practice” by being in charge of the hygiene department. 

Conclusions:

This is not an easy situation to resolve.  Employees do not want to hear that you are taking away their bonus, benefits or freezing salaries.  However, it is imperative that staff have a firm understanding of how overhead works in any business…and yes….dentistry is a business and you are a business owner!

They need to understand how you base your salary and benefit decisions, using the industry standards that compare the salaries and benefits percentages to net collections.  This eliminates the guesswork for you, as the business owner, regarding whether to increase salaries and offer a bonus plan.

You can empower your employees!  They have the ability to increase collections, which, in turn, will allow you to increase their salary and benefits package.  You must make sure, however, that they have the tools to make this happen.  They need effective systems for:

  1. Improved collections to 98% to improve total overhead
  2. Improved hygiene retention to 90% to grow the practice and increase production
  3. A true understanding of the practice overhead as it relates to their salary and benefits.

Remember, THEY allow you to increase their salaries and benefits.  Empower them to do so!

For more information on how McKenzie’s Practice Enrichment Program can help you email info@mckenziemgmt.com.

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2006 Location Sponsor Information Topic Speaker
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