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12.24.08 Issue #355 Forward This Newsletter To A Colleague


Nancy Caudill
Senior Consultant
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Is Your Overhead Over Your Head?

Dr. Sam Blackwell – Case Study #134

Have you looked at your overhead percentages lately?  A healthy general practice should be running around 55-60% of collections. Consider this scenario and see if this might apply to you:

Dr. Blackwell’s practice statistics:

  • 1 doctor, 2.5 assistants, 2 part-time hygienists and 2 business employees
  • Doctor purchased this 20-year old practice 6 years ago.  The office sees patients 4 days a week - 192 days per year
  • 4 hygiene days per week
  • 2 Business assistants working 4 days a week
  • Doctor daily gross production - $4,000
  • Hygiene daily gross production - $1,175
  • Collections at 99% of net production

Dr. Blackwell enjoyed a steady pace and was not interested in seeing more patients or increasing his production. 

Currently, his overhead is at 69%, 9-14% higher than industry standards.  After scrutinizing his fixed expenses monthly, it was determined that the following areas would need to be reduced:

Overhead Reductions:

  • Staff benefits - He was currently at 6% of collections - 1-3% higher than industry standards.  He had no ceiling on the amount the practice was paying for health premiums, which was currently costing the practice $300-400/month per employee.  He was also reimbursing his staff for "sick days" that were unused at the end of the year at their regular daily pay.
    His 3 part-time employees were also getting a full range of benefits, including paid medical premiums, vacation, sick and holiday pay.

    A bonus system was in place based on production and collections.
  • Employee reductions - one part-time assistant was working as a "hygiene assistant".  However, when adding her salary to the salary of the hygienist, instead of the hygienist producing 3x their combined salary, she was only producing 2.5x. This shortage in her production was equivalent to the salary of the assistant; therefore, assisted hygiene was not profitable, especially considering that the practice was also incurring benefit expense for the assistant.
  • Accounting expenses - The office manager was keeping excellent records and managing the accounts payables.  The practice could save expenses by changing the accounting services to quarterly instead of monthly.
  • Continuing Education Courses - Necessary but can be costly if not getting a return on the investment.
  • Dental Supplies - The doctor was "new product" addicted.  Anything new that hit the market he had to buy. His dental supply overhead was 9%. Industry standards are 5-6%%.

Recommendations:

Staff benefits: No more benefits for "part-time" employees.

  • A ceiling was placed on the medical premiums of $200/month per full-time employee.
  • Unused "sick days" were reimbursed as a courtesy at $50/day
  • The bonus system was removed until the gross salary overhead was 22% or less of net collections

Employee reductionsBecause the "assisted hygiene" was not profitable, the part-time hygiene assistant was dismissed with a nice letter of recommendation to assist her in finding new employment.

Accounting expenses: The accounting services were reduced from monthly to quarterly, with the office manager providing monthly P&L reports to monitor the practice overhead.

Continuing Education: The doctor determined that in the future, CE courses would be "hands-on" courses that would reflect an ROI, such as orthodontics or aesthetics. 

Dental Supplies: An assistant was assigned to "manage" the ordering of disposable supplies in the clinical area. The new practice rule was that no new product was ordered until the existing product was used. She also worked closely with the supply rep to help keep her expenditures to 5% of the practice collections.

Work Smarter and not Harder....how will he do it?
There was no doubt that with a practice of 20 years, there should be at least 2 hygienists working full time in order to provide care for the retained patients. In Dr. Blackwell's case, at the time the practice was purchased, there were only 4 days of hygiene and it remains so today.

# of practice years

# of new hygiene patients/yr

Retention of 50% of total patients

Recall intervals of 6 months

Appts.needed currently to maintain patients

20

240

2,400

x2

4,800

The above figures indicate that Dr. Blackwell's practice should have a minimum of 4,800 appointments available per year to service his patient base. 


Appointments needed

/ # patients seen per day

= # of days needed

/ # of weeks worked

= # of hygiene days per week

4,800

9

533

48

11

If an average hygiene visit produces $125, then 4,800 appointments is equal to $600,000!  Currently, Dr. Blackwell has 1,536 hygiene appointments that are equivalent to $192,000.  That is a difference of $408,000….and this is income lost in one year!

By implementing recall systems to improve patient retention to 90% based on the # of new hygiene patients coming into the practice, Dr. Blackwell will enjoy the income produced by his hygiene department, as well as increase revenue from the exams and treatment that is recommended.  How would an additional $400,000 a year affect your bottom line?

If you would like more information on how McKenzie's Practice Enrichment Programs can help you IMPLEMENT proven strategies, email info@mckenziemgmt.com.

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