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5.26.06 Issue #220


PPO - Friend or Foe
A McKenzie Management Case Study

Nancy Caudill
Senior Consultant
McKenzie Management

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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. Sam Shafer’s Story:
The e-mail read:

“Help!   I am busy but it seems that my practice revenue isn’t covering my expenses!  What is the problem?”
OK – This doesn’t sound good.  Where is my Inspector Clouseau hat and a plane ticket to visit Dr. Shafer?

Office Facts:

  • 5-year old start-up practice
  • Dr. Shafer works 5 days a week out of two operatories
  • He has 1 hygienist working 3 days a week
  • All PPOs are accepted – no HMOs
  • Daily Gross Doctor Production is $3,500
  • Daily Gross Hygiene Production is $1,100

Dr. Shafer needed patients when he opened his doors 5 years ago.  He signed up with every PPO plan that he received in the mail with expectations of the phone ringing timelessly from families wanting him to be their new dental provider.
And came they did!!  Can an influx of new patients be detrimental to the future of the practice?  Absolutely.
“Dr. Shafer, did you have an exit plan to terminate your relationship with the PPOs at some point? I inquired.
He looked puzzled asked, “Why would I want to do that?”

In-office Observations:

  • The practice had a patient base of 75% PPO patients.
  • “Usual and Customary Fees” were being charged out and the PPO adjustment was posted when the insurance payment was posted.
  • The staff was receiving bonuses based on gross production
  • Dr. Shafer did not review his computer-generated reports
  • He felt secure with his gross production dollars


Using  “UCR Fees” is correct.   However, certain systems must be in place in order to generate the proper practice statistics:

  • Patient portion estimation set up properly in the computer
  • Proper PPO adjustment codes are applied to the patient ledgers for the PPO write-offs
  • PPO adjustments must be posted to the proper provider
  • Knowledge of the average PPO adjustment per month based on previous months
    • Scheduling for a daily gross production goal per provider must be established based on the “adjusted” production from the previous six months.   Not only are the PPO adjustments taken into consideration, but also the courtesy adjustments, cash adjustments and other adjustments that are posted monthly.  Determine what the average adjustment dollar is per provider per month and increase the gross production goal to include these write-offs.

In order to determine what the average production adjustment dollar is, run the computer’s Adjustment Report that lists all the production adjustments that are posted for the previous six months and divide by 6. 

  • If bonuses are being paid to the staff, it should be based on the “bottom line” by reviewing the staff overhead as a percentage of collections  - not on gross production.
  • Develop an exit plan to reduce the number of PPO plans that are being accepted. 
    • Marketing to a target group of non-PPO patients
    • Schedule a certain percentage of your patients per day for PPOs to allow more appointment time for your non-PPO patients. 
    • Run computer-generated reports that indicate the dollars of income for the various PPO insurance plans to help determine which plans will be eliminated first.  It is vital that you are aware of the possible effects from dropping a particular plan.
    • Notify all your patients that are in a plan that is to be eliminated by an informative letter and announce the change in your practice and invite them to stay with you. 


PPO plans can be an excellent avenue to “jump start” your young practice.  Keep in mind that when you elect to provide quality care at a reduced fee while your monthly expenses are equivalent to a practice that is not reducing its fees, more patients and higher dollar-per-hour production must be provided to “make up” for the dollars that are lost with reduced fees.

You must have tried and true business systems in place to maximize your services, such as Accounts Receivable Management and Scheduling.  Know how much you need to “net” produce per hour in order to maintain a healthy 55-60% overhead. 

Remember….working hard and seeing 20 patients per day doesn’t guarantee profitability.  Understand the difference between “gross” and “net” production.  Your income is based on the “net” production of the practice – not the “gross”.  Friend or Foe – Feast or Famine?  Examine your practice to see where you are.

If you would like more information on how McKenzie’s Practice Enrichment Programs can help you….. email

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