09.01.06 - Issue # 234 Forward This Newsletter To A Colleague

A McKenzie Management Case Study

Nancy Caudill
Senior Consultant
McKenzie Management
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Dr. Fred Potter

The e-mail arrived to McKenzie Management late Monday afternoon from Dr. Potter.  “My practice collections have been declining for the past 12 months!  Help!”

Just so you will know, Dr. Potter keeps impeccable spreadsheets relative to the statistics of his practice.  However, he admitted that he does not fully understand how to interpret the information or what to do about it if he did.  This makes sense to me…otherwise he wouldn’t be calling us!

Here is what I discovered when I arrived at Dr. Potter’s office.

Dr. Potter’s Office Facts:

  • He has a “start-up” practice of a few years.
  • He is leasing the space for the practice because the price is right and it is close to his home.
  • There is ample room to have 4 operatories, plenty of storage, lots of business office space and a nice area for the reception room.
  • The location is in a shopping center that has no “name brand” anchor store, many of the office spaces were vacant, there was an auto repair shop, a social services assistance office, etc.
  • Dr. Potter has made major investments in high technology tools such as digital radiography, intra-oral cameras, computers in all the operatories, a television in the reception area, etc.

The first question to Dr. Potter was:
“How would you describe your patient base?”

Thinking about this, his answer was:
“The majority of my practice is comprised of patients with state financial assistance in order to receive dental care.”

The next logical question was:
“OK…and what is your practice philosophy?”Now this was a much harder question for him because it required some thought.   

  • “I want to provide excellent dental care to patients that appreciate my skills and I can feel comfortable with my fees in exchange for my services”
  • “I want to be profitable enough to be able to reduce my debt load and provide for my family”

Again, these are reasonable expectations from his dental practice BUT……………and this is a big “but”……the location that he has chosen will limit his ability to achieve his practice goals.  Certain statistical steps are necessary in order to make this determination.

Step 1. – Evaluate your practice overhead, using the industry standards.  A total overhead percentage for a single-doctor general practice is around 50-60% of the net collections.  Dr. Potter was running at 80% with limited staff and no hygienist.

Step 2. – Determine what your net collections need to be in order to have a more profitable practice, using the same expenses that were used in Step 1.  Supplies, lab, etc. will increase incrementally with increased production, but we are only going to look at the big picture and keep it simple.

Step 3. – Based on your newly determined net collection figure, increase this amount by the average dollars of production adjustments that you experienced the previous year.  (If you feel that you are not going to post as many adjustments, then make an educated guess.)  ADD this dollar amount to your collection dollar to determine what your gross production goal will be.

Step 4. – Divide the new production goal by the number of days you will be working for the next year and this will give you a daily gross production goal.  Divide this by the number of hours you work per day and now you have…..

Your Daily Hourly Goal!

Step 5. – Review some of the more common procedures that you perform.  Determine how long it takes you to perform each one and see how it compares to your hourly goal.  For example:

Let’s say that it takes you 1 hour to complete a 2-teeth 2-surface posterior resin procedure.  Your fee is $200 per tooth x 2 teeth = $400.00

Your hourly goal is $380.  You are fine here.

Let’s look at a crown and cementation procedure.  90 minutes to prep and place the temp (you only have 1 assistant so you make your own temps) and another 30 minutes to cement the permanent crown.  This is a total of 120 minutes and your fee is $650.  $650 / 120 minutes = $5.41 per minute x 60 minutes = $325 per hour.  This is below your hourly goal.

How much will you be paid for your services?

The amount that you charge and the amount that you actually collect can, in many cases, be very different.  Let’s take the composite example above.  If you are only going to actually receive a reimbursement of $175 for your services, you are NOT fine!  Understand?  We won’t even think about the crown…

All is not lost for Dr. Potter!  He has options:

  • He can sell the practice to another doctor who can afford to operate with less overhead.
  • He can consider bringing in an associate who can practice with a lower hourly goal.  Dr. Potter can open another office in a location that is more conducive to his practice philosophy and financial needs.
  • He can invest in a marketing campaign and attempt to attract more “fee for service” patients.  However, his location is a deterrent.

Needless to say, Dr. Potter was not exactly excited to see the statistics.  However, it has helped him to map his career path for the next several years.  He elected to work on an exit strategy over the next three years and sell the practice.  He wants to stay in the area because it is close to his home.  He will look for a retiring doctor that wants to bring in an associate to transition his practice to.

The success of a practice can be determined on the location.  It is wise to have a marketing study or community overview report created for a location that you may be considering.

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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McKenzie Management
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La Jolla, CA 92037
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