10.5.18 Issue #865 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

How Bonus Plans Can Hurt Your Practice
By Sally McKenzie, CEO

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For decades, business owners - including dentists - have used bonus plans to motivate employees to improve their performance. The problem is, bonus plans just don’t work. In fact, they often end up doing more to hurt a practice than they do to motivate team members to excel.

Of course, you want to reward your employees for a job well done – but bonus plans aren’t your best option. Instead of focusing on providing exceptional patient care, team members worry about what they need to do to receive their next bonus. They often get irritated when they don’t get that extra check, and it shows in the way they interact with other team members as well as your patients.

You might think bonus plans are good for your practice, but sometimes they’re really not. Don’t believe me? Here are a few of the ways bonus plans can hurt your practice, and why you might want to consider developing a non-monetary rewards system based on individual performance instead.

The practice suffers financially. It’s not uncommon for dentists to give out bonuses even when total employee costs are already well above the industry benchmark, which is 20-22% of revenue with an additional 3-5% to cover payroll taxes and benefits. While your team members are happy to receive the extra money, these bonuses send your overhead costs out of control and put the practice’s future in jeopardy – as well as your team members’ job security.

Everyone is rewarded equally, which could cause conflict. The truth is, some employees work harder than others and do more to move the practice forward. With bonus plans, every team member receives the same amount, no matter their effort or contribution. Those employees who are actually responsible for the practice’s success will get pretty frustrated when they realize they get the same bonus as those who do the bare minimum. This could lead to conflict among team members and even turnover.

And of course, there are times when none of the employees are responsible for practice growth, yet they still reap the benefits of a bonus. Here’s an example. Let’s say a new business moves near your practice. Many of the employees and their families make appointments at your office, giving you a boost in production and revenues. That’s great, but this didn’t happen because your employees put in extra effort. It was simply luck.

In this situation, it doesn’t make sense to give out bonuses. Remember, you’ve absorbed all the practice’s financial risk, so it's unfair for employees to benefit from this good fortune.

Money becomes the focus. When team members know there’s a possibility for a bonus, they start to focus on how they can earn that extra money rather than on improving their performance. I’ve worked with practices that met each week to determine what they needed to do to receive their monthly bonus checks. All their efforts would go toward hitting that target, while they ignored the fact that other numbers, such as patient retention, were down. Practice systems were falling short of expectations, yet employees still received their bonus. Not exactly a recipe for long-term practice success.

Bonus plans turn you and your employees into financial adversaries. Bonus plans paid on the practice’s profitability keep you from taking full advantage of tax laws to minimize annual tax payments – creating conflict between you and your team members. You of course want to minimize profits so you can lower your tax burden, while your employees want you to report as much profit as possible to increase their bonus. Employees spend time acting as IRS auditors rather than focusing on helping the practice meet its full potential, and the practice suffers because of it.

Now you might be thinking, OK Sally. I’ll just pay bonuses based on production. Problem solved. Not exactly. You have to think about how much production costs you. For example, you might have produced $500,000 last year, but spent $550,000 to produce it. Bottom line: It doesn’t make sense to pay off bonuses based on production without factoring in production costs.

You start resenting your employees. Think about it. When your practice sees an increase in patient flow and production, it’s often a direct result of something you’ve done and has nothing to do with the team. Maybe you purchased new technology or invested in education to learn a skill that attracts more patients to the practice. Whatever the case, team members are rewarded in the form of a bonus check, while you receive nothing extra. Sure, you could opt to not give out the bonus, but you’re afraid of how employees might react to this news. So you become more resentful with each bonus check you sign.

While it’s important to reward your employees when they go above and beyond, team members often end up getting extra money they didn’t earn because you have a bonus plan in place. Some employees reap the rewards without putting in the hard work, leading to resentment from you as well as the team members who did contribute to practice success. The promise of a bonus doesn’t motivate employees to excel, it just motivates them to do what’s necessary to receive the bonus.

There are more effective ways to improve employee performance. I suggest developing a non-monetary rewards system that recognizes employees who excel. Not sure how?
I have written a book, “Reward Your Dental Team” which will teach you when to use non-financial versus financial rewards, when to use group versus individual rewards, plus how important it is to set performance goals so you know when to give a reward.

Next week: The best ways to reward team members and motivate them to excel

For additional information on this topic and more, visit my blog: The Lighter Side

Interested in speaking to me about your practice concerns? Email sallymck@mckenziemgmt.com
Interested in having McKenzie Management Seminars speak to your dental society or study club? Click here.
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Belle DuCharme, CDPMA
Instructor/Consultant
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Is There A “Rat” in Dental Policy Exclusions?
By Belle DuCharme, CDPMA

A recent article in Kiplinger’s Money Smart Living magazine by David Mulhlbaum told of a little-known policy exclusion called “rodent exclusion.” It seems that the writer’s comprehensive auto policy excluded damage done by mice to the wiring of his vehicle to the cost of some $6,000. In the fine print of his policy it clearly stated damage done by rodents was not covered.

When we present treatment plans and estimated insurance coverage to patients, we go over the benefits of the policy after checking the eligibility of the patient. Benefits are readily available online or by phone. Sometimes the patient has the benefit breakdown, but that is rare. Even more rare is for the patient to have the plan document, which is given to the patient but not to the dental practice. This plan or policy document defines the coverage in much more detail, including exclusions to the policies. 

Dental offices are focused on the benefits because patients want to know what is covered and what they have to pay before having any dental work completed. What isn’t fair to the dental practice or patient is the policy exclusions, which are deceptively kept from the only people who understand them – the dental office insurance coordinators.

Everyone in the business of filing dental claims will tell you that getting paid is a much more complicated “game” than it used to be. Insurance companies often don’t announce new policy exclusions to the dental practices. For instance, it used to be considered standard of care for a patient to receive two clinical examinations (now called evaluations) in a calendar year, usually at the same time as their standard teeth cleaning (prophylaxis). Now some of the big insurance companies (not so much the obscure ones) are requiring the dentist to produce a valid clinical reason to do more than one clinical exam during the year. In other words, if the insurance company is not convinced the patient needs an examination, they will not pay for it – even though it is a benefit. They say they aren’t judging whether the patient needs the exam or not, they are merely stating it is in the “policy or plan limitation” to exclude it if there isn’t clinical rationale to support it.

Experts recommend that each dental practice run a report from it’s software system showing the top ten insurers that represent patients in the practice. If in-network, contact the employer or insurance company and get the policy manual that describes all exclusions. If out-of-network, ask one of your patients to bring the document into the office so you can accurately determine coverage and exclusions.

Another challenge for out-of-network dentists is that the method used by the payer to determine the allowable fee for out-of-network services can vary. Sometimes the out-of-network allowable fee is higher that the PPO’s in-network allowable fee, but sometimes it is less. For example, the dental plan may pay out-of-network fees at the 50th percentile of UCR for the geographic area, instead of the 80th percentile that has been paid in the past. Assuming that being out-of-network will give you a better payout is no longer the truth.

Making the decision to participate in a PPO plan network is confusing, but it can have a huge impact on your dental practice as it affects the number of new patients and cash flow. The old belief that signing up for every PPO will bring an influx of new patients to offset the fee schedules needs to be carefully analyzed. Looking at it realistically, having a larger patient base requires the clinical team to increase their workload to maintain the existing cash flow. With the onslaught of policy exclusions on preventive and basic care (the revenue you used to count on), this could be a financial hardship. 

There is an old saying when it comes to signing contracts: “Read the fine print.” This holds true today in the world of dental insurance. Read the contracts, policy exclusions and methods that determine payment in and out of network, and negotiate for the highest fee before you sign the dotted line.

Need help with this issue? Contact McKenzie Management today and speak to and learn from the industry experts.

If you would like more information on McKenzie Management’sTraining Programs  to improve the performance of your team, email training@mckenziemgmt.com

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