Top 10 Ways to Control Overhead and Improve Profitability

Most of us prefer to spend our limited time each day on clinical dentistry, and as a result, may at times allow some business focus to slide. Over time our lack of attention can lead to higher costs than necessary and may even impact our ability to provide for our family. 

With the current economic market, it has never been more imperative to assess our business practices and find ways to counter the rising costs of overhead expenses as well as stagnant insurance fees. The beginning of the year is an optimum time for you and your team to identify improvements in efficiency and overhead, helping to ensure the health of your business throughout 2024.   

Here are a few suggestions that can make a noticeable difference in time savings and profitability:

1) Price-Shop Instruments

The interesting part about an industry as small as dentistry is there are only a handful of manufacturers, but a significant number of vendors.  With a little bit of research, you can locate the same exact item and pay different prices depending on whom you order from.

For example, Berman Instruments. This company provides instruments made of the same quality as other high-quality, nationally known vendors, but at a fraction of the cost. You buy directly and therefore get double savings. Many of our instruments are not half or less of what we used to pay before, which is great for those often-replaced instruments.

Some of my favorites include their elevators (which are only $21.98), along with their selection of probes and explorers that are all under $20, and college pliers for $7.98.

They do not advertise much, so you are not paying for that additional expense, which is why they are not as well known. View Instrument Selection

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2) Modify In-House Financing

Many offices provide both 3rd Party Financing (ex: Care Credit) and in-house financing, as well as a percentage discount for patients who prepay for their treatments. If you are allowing a patient to do both simultaneously, you are really taking a double hit. If this is the case, I’d recommend you make the options mutually exclusive. This minor change can save you a lot of money over time. 

Here’s why. There is a cost to the business for financing the expense of treatment. You must wait for the money and assume the risk of potential losses from default accounts.  It does not make much sense to allow patients to get a discount on top of that as well.

Here is how such an offer can be presented to a patient:

"Mrs. Jones, we can absolutely obtain financing for your treatment for as low as $99 a month. Or if you would prefer to pay for your treatment in full, many patients appreciate the 10% ($500) savings that comes with that option. What sounds like the better option for you?"

Other opportunities for improving financing effectiveness might be:

• Increase Minimums (if a patient wants to pay out more than 6 months, have a minimum of say $1000 in financed care)

• Reduce more costly payment options (ex: cut the 18-24mo CareCredit option)

• Move long-term payment options to 3rd party administrators that pass on some of that cost to the patient.

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3) Reduce Cost and Time with Supply Tracking

Are you or your team member spending time shopping from multiple suppliers to try to get your costs down?  While the idea is great in concept, the time spent often eats into most if not all savings you could get.

There is an alternative option that allows you to order everything from one platform to save time and automatically reduce your costs.  This also makes it easier if you have a transition in who is ordering.

I met the owner of ZuSo recently, and the concept and platform are impressive. I love their goal of helping private practice stay private. It also helps that they have an average savings of over 1% of collections for offices, which tends to be 15-20%, while also saving time. Time and money are both important, it is best when you can save on both.

Additionally, consider creating what is commonly called a formulary, which is essentially a list of all the approved items to purchase. This prevents the purchase of supplies that are significantly higher in cost (for example, an assistant wanting masks that are a different color without considering the brand being twice the price). While DSOs can achieve some small pricing improvements, one of the main factors that keeps their pricing down is formulary and inventory control.

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4) Switch Merchant Service Companies 

Merchant services are companies that process the credit card transactions that an office collects. There is little regulation in this industry, hence you can end up with some companies charging up to 10x as much as others. With a little effort, you can potentially locate a lower-priced vendor that is more transparent.

Be aware there are different pricing structures that companies use; some are more cost-effective than others despitehow the reps might present their pricing structure. A flat rate is the simplest to understand, but you will pay a higher rate. Interchange Plus is the most transparent and will save you the most money, but your rate will fluctuate month to month slightly depending on the cards you process. Always stay away from tiered plans because they promise low rates but that only applies to the most basic non-reward debit card and the truth is that most cards process at a higher rate than advertised.

Also, avoid contracts that auto-renew and make sure you read the fine print about fees that come out once or twice a year but don’t show up in all statements.

Always get a guarantee in writing that your rate will never change. Many companies will sign you up at a low rate and slowly creep up your rate over time.

For example, we switched to Apex Payment Solutions, which is run by a dentist and offers a lower expense for this basic service. The good news about switching companies like merchant services is that once you are done you will likely never notice a difference, except to your pocketbook. If you are paying more than around 2.1% credit card transaction fees, you might want to investigate switching your merchant service company.

Apex has been great for us for years, with multiple people saying they cannot beat what we have.

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5) Dental Labs

Many labs around the country provide basic services like crowns. As you know, the price of the same crown can range from $50 to $500 per unit across different labs. Unfortunately, the quality of the restoration does not always match the price. Our office has tried different labs over time, and I’m pleased to say that our crowns today are coming in with higher quality and fewer necessary adjustments than ever before. The best part is, I am paying less for our crowns now than ever. It may take some searching to find the right lab for you, but it can be well worth the effort! An all-zirconia crown can easily be under $100, made in the US. With restricted in-network fees, keeping these costs down is incredibly valuable. But even out-of-network, there is no reason to pay more than necessary.

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6) Improve Marketing

A HubSpot study found that companies that increased marketing spend experienced a 126% increase in leads and a 27% increase in revenue, while those that cut marketing had a decrease in leads and revenue. During Covid, we maintained our marketing expenditure while many others decreased or dropped their investment, and we had over $400k in revenue growth for the year.

One of the aspects that holds back an office from growth and profitability is maintaining a healthy new patient flow. Many offices will experience natural attrition of 15-20% annually, which is around 20 patients lost per month for a single dentist. Well-planned and executed marketing efforts serve to bring in more patients, replenish losses, and help grow the office further.

Now, the challenge is making sure the money one puts into marketing is an investment instead of an expense. The investment needs to be worthwhile and effective. Below are some effective tips for marketing:

• Target your ideal, high-value patients, so you aren’t wasting funds on areas unlikely to respond. Patients for hygiene or cosmetics are hard to generate ROI.

• Quality drives quality: Cheap mailers and large discounts bring low-end patients.

• Track campaign results with ROI connected to the production patients spend. Many companies can do this for you and prove their results.

• Get a call tracker to make sure you are not losing all those marketing dollars on missing phone skills and losing opportunities.

These will help you make sure the efforts and budget you put into marketing translate into a great return on investment as well as a lower overhead. There are a few good marketing companies out there, and many flops (I have tried way too many). One example marketing provider that has proven consistent results over the years, and that provides tracking for proof of their effectiveness and ROI, is Patient News. I recommend signing up for their free consultation.

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7) Re-Evaluate Dental Insurance Systems

Dental Insurance is often completely misunderstood by many dental teams, even those who have worked in the industry for years. The insurance industry is highly complex and often not clear or transparent about its policies. Here are a few areas that are commonly misunderstood and often result in lower revenue for the dental office:

Non-Covered Services are those that will never be covered by an insurance policy. A common example is veneers and a less common example would be fluoride for an adult.  In over 40 states an insurance company is not legally allowed to force a dentist to take a discounted fee on these services; yet the EOB will often not accurately show this fact. Offices that aren’t clear about which services are “non-covered” and subsequently accept a discounted fee are losing legitimate revenue. Understanding the specifics in your state can save your practice thousands a year in unnecessary write-offs.  You can find your state law on non-covered services here.

Upgraded Services. Many dental services come with different options.  For example, you could get a standard crown from a lab with average esthetics, or you could get a custom-shaded crown from the same lab for an added cost.  Any added cost for an upgrade like this would be the responsibility of the patient, above and beyond the "negotiated" fee of the insurance company contract agreement.  Understanding how to manage these upgrades and coding options can bring the office significant savings by correctly billing the patient for the upgraded services rendered.

For more information on upgrades, check out this online CE course.

Complete Documentation. Finally, many offices struggle with getting reimbursement from insurance companies for legitimate services rendered.  Often the problem is due to a lack of correct documentation when preparing and submitting a claim.  Insurance companies often require information that dental offices do not naturally capture.  Understanding what information is important can mean the difference between dealing with dozens of crown and SRP denials versus obtaining ready approvals and reimbursement with less time spent and happier patients.  If you have more than a 1% denial rate on these services, our premium courses offer several topics that will pay for themselves within a few days. View Courses

And if you're interested in a complimentary introductory video that explores what is and isn't possible, along with debunking common myths in the industry, feel free to explore this concise, free course.

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8) Consider Outsourcing

Given the current challenges in recruiting reliable and qualified team members, considering outsourcing might become a necessary step for dental offices. The key lies in understanding how to assess your needs and determining if outsourcing is a cost-effective solution.

Outsourcing tasks typically handled by in-house team members can be beneficial if the external company can deliver the service more efficiently and at a lower cost. Similar to marketing, there are both reputable companies and less successful ones in this field.

It's essential to note that outsourcing expenses should be appropriately categorized within the payroll section of your Profit and Loss statement. This is because outsourced entities essentially function as remote employees or contractors. This categorization allows you to assess whether it's worthwhile to retain their services or explore potential replacements for the task in question.

If you would like a full breakdown of how to evaluate a dental insurance biller, check out this article: Should You Outsource Your Dental Insurance Billing?

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9) Improve Clinical Efficiency

In dentistry, the ability to accomplish more in less time often involves working more efficiently rather than faster, resulting in time and cost savings. Simple adjustments to the order or steps in a procedure or system can significantly enhance efficiency with minimal changes.

For instance, consider the common scenario during a crown appointment where the assistant fully sets up the room and completes various tasks before calling the doctor in. This process, followed by the patient waiting for anesthesia, can be time-consuming. Alternatively, optimizing the workflow by having the assistant focus on anesthetic preparation initially allows other steps to be completed while the patient is getting numb. This adjustment can reduce the crown appointment time by 10-20 minutes, benefiting both the office and the patient.

Examining every system or procedure from a different perspective can lead to achieving more in the same timeframe without compromising quality. In dentistry, where time and expertise are integral, the focus should always be on finding ways to better utilize time or streamline systems by eliminating unnecessary steps.

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10) Raise Fees or Drop Networks

As the new year begins, businesses often consider adjusting their pricing to account for rising costs. In dentistry, this adjustment may involve increasing service fees and evaluating network participation. Fee increases typically range from 3-10%, depending on the current fee structure and the office's cost increments for services and supplies.

If you have not checked your fees recently, you really should.  A free online database for fees in each specific area can be found here: https://fairhealthconsumer.org/

Most private practices tend to stick to the 70^th to 80^th percentile, which is what this website tracks. If you are much below the fees listed here, might be time to implement a larger fee increase for the year.

When in-network however, fee increases do not make as much of a difference due to the capped fee schedules.  In this case, there is greater risk involved.  Dropping an insurance network to get higher fees can either help a lot, or it can destroy an office.  The key is making sure to handle this process correctly and make sure the office is ready to handle everything surrounding a change in network status.

If you are wondering whether dropping networks is right for you, check out this in-depth article that starts a whole series on how to handle insurance. FFS vs. PPO: Are You an Apple or an Orange?

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Bonus! 11) Learn to Read What Your P&L is Telling You About Your Business

Often, dentists view P&Ls primarily as a tool for their CPA and may not give them thorough attention or analysis. In my early years of managing a practice, I too was guilty of overlooking my P&Ls. However, when properly structured, a P&L can provide comprehensive insights into the current health of the business, highlight areas for improvement, and offer guidance on planning for growth and enhancing profitability.

It is beneficial to commence by understanding the fundamental categories and the industry's anticipated percentages for each in relation to your office's collections:

• Payroll 20-25%

• Rent 7-10%

• Marketing 3-10% (depending on the speed of growth goals)

• Labs 6-8%

• Supplies 4-5%

To answer the most common questions that come up:

• Payroll is for all non-doctor pay, outsourcing and temps, payroll taxes and expenses, benefits, and bonuses.

• For loans, only the interest payment is an office expense, whereas the repayment of principal is considered part of the profit of the owner/office by the IRS.

Keeping these numbers and categories in mind can help you evaluate how your office is functioning and which areas to focus on for improvement.

Summary

Operate more intelligently, not more strenuously! None of these alternatives entail altering your dental procedures. By dedicating time to educate yourself and your team in a few of these areas, substantial dividends can be realized over time.