A Good Dentist Deserves a Reasonable Fee Increase

Editorial
by Jim Du Molin

“Okay, I’m ready to raise my fees… Now what?”

This is the third (and final) installment in my series about dental fees. First we discussed the role dental patients play. Last week, I talked about insurance companies. And now that I’ve convinced you that it’s time to raise your dental fees, let’s move on to how you should do that.

One of the toughest questions we face in dentistry is “How much should we raise our fees?”

We’ve previously discussed the fee restrictions imposed by insurance companies, especially those which may have the effect of imposing a ceiling on dentists who choose to indenture themselves to a pre-set fee structure. We also dealt with the more subtle issue of overcoming fee objections from patients by enhancing the perceived value of the dentistry.

In this section, we look at the question of how much of a fee increase is reasonable, other limitations aside. There are three key elements to consider.

  1. Is your practice producing a reasonable economic return?
  2. What has been the inflation rate for your cost of providing service since your last fee increase?
  3. Are you being adequately compensated for the quality of materials you use and your personal experience in providing your primary treatments?

How large a fee increase you “need” will depend on whether you need to increase profits, or merely maintain profits in the face of inflation.

Is your practice producing a reasonable economic return? If your practice is running a chronic monthly deficit, clearly the answer is “no.” On the other hand, are you narrowly avoiding a deficit in the practice by under compensating yourself?

In either case, the practice is not realizing a reasonable return and we must address the basic issue of economic survival. You are providing a necessary health care service to the community. However, to continue doing so, you must be able to pay all of your bills each month and take home a reasonable personal income.

How much is “reasonable”? A reasonable income compensates you for the risks you have taken. These include the cost of your education, the cost of purchasing a practice and/or equipment, operating loans taken against your practice, and the investment in time and energy that you and your family have made to establish your practice.

Just as important, a “reasonable” income includes setting aside enough each month to provide for retirement and/or financial independence. Ninety-two percent of the dentists in America continue to work past the age of 65. Some of them are doing so because they enjoy treating patients. In reality, many probably do not have a choice, and must continue working to maintain their lifestyle.

Raising fees alone may not increase profits enough to eliminate your chronic monthly practice deficit, fully cover your personal lifestyle needs, and allow you to accumulate the funds needed for long-term financial independence. That’s a big bill to fill. However, fees are a primary strategy.

The unique thing about raising fees as a strategy to increase profits is that, assuming collections are well managed, virtually 100% of a fee increase goes straight to bottom-line profits.

In contrast, most other strategies for increasing profits require an increase in production, and that means additional costs in the areas of treatment supplies, lab fees, and staff costs. Moreover, it means the dentist or other providers in the practice have to see more patients.

Raising fees gives you more dollars without doing more work. That means more profits without increasing stress.

The second element in the fees equation is the dental inflation rate since your last fee increase. This is the percentage increase in your overall operating expenses, including staff salaries, rent, insurance cost, supplies and lab fees. It is important to remember that inflation acts as a hidden tax on your income. If the cost of providing your services goes up by 5% and you raise your fees only 3%, the 2% difference comes out of your pocket.

To calculate the inflation rate for dentistry, take an estimated consumer inflation rate of 2.5% and divide it by 12 to get the monthly average rate of inflation (0.20). Then multiple the monthly consumer inflation rate by the number of months since your last fee increase (lets say 6 months) to generate consumer inflation since your last fee increase (0.20 X 6 = 1.2).

Unfortunately we can’t stop there. According to the ADA, dental inflation traditionally runs at about 1.74 times consumer inflation. (If anyone has seen a recently updated dental inflation rate from the ADA, please feel free to email me.) So we have to almost double the consumer rate of inflation to get the true rate of dental inflation. Another way to look at it is that you are currently discounting your fee by the rate of dental inflation since your last fee increase.

The final and one of the most important areas to consider in setting your fees is “How much more should you be compensated for the quality of materials you use and your experience in providing treatment?”

The real issue we are addressing here is that not all dentists are created equal. How should you be compensated, relative to other dentists, for the fact that you have years of experience, obtain an extraordinary number of hours of continuing education per year, and/or maintain the latest technology in materials and equipment?

Shouldn’t your higher level of experience, training and technical delivery warrant a premium when setting your fees? Is this worth an additional 3%, 6% or even 10% over less experienced and less qualified practitioners in your area? Only you know how you compare in this area.

How much of a fee increase is the “right” amount? Assuming that your fees were reasonable a year ago, a simple 3.5% to 4% increase to cover inflation on your costs is a reasonable place to start. Of course, if your fees have not kept pace with inflation for two or more years, a larger increase may be necessary to catch up.

On top of this, add whatever premium you feel is warranted for the quality of materials you use and your experience as a practitioner. This is a highly subjective matter, and there is no “right” answer.

Some doctors will need to add a third layer to their fee increase to derive a reasonable economic return. These are the doctors who need to increase the bottom line so that the practice is profitable and compensates the dentist fairly.

You deserve to take home enough income to keep up with inflationary increases in your personal living expenses such as food, clothing, and child care, and also put away some dollars for financial independence.

Remember that quality treatment must be supported by fees. The fees you charge should adequately compensate you and allow you to maintain your staff, facilities and continuing education at the highest levels.

Dental Insurance and Fee-Setting

Setting Dental Fees (and Dealing with Insurance Companies)

An auto mechanic changing a muffler has more control over the fees he charges than many doctors.

Last week I discussed how to handle dental patients and dental fees. Now it’s time to discuss insurance companies.

I remember asking doctors to explain exactly what procedures they followed when they increased their fees. Each explained that he took his old fee schedule and guesstimated a general 3%-6% increase in fees on those services he performed most. The next step, in about 80% of the cases, was to send the new fee schedule to the insurance company for approval.

At this point I would jump in and ask a series of questions:

  1. Why are you sending your fee schedule to an insurance company for approval?
  2. Is the insurance company a partner in your practice?
  3. How much money did the insurance company invest in your practice? Do they chip in extra cash at the end of the month if collections are short of what it costs you to run the practice?

I would then ask, “Was your new fee schedule rejected by an insurance company within the last year?” Over half the doctors I asked said yes.

One doctor explained that his fee increases had been rejected three times by an insurance company and each time the process took two months. After six months, he still hadn’t gotten approval. Each time he was rejected, the insurance company explained that his fees were 1.5% to 4% over what is considered the usual and customary fee for practitioners in his zip code area.

When the doctor called the insurance company to ask what he could charge on specific treatments, relative to other practitioners in his zip code, he was informed that that information was confidential and that he would have to just keep guessing until he got it right.

At this point, most doctors come to the conclusion that the deck is stacked against them. What does your zip code have to do with what you need to charge your patients to economically perform treatment? Does everyone else in your zip code have the same overhead expenses, use the same quality of materials, invest in the same level of continuing education for their staff, and have the same amount of experience that you have in providing a given treatment?

Before we take this discussion any further, I want to be clear that not all insurance companies treat the participating doctors in this manner. Additionally, dental prepayment plans have dramatically increased the affordability of and thus the availability of dental treatment to the public.

In exchange for the patient referral and the automatic assignment of benefits, many doctors have signed agreements stating that “they may not charge a patient from DLT Dental Insurance Company a rate higher than their usual and customary fee for a specific treatment.” However, an increasing number of doctors are finding themselves being squeezed by increasing operational costs on one side, and the amount they are allowed to charge as specified by their PPO and HMO agreements on the other side.

Dental care treatment costs increase annually at a rate of 4% to 4.5% as compared to the general inflation rate of 2.5%. Many insurance companies are holding fee increases to the 2.5% level, which leaves the remaining 2% increase in operating costs to come from the doctor’s pocket. In a practice producing $360,000 a year, with 50% of the patients on prepaid-fee controlled programs, the loss to the doctor will be approximately $3,600.

What are your choices?

Your first choice is to resign as a preferred provider from the offending prepaid plans. Resigning does not necessarily mean you will lose the patients who carry this plan. What it does mean is that the patient will have to pay you first and seek reimbursement from the insurance carrier directly. It is interesting to see how much faster the patient is reimbursed for treatment than when the doctor takes assignment and files through the practice.

We want to be clear that we are not recommending that every doctor drop his insurance company affiliations. However, if only 10% to 20% of your patients are on fee-controlled prepayment plans, you might find it to your advantage to ask these people to file for reimbursement directly with the carrier. For the most part, the verbal skills of your staff in explaining your new policy to patients is the key to successfully implementing this change.

If 40% or more of your patient base is on a controlled-fee insurance plan, the thought of dropping the plans may be a little frightening. There may be a less scary alternative: two fee structures.

Now before we go much further, we want to qualify these comments with the admonition to check your insurance plan agreements very carefully. Also, check any state or local regulations which may govern your fees. Your dental society is one of the best sources of advice in this area.

Many of your insurance company agreements stipulate that “you may not charge a patient with DLT Dental Insurance Company a rate higher than your usual and customary fee for a specific treatment.” The reverse of this is also true – you may charge a DLT patient less than your usual and customary fee.

The logical result is two fee structures: one fee structure for DLT insurance company patients, and a higher fee structure for “usual and customary” patients. In implementing this strategy, there are two aspects to consider, one practical and one ethical.

On the practical side, you need a method to identify different fee structures with different patients. This is one place where a computer system is invaluable. Most systems allow multiple fee structures, with the appropriate structure being assigned to the patient at the time of initial data entry for insurance and billing. Many doctors have found that the multiple fee handling features can pay for the entire computer system.

For non-computerized practices, a simple color-coded sticker on the inside of the patient’s chart can act as a reminder to the doctor and staff of which fee structure to use.

The question that usually comes up at this point is what to tell the patient when you have just quoted her a crown fee of $632 and she asks, “Why doctor, my cousin Mary was here just last week, and you did her crown for only $580. Why am I paying more?” First you must recognize that the chance of this happening, even in a small town, is rare. But if it should happen, deal with the question with honesty and integrity.

Pull cousin Mary’s chart and tell your patient the truth. “You’re right; we did do Mary’s crown for $580. Mary works for ABC Electric Company, which provides her dental insurance through the DLT company. By contract, we have registered a special set of fees with DLT. If you had your insurance through DLT, we could offer you the same rate.”

People are used to special discounts for different classes of patients. Most doctors give 5%-10% off for the elderly. Many give up to 8% off to patients who pay cash. In our example, Mary received a reduced rate because she is insured through the DLT company.

The ethical question is not as easily answered. With two fee structures, your “usual and customary” fee patients are actually subsidizing your DLT insurance patients. This a question which each doctor must wrestle with individually.

Remember that quality treatment must be supported by fees that allow you to maintain your staff, facilities and continuing education at the highest levels of which you are capable. If fees are restricted by one class of insurance patient, do you cut back on the quality you provide, or raise fees for your usual and customary patients?

There is no easy answer. We welcome your comments.

Setting Dental Practice Fees: Dentists and Patients

Negotiating Fees with Patients

“Doctor, your fees for this treatment plan seem awfully high to me. I called Dr. Slipshod’s office down the block and they said they could do it for a lot less.”

For many doctors, this statement leads to the ultimate test of self-confidence. When a patient questions your fees, you may feel that they are questioning your personal and professional integrity, your technical competence, and/or the value of your services.

You have invested years of education and financial sacrifice to master your craft. Yet, invariably, you continue to encounter patients who question your right to be adequately compensated.

In addition, the patient is making you feel that you are overpriced for the market place and can’t compete. You worry about losing the time you’ve invested in preparing the treatment plan, if the patient goes to another practice that’s willing to cut fees to compete.

While all of these thoughts and emotions may come to mind, the reality of the situation may be entirely different. In reality, the patient is setting the stage to negotiate.

The patient is saying that in her opinion, your fees “seem awfully high.” The reality is that the patient hasn’t the slightest clue of what it costs you to provide the treatment. Her only justification for her statement is that she called Dr. Slipshod’s office for a comparative bid. Did Dr. Slipshod perform a complete exam and prepare a treatment plan over the phone?

When a patient makes this type of statement, she is really making her opening move to negotiate a lower fee. She is “bottom fishing” for the best deal.

You have several choices at this point.

  1. Cave in and cut your fee.
  2. Become irate and lose the patient to Dr. Slipshod.
  3. Play the game, understanding that the stake is the patient’s personal health care.

The first thing you must understand is that choice number one is never acceptable. Cutting your fee is cutting your throat. It is tantamount to telling the patient that your craftsmanship is overpriced and your fees are negotiable.

On top of that insult, you are adding injury to the basic economics of managing your practice. It costs money to deliver quality health care. Inadequate compensation can only lead to a reduction in qualified support staff, the use of lesser materials, and reliance on inadequate or obsolete equipment.

Choice number two is a lose/lose situation for both you and the patient. You become angry because you feel the patient has attacked your personal and professional value. Rather than deal with the negotiating ploy, you send the patient to Dr. Slipshod for what could possibly be inferior treatment. This reaction denigrates you and embarrasses the patient.

Even worse, you have lost the patient and the patient’s health care may have suffered. Again, an unacceptable alternative.

Your final choice is to play the game, understanding that you and the patient are really negotiating on the quality of the patient’s health care. You must structure the negotiation so that both you and the patient can win. Remember that in the psychology of negotiating, the person who blinks first often loses. With that in mind, let’s replay the dialogue:

Patient: “Doctor, your fees for this treatment plan seem awfully high to me. I called Dr. Slipshod’s office down the block and they said they could do it for a lot less.”
Doctor: “Mrs. Bottomfisher, we are very proud of our fees.”

At this point the doctor must be absolutely silent. What you have just said is that you feel good about your fees and that they are correctly calculated. At this point, eighty percent of the patients will stop negotiating and accept treatment.

The worst case is that the patient asks: “What do you mean by that?”

Your reply is, “Our fees are based on the quality of the materials we use and our experience in performing this treatment.” And don’t say another word.

It is rare that a patient will persist in questioning your fees after this statement. The implication to the patient is that if you want your treatment performed with lesser quality materials or by a less experienced doctor, you are welcome to go elsewhere. In any case, you have made the statement in such a way as to reinforce your personal and professional integrity without embarrassing the patient.

If Mrs. Bottomfisher persists in arguing about fees, the question now becomes: is this the type of person you want in your practice? Assuming you offer a full range of payment alternatives to make the treatment plan affordable, the persistent bickering over fees indicates the patient places a higher value on money than health care. In this case, you end the conversation with this statement:

“Mrs. Bottomfisher, we appreciate your concern over the cost of your treatment plan. If you like, we’ll be happy to send your x-rays down to Dr. Slipshod’s office.”

This statement tells the patient the negotiation is over and that you are confident in your position. It should always be followed by, “If for any reason you would like to return to our practice, please don’t hesitate to call us. We’ll be glad to have you back.”

The final statement graciously leaves your door open to the return of the patient. Plus, there is a good chance that she will return within a year, after having thought about the possibility that she is receiving poor materials or inexperienced treatment at Dr. Slipshod’s office.

In developing financial strategies for our consulting clients we are often asked, “What should my fees be?”

Our answer is invariably, “Whatever you feel confident in charging.” There is essentially no limit to what you can charge for your services. (We will discuss the issues surrounding insurance companies and your fees in my next editorial.)

The basic premise is that you are confident that your fees are representative of the quality of the materials you use and your experience in performing the treatment.

The key word is confident. Any lack of confidence or hesitation will be detected by the patient and exploited in the negotiation.

One of the most successful doctors we know accepts no insurance and requires all fees be paid in full prior to beginning treatment. The cost to a patient for a single gold crown ranges from $950 to $1,250.

He presents his treatment plan by saying, “My fee for performing this treatment is $950. I will attach a copy of the lab bill detailing the materials and their preparation cost to your bill.” His case acceptance level is in the 90% range.

Patients immediately perceive that this doctor knows his worth. I must also add that every stage of the patient’s interaction with the doctor’s staff, facility and post-treatment care are of the very highest quality. This high level of quality supports the 90% acceptance level and reinforces the sense of value the patient perceives in the doctor’s capability to deliver the treatment.

The best confidence-builder to help you feel comfortable with your fees is very simple. Just remember that quality treatment must be supported by commensurate fees.

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