Private Equity Dental Management Companies Come Under Fire

Private Equity Dental Management Companies Come Under FirePrivate Equity dental management companies are at the center of a U.S. Senate inquiry, audits, investigations and civil actions in six states over allegations of unnecessary procedures, low-quality treatment and the unlicensed practice of dentistry, according to a report released by Bloomberg News.

Federal lawmakers and state regulators are trying to determine whether a popular dental practice model funded by Wall Street is having a destructive influence on dentistry in the U.S.

The private equity dental companies only account for about 12,000, or 8%, of U.S. dental practices, according to Thomas A. Climo, a Las Vegas dental consultant.

In 2010, The Wealthy Dentist reported that All Smiles Dental Center Inc., a management company owned by Chicago-based Valor Equity Partners, filed for bankruptcy protection after a Texas Medicaid action cut off reimbursement payments because of their exorbitant amounts of orthodontic care at the expense of Texas taxpayers.

All Smiles was part of a state audit that discovered 90% of the Medicaid claims for orthodontic braces weren’t medically needed.

After years of criticism that the poor were being deprived of dental care under Medicaid, class-action lawsuits and public pressure forced Medicaid to change their health care reimbursements. As reported by The Wealthy Dentist in our story, Taxpayers Footing the Bill for Braces in Texas, some Texas’ dental practices went on to bill Medicaid $184 million for Medicaid orthodontics — more than the rest of the United States combined.

M. Alec Parker, executive director of the North Carolina Dental Society told Bloomberg News that the private equity industry stepped up its investments in dental management over the last 5 years partly because health care was one of the few areas that grew through the recession.

According to the Bloomberg report, Christine Ellis, a Dallas orthodontist, who testified before Congress in April of this year reported that the “flagrancy of the fraud” she found in audits she performed for Texas Medicaid “is truly unbelievable,” with only 10% of the paid claims she reviewed actually qualifying for Medicaid coverage.

Ellis told the U.S. House Committee on Oversight and Government Reform that Texas “has gained a lot of fraudulent orthodontic providers, including many private equity owned dental clinics engaged in the illegal practice of dentistry.”

Medicaid's Dental Boom - Bloomberg News

This May North Carolina is considering legislation that would subject agreements between dentists and the companies to state approval over concerns brought about by the the practices of private equity dental practices.

The Wealthy Dentist twice reported on the North Carolina Senate Bill 655 that would require the North Carolina Board of Dental Examiners to examine all business contracts entered into by dental practices in their state.

Our first article, Dentists Beware: The Government May Want To Tell You How To Manage Your Practice detailed information concerning inclusive authority over how dentists manage their business.

The second The Wealthy Dentist article, Dental Practice Management: North Carolina Senate Bill Wants Dentists To Do It Themselves discussed dentist responses to the impact this bill could have on their dental practices.

The measure has already passed the state Senate and has moved on to the House, where leaders have appointed a special interim committee to study the bill and its potential repercussions to dentists.

Reports have surfaced that the legislative proposal likely to be heard this month. The basics of the bill is intended to restrict contracts dentists can build with dental service organizations and give the Dental Board control of how dentists in North Carolina run their practices.

The North Carolina Dental Society supports the bill, stating that dental management companies often bill dental patients for unneeded care and opponents insist that passage of the bill will only drive up dental care costs.

What are your thoughts on private equity dental management practices?

For more on this story see: Dental Abuse Seen Driven by Private Equity Investments

The Economics of Dental Hygienists

Analyzing Your Hygiene Profit Potential
Editorial by Jim Du Molin

Last week I started talking about dentists and dental hygienists, and how you, the dentist, need to think like a capitalist. The first step in this capitalistic venture is preparing the operatory space for the hygienist – as I mentioned last week, it’s both an investment and a risk, and it’s one you need to consider fully.

Next you need to actually hire a hygienist. Let us assume that the dentist is working four days per week and that 25% of his or her time is spent performing treatments that a hygienist could perform. This means that there is at least one day of potential hygiene production per week.

Let us further assume that based on the dentist’s fee schedule, a hygienist would average $700 per day in production. Collections at 96% would reduce this to $672, from which we have to deduct variable costs (disposable supplies and materials used in treatment), salary, and employer taxes. Our estimated profit before indirect overhead costs is $292 per day.

Daily Gross Profit on Hygiene Production

Production $700
Collections (96%) $672
Minus variable costs (9%) – $63
Minus salary – $288
Minus employer taxes – $29
Profit before indirect costs $292

This is the first level of profit to be realized from hiring the hygienist – direct profit on the hygienist’s production. Adding just one day of hygiene per week provides $1,168 of passive income per month and $14,000 per year.

More importantly, the dentist is now free to use his or her time more productively. Previously, 25% of the dentist’s time (two hours per day) was used to perform hygiene treatments. Let’s say that he or she could bill $88 an hour for those treatments. Now, the dentist can use these two hours to perform more complex and more costly treatments – at, say, $313 per hour. That’s an increase of $225 per hour, or $450 per day.

Assuming that collections are 96%, and variable costs including lab and supplies are 24%, the marginal net profit on the additional production is 72%. Therefore, if daily production increases by $450, the extra net profit will be $324. Remember, that’s $324 everyday. In an average 16-day month, that comes to an additional $5,184 in profit per month.

Adding the dentist’s additional production to the hygienist’s production, the total additional profit is $6,352 ($1,168 + $5,184) per month.
However, there’s more to the story: capitalists have to take risks, and smart capitalists can make lots of money… but I’ll get to that next week!

Dentists: Do You Offer Laughing Gas? (video)

laughing gas survey videoNitrous oxide sedation at the dentist office is no longer the mainstay it once was, but laughing gas is still around. The Wealthy Dentist conducted a survey asking dentists if they still offer laughing gas.

We received a variety of responses from dentists.

A Texas dentist replied, “Nitrous should be available in all offices. This is just good customer service. It is not the dentist’s decision whether or not a patient needs it. All patients should be asked if they would like it. Charge a reasonable fee and it is money in the bank!”

A Washington dentist disagreed, “I think it’s nuts to use nitrous…the dentist and staff are breathing it (which has been shown to cause miscarriages and neurological problems, along with who wants a “high” dentist), it’s takes tons of time to set up, and it’s expensive!”

We found that specialists are significantly more likely than general dentists to offer conscious sedation. Since specialists often perform more intensive procedures than general dentists, they may have need for more sedation dentistry options.

To hear more of what dentists had to say about nitrous oxide, please click play and watch the following dental survey video

Do you still offer nitrous oxide? Tell us what you think in the comments.

Would you like to take part in our dental marketing surveys? Be sure to sign up for our email newsletter in the right sidebar of this blog.

Our survey question newsletter is emailed each Friday.

Infection Control: Dentists Make Changes To Avoid Deadly Viruses (video)

infectious disease controlThis week an article by Science Daily outlined a study published in IOP Publishing’s Journal of Breath Research, where researchers invented a non-invasive breath test to measure the H1N1 strain (swine flu).

The researchers claim that over half of the people in Glasgow vaccinated during the 2009 swine flu pandemic were already infected with the flu virus, meaning they were vaccinated unnecessarily.

Scientists hope that a breath test will allow doctors to identify those who already sick, therefore allowing them to save the vaccine for people who are not yet infected.

This latest scientific invention reminded us of a Wealthy Dentist survey where we asked dentists if the threat of deadly viruses caused them to make any changes at their dental practice.

Click on Play to hear what dentists had to say about precautions against pandemics such as the Swine Flu –

The changes the some of the dentists surveyed made were –

  1. More frequent hand washing and use of a hand sanitizer.
  2. Not treating patients who feel ill.
  3. Encouraging sick employees to stay home.
  4. Use of R95 face masks.
  5. Use of eye shields.

This fall students entering 7th – 12th grade must get a whooping cough vaccine within the first month of the school year in order to stay in school.

Have you made any changes at your dental practice to avoid infectious diseases like the swine flu or whooping cough?

For more on the swine flu breath test see ‘Swine Flu’ Breath Test Could Reduce Future Vaccination Shortages, Research Suggests.

Dental Hygienists: Further Economic Considerations

Comparing Hygienists and Associates
Editorial by Jim Du Molin

Four out of five dentists in a recent Wealthy Dentist survey report paying their dental hygienists a salary or base hourly wage rather than on commission. It’s an important economic consideration for any dentist.

When setting compensation structures or assigning available operatory space, it is useful to analyze the relative profitability of the individual producers in the practice. The chart below begins by analyzing one dentist’s profit on his two hygienists, Mary and Tim, after direct costs (labor and treatment supplies) but before general overhead costs such as rent and office administration.

Comparative Value of One Day’s Production

Hygienists Mary Tim
(Commission) (Salary)
Production $700 $700
Collections (96%) 672 672
..Less: variable costs (9%) – 63 – 63
..Less: labor
…..commission (45%) – 288 n/a
…..salary n/a – 288
…..employer taxes (10%) – 29 – 29
Profit $292 $292

In the example, Mary is paid on commission (45% of production), whereas Tim is paid a flat daily salary of $288. At current production levels, the dentist realizes about the same amount of profit on each, $292 per day.

As production increases, Tim will become increasingly more profitable than Mary. The dentist’s profit on Mary will always be 36% of whatever amount she produces, as a result of the commission structure.

Measuring Profits

Profit margin on: Mary Tim
Collections 96% 96%
Less: variable costs – 9% – 9%
Less: commission – 41% n/a
Less: employer taxes – 10% n/a
Profit 36% 87%

However, for each additional dollar that Tim produces, the dentist’s profit will be 87% – over twice as much! This is because once Tim’s salary is paid, there is no further labor cost for that day.

Suppose the dentist has a goal to increase profit in the practice by $1,000 per month, or $58 per day. Mary would have to produce an extra $161 ($58 divided by 36%) to generate the $58 profit; Tim would only have to produce an extra $67.

The majority of the practices that we see have a goal of increasing profit. For the most part, this means that production must increase. Clearly, the dentist in this situation wants to convert his hygiene department to a salaried basis. That way, the doctor will net more profit on each additional dollar produced.

The conversion from commission basis to salary basis, together with the setting of the higher goals, can be structured as a “Win-Win” situation that benefits both the hygienists and the dentist.

Let’s assume that the dentist has already determined that in order to meet the practice’s goals, hygiene production has to equal $962 per day. (We have repeatedly seen practices increase hygiene production from levels of $700 per day to $1,000 or more per day.)

An equitable, Win-Win compensation alternative that meets the dentist’s goal and motivates the hygienists could look like the following:

Step 1: Effective immediately, both hygienists are placed on salary at $288 per day.

Step 2: The new production goal is $962 per hygienist per day, with advanced training to be provided.

Step 3: When each hygienist achieves an average production level equal to the new goal for one month, then he or she will earn a one-time increase in base salary of $25 per day, for a total of $313.

Increasing Daily Hygiene Production to $962… plus:

Tim (Salary) Goal Increase
Production 700 962 262
Collections (96%) 672 924 252
Less:
…variable costs (9%) – 63 – 87 24
…commission (41%) n/a n/a
…salary – 288 – 313 25
…employer taxes (10%) – 29 – 31 3
Profit per Day 292 493 200

Under this proposal, neither hygienist experiences a reduction in current income due to the conversion from commission to salary. However, they do obtain the potential for realizing significantly higher levels of income, and the doctor increases his or her profit by $200 per hygienist a day. This is achieved through a combination of advanced clinical training and a bonus system that motivates the entire office staff to achieve ever-higher levels of production.

Next week I’ll discuss the economic differences between hygienists and dental associates.

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