July/August 2011, Volume 32, Issue 6
Published by AEGIS Communications
Evaluating Your Participation with Insurance Plans
When participating with an insurance plan, most dentists have probably asked: Is the practice really making money by participating with this plan—or is it losing money?
Of course, no professional wants to be paid less than the “going rate” for his or her services. In addition, the myth of the write-off must be addressed. Often in the dental industry the thought process has been that a write-off equals the amount of money lost. This would be 100% true if the clinician were choosing whether or not to do a procedure for the full fee in room one and the same procedure for a reduced fee in room two. The main reason the “write-off equals money lost” logic is faulty is that most practices do not have an endless supply of patients lined up to receive the services at the full fee.
A hypothetical example from the airline industry may be used to illustrate this concept. Airline A charges $500 for a round-trip ticket from Dallas to New York City. Its plane holds 100 passengers. Airline B charges $425 for the same route; its plane also holds 100 passengers. The difference is in the services offered on the flights. Airline A’s flight attendants wear professional business suits and offer a full can of soda to their passengers, along with a choice of peanuts or pretzels. Airline B’s flight team wears polo shirts and khaki shorts and provides only a small cup of soda and just pretzels to their passengers. On the average flight, Airline A has 30 open seats while Airline B has only 10 open seats. Therefore, Airline B generates an additional $3,250 on that trip. The board of directors for Airline B is not concerned that the company lost $75 per ticket compared with Airline A’s fee. Airline B knows that it made more money and that its price point is a competitive edge that brings the airline more customers. Even better, most of the Airline B customers know that they saved $75 on their ticket and will spread the word.
The airline analogy is appropriate because, like dentistry, air travel is a highly competitive industry with huge overhead and rising costs. There are distinct similarities to the business operations of a dental practice. With the shift in the economy over the past several years, insurance plan participation is playing a more significant role. Being able to evaluate if the practice is making money on an insurance plan is a skill that is paramount to profitability.
Profit from the Plan
First, determine how much income each plan contributes to the practice. Start with an individual participatory plan and find out how much money it brought into the practice over the past 12 months. This figure will include not only direct payments to the practice by the benefit plan, but also what was paid to the practice by patients who are covered by this plan. Take this combined total and divide it by the total practice collections to determine what percentage of the practice’s income came from this particular benefit plan. For example, if XYZ benefit plan paid $100,000 to the practice while the patients of this plan paid $200,000 out of pocket, the total value from participating in this plan is $300,000. If the practice income is $1 million, then XYZ benefit plan and its customers make up 30% of the practice income.
The next step is to determine how much appointment time went to the patients with this participatory plan. This can be done through a random manual audit or through practice management software. If XYZ plan occupied 25% of chair time but brought in 30% of the practice’s income, as in the prior computation, the plan is profitable. If XYZ plan patients occupied 40% of the practice’s chair time and brought in only 30% of its revenue, there is an issue that needs to be addressed.
Are the participatory plans hurting the practice’s schedule or does the scheduling need to be done differently? While daily scheduling can be rather fluid, appropriate templating and managing of the appointment book can make or break practice profitability. Too often practices schedule every restorative procedure for an hour, or base their scheduling on gross production rather than net production (net production is what is actually collectible). By utilizing software programs, each day is scheduled with an intentional and appropriate mix of procedures. In addition, team members should welcome as many patients as possible to stay that day and have treatment done if possible given the current day’s schedule.
Finally, clinicians should ask patients with whom they have a good relationship how great of an impact plan participation has on their choice of staying with the practice.
In the present economy, monitoring practice profitability is becoming more important as patients’ dollars are squeezed and they strive to maximize their plan benefits. Dental practices that continue to provide a high level of service while learning to be flexible and effectively utilizing their chair time will continue to grow and experience success.
About the Author
Penny Reed Limoli is a dental practice management consultant from Arlington, Tennessee.