Minimize Practice Overhead To Maximize Profit
Last month during the 2017 Yankee Dental Conference in Boston, I was interviewed on the topic of Minimizing Practice Overhead to Maximize Profits.? While this interview was geared specifically towards dental practice owners, much of the information discussed applies to all healthcare practice owners.? I hope you are able to use some of this information to increase the profitability of your practice.
Below are the talking points from that interview:
Question – Like any business, dental practices pay a lot of money on their overhead each year.?
Yes, overhead for most general practices ranges from a low of 45% of collections to as high as 60% or more.? Please note that is ?non-doctor? overhead, which means that the salaries and benefits paid to owners and Associates are excluded from overhead. Most dental practices, therefore, have somewhere between 40% and 55% of practice collections available to pay the salary and benefits of the owners and the other doctors, and also pay the practice debts and invest in equipment and technology.
Question – What is generally the largest expense incurred by dentists?
Staff expenses are pretty much always the largest expense grouping. Practices we work with around Boston pay on average 23%-28% or higher of their collections for salaries, payroll taxes, health insurance, retirement plan contributions, and other staff costs and benefits Remember, this is non-doctor staff costs that includes the hygienists, assistants, and front desk/admin staff.
Question ? How can practice owners minimize their staff costs?
Start by leveraging technology that is available and reasonably inexpensive to replace labor intensive activities.? All practices can improve communication with patients and save payroll costs by utilizing programs that sit on top of the popular practice management systems and interact with practice patients, including:
- Lighthouse 360
- Revenue Well
- Solution Reach (fka Smile Reminders)
- Demand Force
One of my clients insists that using Lighthouse 360 saved the practice that he had purchased a few years prior. When set up properly, these programs save staff time and cost by:
- Confirming appointments via text message or email
- Filling the schedule following cancellations
- Sending out surveys following each visit
- Promoting Yelp and Google reviews
Another way to save staff time and costs is to utilize a collections service.?Paying staff to chase after delinquent patient receivables becomes expensive.? An inexpensive service such as the one provided by Transworld Systems sends out a series of 5 letters to delinquent patients for a cost of just $15 per account.? The series of letters starts out very friendly and then proceeds to get a little more demanding with each subsequent letter sent out.
Another benefit of using a collection service is that doing so?helps front desk staff adhere to the financial policies of the practice.? All they need to do is send over a delinquent account through a web based system once the account exceeds a set number of days past due.
Question ? What about marketing costs?? It seems dentists can spend a lot on marketing that doesn?t always pay off with results.
Practices we work with seem to spend 1% to 2% of their collections on advertising and marketing each year.? According to a recent article in Dental Economics, the best way for practices to attract new patients is through:
- Existing Patients
- The?Practice’s Website
- Social Media (Facebook and Google ads)
- Yelp and Google ratings and review
To get the best results from these four methods of marketing, make sure that each patient has the best possible experience with each visit to your office so they become your best advertisement by broadcasting to their friends and family how great you are. Also make sure to track how new patients heard about your office to figure out how best to allocate your marketing dollars and efforts
I strongly recommend that you read 1 800-Dentist founder Fred Joyal?s book ??Everything is Marketing.
Question – What Are Some Other Opportunities to Cut Some Costs?
Here are some recurring costs that you might be able to save by contacting a few providers to get updated pricing:
- Merchant Fees – don’t assume you have the best pricing for processing credit cards.
- Utility Costs ? now that there has been deregulation.
- Insurance Costs ? putting all insurance with one company can save money
Question – A lot of dentists who purchase existing practices, purchase equipment or technology, or open or expand practices have loans they are paying.? What can these dentists do to cut this overhead expense?
There are a few options available to practice owners with debt to cut the interest rate on those loans. Start by trying an?“Internal Refinancing” with your current lender. This opportunity is generally available after 1 year of paying the debt. and only in circumstances where the interest rate on the loan is higher than the rates currently being offered.? There are generally minimal loan costs and paperwork required in connection with an internal refinancing.
A second option is to refinance your practice loans with another lender. There are multiple dental specific lenders in most markets competing for good loans, and they all love refinancing opportunities, especially for great practices
Question ? Besides staff expenses, dentists seem to also spend a good amount each month on their facility expenses.? How can they cut these costs?
Most established dental? practices we work with spend between 5% and 7% of collections on Facility Expenses ? rent, repairs and maintenance, utilities, and local taxes.?? The good news is that there is a relatively new national business service available to all healthcare professionals to provide lease renewal assistance.
The name of the company is call?Carr Healthcare Realty, and unlike a Doctor that negotiates a lease once every five or ten years against property owners who negotiate leases as part of their job, Carr acts as the Doctor’s agent and use their experience and access to market data to professionally negotiate for better terms including:
- Monthly Rent Cost
- Free Rent for a certain period of time
- Tenant Improvement Allowance
Since Carr acts as your agent, their fee is paid by the Landlord as part of the lease you sign.? We have had clients save tens of thousands of dollars over the term of their lease thanks to Carr Healthcare Realty, and paid no direct fee to Carr for that valuable service.
Remember, each 1% that you can cut from your overhead puts $10k more into your pocket assuming you have a $1 million practice.