2008 Update to 1997 article
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How to analyze your practice by the numbers
When your accountant delivers Labor is the highest cost category
your profit-and-loss statement, do you for running a dental practice. More time
understand the meaning of all those should be spent on labor analysis (both
numbers? There is a reason that this doctor and staff) than on any other area
accounting tool does not have a major because it is the key to controlling
impact on the typical dental office. The practice overhead. About 65 to 70
accountant’s profit-and-loss statement is percent of all practice revenue is spent
designed to plug numbers into the on doctor and staff labor compensation.
Internal Revenue Service tax forms, not Many doctors think that
analyze or manage a dental practice. We “controlling overhead” is accomplished
have redesigned the typical profit-and- by mail ordering supplies, monitoring
loss statement so that we can properly lab and marketing expense, and so on.
allocate practice dollars into six different These tactics, however, are small
categories for operating expenses. peanuts when compared to the expense
The six expense categories – of doctor and staff labor. Only 30 to 35
labor, supplies (office and clinical), lab percent of practice revenues are spent in
services, equipment and facility, total on dental and office supplies, lab,
administrative and marketing – are facility and equipment, administration
broken down to easily analyze what is and marketing. The productivity of
happening in the practice. Your doctor and staff labor is all-important.
numbers yield a huge amount of Every industry, be it retail, hotels
information if you know where to look. or airlines have industry standard ratios
The typical dental office of revenues per full-time employee.
overhead is higher than it should be. Revenue per full-time employee (FTE)
There are a number of things that you is an overall measure of labor efficiency
can do to control expenses in the office in your practice. Business office,
if you know where the money is going. chairside and hygiene labor departments
The dentist must make a commitment to are included in this calculation, but the
follow the reports. He or she must work lab technician, if any, and doctor
on the practice not just in it. (including associates) providers are
excluded. Revenue per FTE employee is defined as all expenses related to
should be on average, $125,000 to labor: salary, employer paid payroll
$175,000. For example, a practice with taxes on salary (for FICA, FUTA, SUTA
collections of $600,000 and four FTEs and workmen’s compensation) which are
would have revenue per FTE of approximately 9 percent of gross wages.
$150,000. It also includes fringes such as medical
If your average per FTE is less and disability insurance, continuing
than $125,000, the productivity per FTE education, uniforms, retirement plan and
employee is low, indicating overstaffing any other employer-provided benefit for
and/or an under-producing staff or employees.
doctor(s). In some cases, a full-time Think in terms of total
employee should be converted to part- compensation – not just “W-2 wages.”
time or even eliminated to improve this The typical cost of labor for the general
ratio. On the other hand, low fees and practice is 24 to 29 percent of revenues
inefficiency (staff and/or doctor) can be (assuming a hygienist is employed).
the culprit. This labor cost does not include lab
Staff will often cry for extra help. technician expense or any doctors,
In the eyes of staff members, they never including any associate doctor’s labor.
have enough time. However, inadequate It breaks down as follows:
training and poor systems result in poor Gross salary, 20 to 24 percent.
staff performance and is the fault of the Payroll taxes, 1.8 to 2.2 percent.
leader-dentist. A low fee schedule also Fringes, .5 to 1 percent.
lowers the revenues per FTE. Retirement plan, .5 to 3 percent.
All things being equal, a doctor If you have two full-time
performing a greater amount of lab- hygienists per doctor ratio or provide
related procedures (which is more time- excellent fringe benefits and a retirement
consuming and yields greater revenue plan, then you probably have total
per hour) should require less overall staff compensation costs approaching 30
labor. Since the appointments are percent or higher. A total labor cost of
longer, less overall chairside time and 25 percent or lower is excellent, with 26
front-desk time is needed due to the to 27 percent average and 29 percent or
patient count per hour being lower. above considered high. If you exceed 30
The cost of labor plus lab percent or are close, then you need to
efficiency should be less than a take some specific action, particularly by
maximum of 39 percent of practice analyzing the individual departments.
revenues. If your total is above 39 Please see the related article below for
percent, then there is overstaffing related more specific breakdowns on labor
to the practice clinical procedure mix. expenses, per the different departments
within a dental practice.
Overall labor costs
Labor expense is the primary Practice capitation rate
area to focus on when managing practice Your practice capitation is the
expenses. It’s the highest line item cost annual revenues of the practice divided
of doing business. The first definition by the number of different patients seen
we should explore when we describe by the practice in a given year. For
labor cost is “total compensation.” This instance, Mrs. Jones may have been in
five times in the last 12 months, while reduce your staff or change someone to
Mr. Jones came in once. Each patient part-time. Also, take a hard look at
seen during the year counts as one, as facility, supply and lab costs. The cost
the annual count of treatment visits per of facility and technology is escalating.
patient is immaterial in this particular All of these efforts will change the
calculation. Divide collections by the doctor’s “pull the wagon” ratio for the
individual patients seen to calculate the better.
average revenues per patient per year.
To get the monthly capitation rate divide Total supplies
by 12, this typically is in the range of Total supplies (office and clinical)
$30 to $40 per month. should be 8 to 10 percent of gross
This calculation may exhibit the revenues. Office supplies should be 2 to
overall comprehensiveness of dental care 3 percent, while clinical supplies should
that you are providing for your patients. range from 5 to 7 percent. It is
It also could be called your “quality of important that your supplies are properly
care” rate. allocated in the profit-and-loss
Doctor to staff compensation ratio For example, sometimes a
This is what we call the “pull the continuing education course sponsored
wagon” ratio. To make things very by your supply vendor (or repairs and
simple, let’s suggest that staff labor maintenance) is included with clinical
represents 30 percent, the other expenses supplies. Likewise, office supplies and
of the office represent 30 percent, while small instrument purchases should be
the doctor’s net revenues would be 40 isolated and adjusted out of clinical
percent. So out of every dollar collected supplies to arrive at the true cost of
the staff takes 30 cents and the doctor clinical supplies.
takes 40 cents. Thus, the doctor to staff Consider buying from one supply
ratio is 40:30. If you divide that ratio vendor to become an “A” customer for
you get 133 percent. lowest pricing and utilize all the free
The “pull the wagon” ratio that value-added services. Don’t waste
we are looking for is in the 130 to 170 valuable staff and doctor time dealing
percent range. In other words, the with multiple venders in the office or
doctor should be receiving 130 to 170 shopping online. Pay your supply bills
percent of the staff compensation. Many with an airline mileage card or take
are above this range. If you get into a advantage of a discount for early
high overhead situation, with high payment.
facility costs, high lab cost, and high Give your dental assistant a
supply costs and high labor costs, the budget of 6 percent of the last month’s
doctor may end up making only 80 production and start a purchase order
percent of what the staff is making. system. Some dental suppliers will
If this “pull the wagon” ratio is guarantee a maximum percentage of
low, there are several approaches for their cost as measured to the practice
change. Raise your fees, get out of a revenues.
discount plan, or increase your practice
efficiency with the same labor. If you Lab expenses
are overstaffed, then maybe you need to
Typical lab expenses run 6 to 8 percent For example if revenues were $600,000
of gross collections. This percentage and you had a 1,500 square foot facility,
varies as to the number of lab-related your ratio would be $400 per square
procedures performed in the practice, foot.
non-lab procedures, patient fees, lab In general, the total cost of
expense and revenues generated in the facility and equipment expenses should
hygiene department (which has no be in the 7 to 10 percent range. Twelve
related lab expense). percent would be considered a
The best analysis of lab expenses maximum. Keeping up with technology
is to focus exclusively on doctor-only will cost the average practice 2 to 5
collections. This doctor-only ratio percent out of the revenues, included
generally should be at least 10 percent. within the 7-10 percent range.
For instance, $450,000 of doctor
production to $45,000 of lab bills is Administration expenses
10%. If the doctor performs heavy non- Administration expense includes
lab procedures (endo, perio, oral surgery, such line items as accounting and legal
pedo and operative), than less than 10 fees, payroll service, basic continuing
percent may be OK. Remember also, education and dues for the doctor, basic
that a high-cost lab will shove the telephone expense, malpractice and
percentage upward and that should be business overhead expense insurance
taken in to account. and licenses. The range for this expense
category should be 3 to 5 percent.
Facility and equipment Be sure to compare the price of
The facility and equipment outside services (such as insurance) at
category is a fixed expense and remains least every two years for quality and
the same regardless of revenue value. Set up your accounting line items
fluctuation, assuming the practice stays so that each major category of
in the same facility. administration expenses can be
Perhaps the most confusing compared from year to year.
aspect of computing true overhead is Marketing expense includes such
evaluating the facility and equipment items as advertising, Yellow Page ads,
expenses. More accounting adjustments practice brochure, associated printing
are made here than in any other and postage, contributions, flowers and
category. Depreciation and expensing gifts for patients and any other expenses
elections for tax purposes can be which promote the practice. These sub-
confusing. Principal and interest can be categories should be checked quarterly
as well! In addition, the facility may be (with monitors for new-patient results)
owned by the doctor and no rent to ensure that the expense is
charged. In this case a fair market value commensurate with the benefit received.
rent calculation should be considered to The practice should keep a log of
calculate the true overhead. new patients and determine the
A quick measure of facility “influences” of them choosing your
efficiency is revenues per square foot. office. The typical range for marketing
Divide the practice revenues by the expense is .5 to 3 percent, tending to be
office square footage. It should be in the in the lower range. However,
range of $350 to $450 per square foot. advertising practices (particularly
cosmetic oriented) may spend 5-7 You should now have a better
percent. insight into what the numbers can show
you in a dental practice. Knowing the
Accounts receivable numbers is only the first step. You
Accounts receivable represents should examine your revenues from year
work performed, billed, and not yet to year to check the practice growth.
collected. Receivables generally are Remember that you must adjust for any
labeled current, over 30 days, 60 days fee increases to calculate your net
and 90 days. Total receivables generally change from year-to-year.
range between one to three months of Implementing systems and reasonably
office production with one-and-a-half adjusting fees will yield many rewards.
months being about average. For Most dentists are leaving $100 to $500 a
instance, a $50,000 a month practice day “on the table” with poor fee
would have an average of $75,000 of positioning.
receivables. You should strive to get the This article has presented
accounts receivable down to one month material that gives you an overview of
or less. Outsourced third-party financing the data that numbers analysis will
will often do the trick. provide for your business. You may be
The reported collection overwhelmed, confused and in need of
percentage is typically 97 to 98 percent. more information. There is a solution;
This represents the percentage of this article is based on a high-tech
collectible production actually deposited. limited attendance workshop called
While a 97 percent collection rate looks Profits+ Practice Analysis. During this
good, let’s examine this issue in more hands-on workshop, you will work with
detail. your own numbers and reports so that
If you collect 35 percent in cash you become familiar with the process.
over the counter and 45 percent of your In addition, the alternative Revenue
collections are insurance then only 20 Enhancement Program is available to
percent of your collectibles are at “risk” rebalance fees and utilize proper
of loss. The 20 percent that you are insurance coding and clinical protocols.
sending statements to is the only money A 300-page dental insurance coding
that is at risk. If you divide the 3 percent manual is also available.
not collected by the 20 percent at risk, For more information on how we
you have actually lost 15 percent of the can help you, please call my office at
money you have at risk. In addition, (704) 827-6295 or go to
significant staff time is spent in www.drcharlesblair.com for more
collection efforts plus the expense of information on our analysis services.
postage and statements. For this reason,
the use of credit cards and outsourcing Keeping an eye on labor
the financing should be considered. In the main article, we described
Also, your rescheduled and broken total labor cost as a range of 24 to 29
appointment rate will plummet with percent. While this benchmark gives an
effective third-party financing. This is a overall indication of labor efficiency, it
major benefit of third-party financing, does not analyze the individual
along with increased patient acceptance. department efficiencies. It is quite
common to have an inefficient
department increasing the overall labor service the typical patient from “hi” to
ratio while the other two departments are “goodbye.” If a front-desk person sees
satisfactory. Let’s look at the various 20 patients in the day, then
departments in order to zero in on their approximately 200-240 minutes is spent
relative efficiencies. in face-to-face patient time. The front-
desk person should not spend more than
Business department – This 50 percent of her time in face-to-face
includes any employee working in or on patient contact. For new patients, twenty
behalf of the business department, to thirty minutes may be required for
including scheduling, recalls, financing arrangements, while a recall
collections, insurance, etc. It does not patient may require only five minutes - -
include any clinical activities. If an particularly, if computers for data entry
employee is a “rover,” working front and are in the clinical area. Thus a count of
back, then her salary and benefits should 15-18 patients per front desk FTE seems
be allocated to each department for time reasonable.
spent on a pro rata basis. This leaves the remainder of the
The cost of running the front- receptionist’s time to answer the phone,
desk operation should be 8 to 10 percent make up deposits, make collection calls,
of gross practice revenues. The front call patients for the next day, file
desk serves both the doctor and hygiene insurance and so on. If your front desk
providers. Therefore, to calculate department sees less than 14 patients per
business office efficiency, we divide the FTE, then you are overstaffed and
cost of your business (total should consider part-time labor vs. a
compensation) labor by your practice full-time individual. If you have only
revenues. If you have multiple staff in one front-desk person, seeing less than
the business office, and a “business 15 patients per day, then a higher patient
manager” that doesn’t schedule or count could easily be added to her
directly work with patients, then your workload. Pre-appointing hygiene
cost may accelerate to 10 to 12 percent patients, outsourcing the patient
of revenues. Regardless, the 12 percent financing, computerization, credit
number should not be exceeded even in checks, fax and electronic-claims filing
the multi-employee, multi-doctor will help business-office patient counts
business department setting. without stressing the business staff.
On a 4 ½ -day workweek, each Thus, the financial protocol of the office
business FTE should handle $30,000 to affects the front-office efficiency.
$45,000 per month. Less than $35,000 a
month per FTE may indicate low fees, Chairside department – This
business overstaffing or inadequate department consists of all employees
revenues generated by the doctor and/or working with the doctor in the clinical
hygiene clinical providers. area. It does not include any business
Another measure of front office activities or chairside assistance for the
efficiency is the patients seen per FTE hygienist. If an employee is a rover,
business staff member per eight-hour working front and back, or working part
day. An eight-hour day yields 480 time for the hygienist, then the chairside
minutes of available time. It takes salary should be allocated to each
approximately 10 to 12 minutes to
department on a pro rata basis for true desired range is $150 to $250 per
time spent. clinical visit.
The cost of running the chairside The doctor’s clinical procedure
operation should be 10 to 12 percent of mix dramatically affects clinical
the doctor’s (only) revenues. It does not productivity. If the doctor is generating
include hygiene or chairside assistants high-level procedures, then the dollar per
assigned to hygiene. Doctor (only) hour revenues will be higher. Desired
revenues include the doctor’s exam fee lab-related procedures ranges would be
for checking hygiene patients. Also 40 to 50 percent of the total revenues of
included in the doctor’s chairside the practice. Naturally, a higher
revenues is fee income from polishing percentage in the lab-related range is
teeth or X-rays taken by the doctor’s generally better.
dental assistant. A low percentage on the lab-
In other words, if the chairside related clinical procedure monitor
wage is charged to the doctor, then any generally indicates that crown and
revenues produced by the chairside bridge is not being presented adequately
should be counted as doctor revenues. in the practice. However, if the practice
Chairside efficiency is determined by has two hygienists and the doctor
dividing the chairside cost by doctor performs significantly high levels of
revenues (do not count hygiene endodontics, periodontics and/or oral
revenues). Thus, the range for chairside surgery, then a lower lab-related
expenses is 10 to 12 percent of doctor- percentage may be acceptable since so
only revenues. much of the practice revenues do not
Doctor revenue per hour involve a related lab bill.
indicates the overall productivity of the Your ratio of dollars from lab-
doctor and chairside. Revenues per hour related procedures compared to
may be high, but the doctor and operative dollars generated should also
chairside may be on a treadmill with be scrutinized. The minimum ratio
short appointments and a lot of setup and should be 250-300 percent. The higher
teardown time. The goal is both high the ratio the better. A ratio lower than
doctor revenue per hour and high 200 percent generally means the doctor
revenue per patient visit. The typical is not diagnosing or underselling crown
range is $250 to $400 per hour. and bridge related to operative
Doctor revenue per patient visit procedures.
measures the influence of your The scope of dentistry presented
procedure mix (how much of upper level to both new patients and the hygiene
procedures), and clinical procedure patients vary tremendously from doctor
selection and length of appointments to doctor. One overall monitor is to
(quadrant dentistry). If the practice sees measure the revenues per new patient
a large volume of children and has short ratio. Calculate this by dividing the
appointments, this benchmark will be average monthly revenues by the
negatively influenced. Low revenue per number of new patients (ADA code
patient visit indicates “drill and fill” D0150) for that month. This will
dentistry. It is also influenced by the generally yield revenue per new patient
volume of emergency visits. The ratio with a range of $2,500 to $5,000.
The typical practice needs a new patient
for each $3,000 of annual revenues. to be paid a (W-2) which calculates to
Thus, a typical $600,000 practice would approximately 33 to 35 percent of
require 200 new patients for adequate hygiene revenues produced. The gold
doctor busyness. This number is standard for hygiene is three times the
influenced by the amount of treatment W-2, but only 20%-30% make that
presented both to the new patient and the standard.
patient in hygiene. In addition, if the In a 4 ½ -day workweek, each
practice is restorative in nature and FTE (full-time equivalent hygienist)
presents a larger lab-related treatment generally should generate $11,000 to
(and sees few children), the “average” $15,000 per month (assumes no hygiene
per new patient ratio obviously will be assistant) for the routine practice with a
higher. small or insignificant tissue-management
program in place. Less than $11,000 per
Hygiene department – The month per FTE indicates low fees, poor
hygiene department labor consists of clinical procedure selection, excessive
dental hygienists and any specific broken appointments or slow clinical
chairside assistant assigned exclusively speed.
to the hygiene department. Dental If your hygienist has a chairside
assistant wages should be included as assistant, the revenues per month per
hygiene department wages and any FTE should reflect the assistant. For
procedure the hygiene assistant performs instance, suppose a hygienist and
should be counted as hygiene revenues. assistant produces $15,000 together.
The doctor’s exam fee (D0120) is not The computed average per month per
counted in the hygiene department FTE would be $7,500. Computed this
revenues because doctor time is worth way, often the revenues will be in a
typically $4 to $7 per minute and the lower range, where both the hygienist
doctor’s exam fee typically is at least and hygiene assistant are factored in.
$35 to $45. Even though the doctor is Yet the combined total compensation of
with the patient typically five to eight hygienist and any hygiene-assistants
minutes, the exam fee is appropriate for should not exceed 40% of hygiene
the time expended. revenues.
The ideal range for hygiene total Average hygiene revenue-per-
compensation (includes salary, payroll hour measures the overall productivity
taxes and fringes) to production is 38 to of the hygienist. Revenues per hour may
39 percent. Determine this percentage be high, but the hygienist also may be on
by dividing hygiene total compensation a treadmill with low fees, short
by hygiene revenues. When all payroll- appointments, and major setup and
related taxes (9-10 percent of gross teardown time. The hygiene goal is both
wages) and fringes such as medical and a high revenue per patient visit and high
retirement plan are considered, then the revenue per hour. Charging higher fees
total compensation would be 38 to 39 and generating a higher level procedure
percent. Also remember a retirement (such as root planning and scaling) will
plan and fringe benefits can be a raise this indicator. $1.25 to $1.75 per
substantial expense, in addition to the minute production is considered a very
basic employer-paid payroll taxes. An minimum productivity for a hygienist.
alternative approach is for the hygienist
Hygiene revenue per patient visit related dollars (D4341/D4342/D4355/
measures overall the procedure mix D4910) should also be examined. A
(how much of upper level hygiene goal of 25 to 35 percent for perio-related
procedures) and hygiene fees. If the services is within reach of the average
hygienist performs prophys only or takes hygienist, with appropriate continuing
few X-rays, this benchmark will be low. education and aggressiveness. At the
Low hygiene revenue per patient visit least, soft-tissue management
generally indicates prophys (no perio) appointments should be pre-blocked in
and low hygiene fees. The range is order to achieve a higher perio-related
typically $80 to $120 per patient. ratio.
The keys to a good hygiene In most practices, the hygiene
department’s productivity are proper department generates 20 to 30 percent of
fees, the duration of the appointment, the the total revenues of the practice. This
clinical procedure selection, and the ratio is one that is commonly measured
limitation of broken appointments. In by many consultants, but is not that
the same time frame, a $70 prophy or a meaningful. For instance, a superstar
$195 root planning procedure could be doctor producer will yield a high
done. Thus, the overall clinical percentage of total revenues, yet it does
procedure selection is very important for not mean that the hygienist is a poor
overall productivity and efficiency of the producer. In practices with two
hygiene department. hygienists per doctor provider, the
Another efficiency monitor is the hygiene percentage will tend to be
patient count per day per FTE hygienist. higher because two hygienists are
An efficient hygienist should average producing against one doctor’s
eight to nine patients or more per day, if individual productivity. As long as the
seeing some children. This assumes no hourly production of the hygienist is
more than one quad scaling and root satisfactory, the hygiene department’s
planing per day. Fewer than 7.5 patients percentage of total office revenues
per day (for an eight-hour day) indicate outlined in this paragraph can be
broken appointments and/or inefficiency ignored.
or scheduling patients arbitrarily by the
hour, as opposed to scheduling
according to the needs of the mouth.
Your ratio of adult prophy −Dr. Charles Blair
dollars (D1110) compared to perio
Dr. Charles Blair is a contributing editor of Dental Economics Magazine and President of Dr. Charles Blair & Associates, Inc. in
Mt. Holly, North Carolina. His Revenue Enhancement Program includes fee consulting, clinical procedure protocols analysis, and
proper insurance coding guidance, which averages over $85,000 increase in net profits annually per practice consulted. Thousands of
offices have gone through the program. Call (704) 827-6295 or contact Dr. Blair by email at firstname.lastname@example.org for
further information on this unique program and his insurance coding manual, “Coding With Confidence: The Go-To Guide for CDT-
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