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					2008 Update to 1997 article
                                               DENTAL ECONOMICS
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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
                                              statement.
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 charles@drcharlesblair.com for
further information on this unique program and his insurance coding manual, “Coding With Confidence: The Go-To Guide for CDT-
2007/2008.




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