Raising Your Fees Without Fear (EP14) - a podcast by David Darab, DDS, MS, MBA

We are focusing on one of the most sensitive subjects of the dental practice. That’s right, fees.  Do you routinely raise your fees? If you are like many dentists we encounter, the answer is no. Yet, keeping fees set at one rate for too long ultimately increases your overhead ratio and takes a bite out of profits. This is a controversial subject and one that is quite emotional for practice owners. Despite what many patients believe, dentists rarely feel comfortable about raising their fees. Patients also don’t realize how much overhead is required to operate a top-notch practice – and costs rise every year. Nevertheless, most practice owners are fearful of driving patients out the door if they raise their fees. This tendency to is seen every year, even in the face of a deteriorating bottom line. Now, I know this may be difficult to believe, but all is not lost.  Did you know that patients tend to focus on relationship, experience, and atmosphere, long before they focus on price?  Let’s dive in to this blind-spot and discover the right way to raise fees. 

We know this phenomenon among dentists is real – a fear that if they increase their fees, their patients will scram – inferring their services are too expensive. I also find it interesting that many dentists will frequently struggle financially despite having left their fees at the same level for several years. If you are thinking “this sounds familiar, you aren’t alone.  As a business owner, I recognize this emotionally driven decision – right or wrong it is a naturally occurring emotion.  But, let’s try to look at this without as much emotion and consider fee optimization as a business decision. Anything short of this is pushing you into the “Dental Practice Fee Catch-Up” game.Much like Vegas, you rarely win…

Let me give you some frame of reference here.  30 or so years ago, a dentist could expect overhead to be in the range of 45 percent. Today, that average is closer to 75 percent. That means an average practice can expect a net return, or profit, to be 25 percent, or maybe less. Net income for dentists has been cut in half as a percentage of doing business. And believe me, that creates consternation among many practice owners and they are constantly looking for viable solutions? 

Digging a little deeper into this perceived conundrum, Dentists bought into the insurance programs in the early 1970s - agreeing to accept approved fees. If you are a participating provider, your fees are controlled by the insurance company while overhead continues to rise with inflation. Step back a minute and ask yourself a question – does it make sense for a dentist to treat patients from certain insurance plans while worrying about the associated costs? The short answer is no.  I am not saying you should not be conscious of costs, but many providers find themselves barely breaking even depending on their model and the insurance companies with which they are contracted.  So, what is the takeaway on this? Maybe it’s time for a PPO analysis and some serious discussion about what makes the most sense for your practice. Which insurances are best for you and, more importantly, which one’s are not. 

You know, keeping fees low in hopes of being more competitive and avoiding patient attrition is a subject that evokes fear in dentists.  Every year we see the emotional struggle among every kind of dentist, regardless of their business model.  This universal trend often leads to unintended consequences.  Think about it, new equipment, staff salary increases, cost of living, and insurance adjustments are just a few of the things tugging away at your bottom line. Oh, and don’t forget about what it can do to the value of your practice – potential buyers will be advised to negotiate this threat since they will likely lose a significant part of that loyal patient base when fees are adjusted to market rates. This is another blind spot – and it is often missed.  That’s right, the new owner is handcuffed from normalizing dental practice fees. If they increase their fees too quickly, they may face a legitimate mass exodus of patients.

Just like going to the dentist, patients fear the worst but they know it must be done if they want a healthier smile and body. What they ultimately discover is their trip to the dentist was not nearly as painful as they expected.  Dentists face the same (self-inflicted) dilemma – they know fees need to go up, but they fear the pain of losing patients, and upsetting those who have been long-time supporters.  This analogy goes a step further – waiting only exacerbates the problem. 

The cost of services is a natural part of doing business. Every business, not just dentists, must evaluate costs and compare them to expense – hence the profit & loss statement.  But it goes beyond a simple P&L that might present a temporarily great picture.In other words, is the picture sustainable and will it provide everything you are trying to accomplish – professionally and personally.  Whether you are selling clothes or crowns, consumers expect fees to increase over time, and the success of your business depends on your willingness to make equitable and necessary adjustments. Moreover, small adjustments when delivered with exceptional service and dentistry are unlikely to cause any disruption. It also helps when your staff is on board – so be sure you help them with a plausible and honest explanation should patients ask about increased costs.  

So, with that perspective, how can you overcome Your Fear of Raising Fees?

Let me ask you a question.Did you increase your fees 2% to 3% every year for the last 5 years? If so, you were keeping up with the national dentistry market regarding fee schedules. If not, you fell behind by as much as 15% over those five years.

First, let’s agree that cost of living rises every year.  Therefore, fees should be adjusted every 12 months. I know, you are probably thinking this logic doesn’t concur my current way of doing business, but hold on, work with me as we begin to illuminate this blind spot.  If for no other reason, cost of living goes up every year and that increases your cost of doing business.  If you haven’t done a fee analysis in the past 12 months, you owe it to yourself to have your fees carefully analyzed to get a better idea of where you stand.  Now, when to raise your fees is a personal decision - you can decide which time of year works best for you.  Our clients make adjustments at the beginning of each calendar year. So, if you chose to have your fees analyzed, here is what we believe must be included:

Comparing your fees to those in your area – if you are the lowest, that is a sure sign you need to adjust.

Comparing your financial goals with practice performance – this one is rarely included. Yet, our firm believes it must be part of the equation. After all, your future depends on the performance of your business. 

This process is not complicated but usually requires a trained eye and someone who has the ability to tie everything together in one report.  That’s the hard part, not to mention interpretation of the results. Nevertheless, if this can be accomplished, why are so many dentists afraid to do it? Well, we think it is based on two reasons.  The first, you must know your numbers.  Many dentists unwittingly assume that if money is in the bank, the practice is doing fine. Nothing could be further from the truth.If you don’t know the basics, everything else is intuitive – leading to a lot of wrong decisions.  For example, what does it really cost you to diagnose, prepare, and deliver a single crown? What is your overhead cost per hour? Is your chart of accounts designed for dentistry? Are you including personal autos, continuing education in Cancun, or paying $160,000 cash for a piece of equipment in overhead analysis?  It all matters and even the most subtle mistakes can lead to unforced errors. 

To properly figure overhead per hour, you need to amortize an item over its life and use that monthly figure. This figure could be in the $250 per hour range, or more.  Share it with your team. Why? Let’s look at an example: compare your overhead to produce a crown to your collection amount for that patient. Will you be surprised at what you find? If the result is below your minimum margin, why continue on this path?  If your team is unaware, how can they possibly appreciate your desire for more production when all they see is your new car in the parking lot? 

Of course, not that you have involved the team, this is your time to educate and coach those who are in the trenches with you.  Your vision and mission must be known by your support system and, they must believe it.Now, if you are aware of your numbers and believe they present an acceptable picture without any compromise, then proceed with our admiration. On the other hand, If you feel like you not reaching your goals and compensation is not commensurate with your skills, experience and sacrifice, do something about it now.

The second reason, well, is mostly psychological – the human mind is adept at yielding to certain perceived pressures. Let’s talk about a few of the most commons reasons we hear:

Dentists face the reality of “I hate going to the dentist” – a criticism that has been heard from the beginning.  Today, that complaint is not as widespread due to modern techniques and high-touch practices that provide spa-like experiences.  Nevertheless, dentists remain fearful of “not being liked” and “creating pain for the patient”.  So, here is the bottom line - unless you practice for free your fees are too high in the eyes of the patient.  In other words, patients will complain at any price. Unless, of course, they perceive value!Everyone wants a good deal (perception) and they don’t want to shop (convenience). 

The next most popular reason is fear of Losing Patients – nearly every dentist I meet worries about bringing in new patients and losing patients. This is logical for most business owners.  But people rarely take time to price shop for dental services and most people don’t want to change. Remember, this takes effort. Instead, most patients make their choice based on dentists who accept their insurance plan, a personal recommendation, or the convenience of location.Best of all, they will stay with their provider if they perceive value and enjoy a comfortable, caring environment.Let’s break this down.  What we find to be most important to patients is comfort, knowledge, experience, environment and relationship.  All of these patient requirements come at a cost.  Suffice it to say, you can’t be the cheapest dentist in town if you expect to provide what the patient wants – a choice must be made here. 

Our final point - we live in a world of likes.  Dentists are not immune to this craving of acceptance.  Think about it, you work in a profession where it’s not unusual to hear a patient tell the dentist “I hate coming to see you.” Instead of trying to buy approval by ignoring fee adjustments, focus on delivering a superior experience, one that changes the patient’s perception of the dentist.  Think about it, if you can master the art of exceeding their expectations and delivering your expertise in a stress-free environment, why would they leave?  Whatever you do, don’t undervalue your services based on a misconception that patients will somehow like you more – it just ain’t so…

The fact is, more emotions are tied up in fee structures than most would like to admit, yet it’s a function of the business process.  At this point, I hope you are at least considering this “business decision” and asking the question, what Should You Charge?

Every practice is different so using a standardized fee model should be avoided.  If you need help with determining how best to reach the right set of fees for your practice, our experts can get you in the right direction.  Specific questions must be answered regardless of your location or practice model. 

Your next question may be What are other offices charging? – in general, we recommend starting with your usual and customary fees in the 80th percentile, adjusted for your market. Now, this is where experience can help you avoid unforced errors.  For example, our team carefully reviews many resources to develop our fee schedules for each practice.  Then, code by code, we assess how your fees compare to similar practices in your market. But we don’t stop there – we compare this to your current fees and provide expert guidance on properly aligning your fees to your goals – personally and professionally. 

Another factor in determining fees is the amount each procedure costs you? – Materials, staff salaries, time spent; you must understand the margin associated for each procedure. Let’s say there is a lab you prefer to use for crowns, but they charge a premium. You may think they’re worth it and you are likely right, but your fee should reflect that premium expense.

What is your time worth? – Dentists are notorious for undervaluing their time. You need to know what your time is worth by the hour. If you’re top in your field in full-mouth restorative dentistry and spend typically 3-4 hours or more with a single patient, what do you have to charge to make a single filling worth your time?

And finally, we come back to Insurance – if you are in-network, assessing how this affects your revenue is a critical part of getting adjusting your fees.  Moving your usual and customary fees higher is solid first step in persuading insurance companies to raise reimbursements and without a regular fee evaluation, you are not likely to see the difference between your standard fee and the allowed amount. Watching this difference is the perfect key performance indicator to show how much it costs to be in-network.  Keep in mind, insured patients are not affected with fee adjustments and your uninsured patients, on the other hand, will help close the gap created by negotiated reimbursements with the insurance companies.    

If you are thoroughly perplexed and find yourself wondering “should I be in-network or fee for service”, don’t worry.  We frequently asked to perform analysis that provides clear direction in a very unclear environment.  Depending on your practice model and goals, getting in or out of the PPO game is a strategic move that many dentists fail to make. In the end, your fee schedules can have lasting results – good and bad.  You want to land on a fee that accurately reflects costs and profit margin and is consistent with your market.

Further episodes of The Beacon-Podcasting for Dentists

Further podcasts by David Darab, DDS, MS, MBA

Website of David Darab, DDS, MS, MBA