Assessing and correcting dental fees
An essential for the health of the dental practice
Richard Collier, MS, JD
Most physicians have lost control of their patient flow and, as a result, of setting their fees. Fortunately, that has not happened to most dentists. This article is written for those who still have control over setting their fees.
The most important thing to understand about the arithmetic of fees is the most obvious: revenue arriving through a fee increase is pure profit and requires no effort. There is no extra work and no extra overhead involved in producing the extra income.
Here are three ground rules for this discussion:
- – How high can fees be set? The sky is definitely not the limit. The upper limit is the value of your services. Competition and third-party payers can limit fees, but in this column I am assuming that you have the ability to charge up to the value of your services without losing many patients.
- – Notwithstanding the emphasis on fees, do not obsess about money. If you must obsess about something, make it your patients. It is amazing how dentists who focus most on what is best for their patients find that the money follows. The point is that while focusing first on your patients is the correct priority, you cannot ignore the business aspects of your practice.
- – Give free or discounted services to your deserving patients, but do not unintentionally give charity to all of your patients by charging less than fair fees for your services.
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TWO MISTAKES THAT HOBBLE A DENTAL PRACTICE
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Two common mistakes unnecessarily depress dentists’ incomes and, therefore, their ability to keep their practices as up to date as they would like.
The first mistake is that many dentists err on the side of undercharging and relatively few on the side of overcharging. Why do so many undercharge when their patients would not leave, or even complain, if their fees were nearer to fair value? Here’s my theory. In the professional relationship, the interests of dentists and their patients are parallel. The one point at which these interests turn to the perpendicular is when the dentist decides how much to charge. The process creates a sufficiently uneasy feeling in the dentist that, perhaps subconsciously, he or she tends to charge below fair value. There can be other reasons for charging below fair value—but regardless of the reason, charging below the fair value of your services when you have the ability to prevent it means that you will work harder, make less each year and retire with a smaller retirement income.
The second mistake is that too many dentists fail to raise their fees incrementally on a regular basis. They go years without increases and then impose large, catch-up raises all at once. That can increase anxiety for the dentist, increase patient complaints and prevent the practice owner from earning as much as he or she could fairly.
No one benefits from such mistakes, and they are so easy to avoid. This leads to my next topic: quantifying the impact of setting fees at the appropriate level.
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THE IMPACT OF APPROPRIATELY SET FEES
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Let’s take the case of a young dentist with $500,000 in revenues, 60 percent overhead and fees that should be increased by 10 percent to bring them to where they should be. Her current 40 percent practice profitability (including her salary and fringe benefits) is $200,000. If she increased her fees by 10 percent to $550,000, she would earn an extra $50,000, raising the practice profit by 25 percent from $200,000 to $250,000. If we assume an overly pessimistic tax rate of 50 percent, she would have an extra $25,000 of after-tax income to invest annually. Over a 30-year period, investing $25,000 per year at, say, 8 percent results in an extra $2,852,203.
Obviously this is a rough example, but the lesson is clear. Dentists can significantly improve their earning potential and, therefore, their retirement savings by setting their fees at a fair and appropriate level. It is never too late to get that right.
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FOOTNOTES
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Mr. Collier is an attorney whose practice focuses on the business aspects of dentists’ affairs. He also is a trustee of the ADA Foundation. Address reprint requests to Mr. Collier at 30195 Chagrin Blvd., #100, Cleveland, Ohio 44124, e-mail "Newsletter{at}CSAnews.com".
The views expressed are those of the author and do not necessarily reflect the opinions or official policies of the American Dental Association.
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