It can be a daunting and arduous task to review your fee structure but, as Sue Nelson finds out, it could be a very wise and lucrative decision
Dentistry is becoming a more competitive industry. If you don’t keep a handle on your fee schedules, your business can start to become unviable. It is important to review your fixed and variable costs and adjust your pricing accordingly to ensure that profit margins are strong and contain sufficient buffer against risk. Factors such as changing supplier rates, staff costs, rents, interest rates, consumer price index and inflation can slowly erode your profits over time.
“Reviewing fee structures is a part of good business practice,” explains dentist, author and business coach Dr Jesse Green. “The reason for keeping track of margins, apart from avoiding profit slippage, is to get the dentist in the mindset of thinking about their practice as a business and to focus on the numbers.
“Every other business would review their cost structures and pricing. It’s a fundamental skill that all good businesses should have. Dentists and other medical professionals, who have not studied business at university, might not necessarily start out with that attitude.”
“A dental practice is no different to any other small business with overheads,” says former Australian Dental Association (ADA) president Dr Karin Alexander. “To break it down to its simplest structure, fees equal business overheads plus profit. The profit component can be the principal dentist’s wages plus return on investment.”
When you review your fees, it is important to remember that setting common fees among partners and associates is illegal unless the ACCC has provided authorisation. Employee dentists, on the other hand, can set common fees.
“Dentists can attempt to benchmark their fees against things like ADA fee survey and their circle of close and similar-minded colleagues,” says Dr Alexander. “Some accountancy firms that deal with several dental clients may also offer benchmarking services.”
Dr Simon Franks is a sole practitioner who runs Bite Dental Studios in Brisbane. When he bought his practice, the previous owner had a contract with a preferred provider. Dr Franks chose to continue to run the practice without the preferred provider, but this was a shock to the practice’s patient base, which had become accustomed to the fees set by the health fund.
He found that he was able to combat resistance to fees by demonstrating the value of his service, and by keeping his patients in the loop. “Once we were no longer a preferred provider practice, we spent the first two years educating the patient base about the need for fees, and providing them with estimates of what their dental work would now cost them,” he says. “So I got a bit gun-shy about raising fees.”
Instead, Dr Franks put fees on hold for three years and sought to make efficiencies elsewhere in his business. “I renegotiated my lease and my bank loans. I reasoned that these savings would stand in for raising fees by three or four per cent,” he says. “So I justified it to myself, but I don’t think that works. When you do need to put up fees, the patients really freak out. Coupled with inflation and potential interest rate rises, it can be a shock to the system.”
Since then, Dr Franks has reviewed his fees on a yearly basis. “Small, regular increases are preferable to a large increase when you panic and realise that your margins are getting thinner,” he says. “It keeps the patients’ focus on the work that you do.”
Dr Franks says that, while he considers what other dentists might be charging, he believes that each practice offers different services and it’s ultimately hard to compare them. “Patient demographic is a big factor, but I believe that it’s better to focus on the work that I do, and want to do, and let the patient base adapt.”
Another vital housekeeping project Dr Franks conducted was to get his staff to audit and cost each individual procedure —analysing fixed goods usage (power, rent, etc) and his time on an hourly rate, and consumables and materials at a fixed rate. Once he had this system in place, he was able to ensure that there was no variation in profit margins across different procedures. Knowing the individual costs of procedures allows him to earn the same profit on any procedure—no matter how routine or complex—across the board. It also simplifies fee reviews.
“It’s an interesting process. You find that you’re making a profit on some things but not others, after tax,” he says. “I found that, despite charging more for crowns than I did for root canals, I was making more money on the root canals, because my cost of goods was more for crowns. It’s surprising because in other respects—complexity, risk, time—they are very similar.”
Raising fees is as simple as choosing a percentage and entering it in the software, though it is important to review each procedure. “I check everything—is it outside the bell-shaped curve or not? You want to make sure that you’re not making some procedures, proportionately, out of whack. You’ve also got to make sure there’s a greater buffer for more complex procedures, where there’s greater risk.”
So how do you adjust your fees without scaring the market? “Affordability is a factor, but also market positioning,” Jesse Green says. “A boutique practice might adopt a premium pricing structure, but someone who’s looking to attract a price-conscious patient will need to consider that in their structure—and this might be related to demographics and location.”
Dr Franks, whose practice is right in the heart of Brisbane city, believes patients will accept the value in what he does, and therefore understand the need to raise fees, if they are kept informed. Letters and phone calls, to keep them in the loop, will save you the fury at the front desk. “It also really boils down to value—if the patient feels you did a good job, they’re usually happy to pay,” he says.