Wednesday, September 7, 2016
We’ve completed the process of compiling our dental practice financial statistics based upon 2014 & 2015 data and the results show very little change compared to five years ago.
Remember, the US economy went through a downturn beginning in late 2008 which lasted probably through the majority of 2012. Therefore, the 2010 results included some of those down years and compared to 2005 we saw some interesting changes, likely due to that downturn. However, many practices began to rebound sometime in 2012, and we saw significant upticks in some practices in 2013, 2014, & 2015. We were curious to see how this would impact the financial statistics for dental practices.
We also know that over the past five years there’s been even more technology that practices are buying and using whether it’s their dental equipment, office equipment, computers, software, and even outside service providers (to handle calls, etc.). While we were a little surprised to see that overall, the changes were minor, we’ve summarized our findings below and provide commentary as to why we think some changes occurred.
The mix of dentistry to hygiene production has increased slightly in favor of the doctor, with a ratio of 3.1:1 as opposed to 3:1 five years ago. We expected the ratio to be even higher with practices adding implants, invisalign, other ortho, sleep dentistry, etc., however, we didn’t see a big increase.
The surprising statistic is the adjustments or write-offs. Five years ago the “average” practice was writing off 19% of their gross production, and it’s decreased to 14.4%. With all the talk about everyone joining PPOs, especially with the downturn years, we expected that to increase. That said, we’ve also seen an increase in the number of practices that have been maturing and attempting to reduce their PPO participation. Many practices have implemented in-house membership plans to battle the PPO participation urge. In-house membership plans will show a write-off percentage in the 10% neighborhood. It’s also possible and likely that more practices are opting to report their GROSS production based on their PPO reimbursements instead of the UCRs…that’s unfortunate.
We also see a positive increase in the ratio of hygiene production to hygiene wages of 3:1, up from 2.7:1 back in 2010. This increase is likely to the impact on hygiene wages that were forced down in many parts of the country due to the economy and practices doing a better job of making sure their hygiene departments are operating as efficiently and productively as possible.
There wasn’t much of a change overall. If anything, we saw the lower end of the total labor cost range dip down to 25% and as high as 29% In some cases. The average is still around 27%, and that includes wages, payroll taxes, retirement plans and other benefits. Hygiene remains around 8-10%. However, assistants actually came down a little on the top end, from 9% to 8% while front desk wages bumped up on the lower from 5% to 6%.
3. Facility Expenses:
There was no change in the facility costs and rent expenses. They both remained similar to 2010, 6-7% overall facility costs and 5-6% for rent expense.
4. Lab and Dental Supply Expenses:
These categories are beginning to show the changes in technology and additional procedure offerings. Whether it’s the use of CADCAM equipment or adding implants to the procedure mix, we think we’re seeing the changes. Dental supplies were at 4-7% back in 2010, and we’re seeing them around 6-8%, again, the cost of implants, maybe some milling supplies and even some practices doing more endo. Lab was 5-8% back in 2010, and the top end has dropped down to 7%. Practices manufacturing their own crowns will see the drop in lab and practices doing larger cases without a milling machine could see their lab hit 10-12%.
5. Other Costs:
In total, other costs went from 8.8% in 2010 to around 10% in 2015, a slight increase of 1.2%. We see an uptick in advertising and marketing to 2% on average, up from around 1.5% and 1.5% for collection expenses, like carecredit and merchant services, up from around 1.2% back in 2010. We also see more use of outside service providers like call centers, providers offering in-house membership, patient reminder systems, website SEO services, etc. which is likely driving the increase in some of these other expenses.
In summary, total overhead went from 48.8% in 2010 to around 51% in 2015. Keep in mind, this is based on gross production, we also provide the stats based on net collections for those practices that record their production based on PPO fees, NOT their UCR fees.
So overall I’d say the changes from five years ago have been nominal, yet there are a few areas like revenue, production, and clinical costs that are showing signs of “changing with the times” and for the better no doubt.
Tim Lott, CPA, CVA has decades of experience working with dentists at all stages of their careers. He is a regular speaker at study clubs, societies, and dental schools. Tim is a frequent participant and a moderator on Dentaltown.com. You can reach Tim at email@example.com or any of the other dental partners/principals at (800) 772-1065 or firstname.lastname@example.org