Dental treatment philosophy

Do you expect dental patients to accept your recommendations regardless of financial or other patient circumstances? Or, do you try to educate patients about dental and non-dental health implications and leave the decision to the patient? Something in between? Comments welcome.

Detect missing money

I visited a practice in which collections according to the practice management software wasn’t making it to the bank account. Further investigation revealed a number of discrepancies in the records.

Bad news: The practice faces the labor intensive task of correcting a number of patient accounts.

Good news: By comparing the numbers in the practice management software and the accounting records, we identified problems early.

Discrepancies between your practice management software and your accounting system serve as an easy warning sign that something is wrong. The problem can be innocent - systematic or one-time record keeping errors - or fraudulent.

Business stress in dentistry

I had a conversation with a first year dental student over the weekend. Her dental education is preparing her for a life of clinical excellence, which is good for patients. But her dental education (perhaps not deliberately) is also sending her signals that dental practice ownership can be a stressful and sometimes overwhelming endeavor, which is not good for anyone.

Her response to the stress of private practice, “Screw this. I’m just going to hire you Greg.” Of course that was music to my ears. But the comment made me wonder why so many dentists choose a go it alone route on the business side of dentistry – an area of expertise completely distinct from their clinical training. Not only is stress at stake, but millions of dollars over the career of the dentist.

A few dentists grow a passion for and expertise in the business side of dentistry. I commend these dentists. But for others the business stuff seems to be a nuisance that just comes with the “freedom” of owning a practice.

Any insight from readers is welcome.

Dental bonus plans

An optimal dental office bonus plan depends on the objective of the bonus plan. Possible objectives include:

1) Share the financial success of the practice with staff members
2) Motivate general performance
3) Motivate specific performance

Consider how three different dental practices with different bonus systems accomplish and the objectives above with varying success.

In Practice #1, the staff has a general sense they get paid more when the practice does better, but they do not know how their bonus is calculated. The office manager states, “It’s a complicated formula and the doc just tells us our bonus every quarter.” In Practice #1, the bonus system serves to share the financial success of the practice with staff members and indirectly motivate staff to contribute to the success of the practice. The bonus system does not, however, motivate staff performance in any specific areas because the staff does not understand the link between their performance and their pay.

In Practice #2, staff members know exactly how their bonus is calculated -- it happens to be based on collections -- and the bonus gives staff members a clear stake in the game. The doctor states, “Sometimes my staff seems obsessed with the collections number.” In Practice B, the bonus serves both to share the financial success of the practice and to motivate staff to increase collections -- a relatively general measure of practice success. Although the bonus system for Practice #1 and Practice #2 do not differ greatly, the staff’s clear understanding of the link between performance and the bonus in Practice #2 provides additional motivation for the staff.

Practice #3 uses the bonus system to motivate very specific performance. For example, all staff members receive a bonus for new patient referrals. At one point, the doc wanted his hygienist to provide more patient education before he entered the room and offered a bonus based on improvement in this area. While Practice #2 and Practice #3 both use a bonus system to motivate performance, Practice #3 uses the bonus system to target more specific aspects performance.

Outcome: Different practices employ different bonus systems with different outcomes.

Caveat: Bonuses can be powerful. A bonus can motivate targeted behavior at the expense of behavior that does not affect the bonus.

Practice valuations

A Proveer Practice Management client wanted to purchase a practice where he was working as an associate. Before negotiations began, the seller provided a professional valuation that included three assumptions that caused the valuation to be 30% higher than it would have been under the assumptions I thought more appropriate. (The discrepancy led to some interesting discussions, but that’s another story.) Such a discrepancy calls for insight into the limits and uses of a valuation.

Limits of valuations
In this case, a few numbers on paper had a 30% impact on the estimated value of a multi-hundred thousand dollar transaction. The seller wisely stated, “The valuation is just a number.” Ultimately, the price is determined through negotiations between buyer and seller.

Each valuation firm employs its own valuation methods. Somewhat surprisingly, two practice valuation books published by the ADA are inconsistent with each other on some points. Further complicating the matter, the value of a dental practice is context specific. What is the value of the practice to a dentist versus a non-dentist? What is the value if sold as an intact practice versus parted out asset by asset? What is the value to a young dentist versus a dentist near retirement? What is the value to the dentist versus spouse in a divorce? What is the value in an orderly sale versus a fire sale due to death or disability? Such questions suggest there is no such thing as a single “value” for a practice.

Uses of valuations
Nonetheless, the economics and analysis underlying a valuation can provide real insight to a buyer, seller, or dentist who plans to continue running her practice. For example, when working with one client, we used valuation techniques to show he could pay roughly a quarter-million and turn the practice into something worth almost a half-million with some practice management changes. An understanding of the sources of value can also aid management of an ongoing practice or help prepare a practice for sale.