Fees and the New Year

March 21, 2012

As we arrive in the New Year, all of us at Professional Transitions hope that you enjoyed your 2011 holiday season and wish you a very happy, healthy and prosperous year ahead. 

As we arrive in the New Year, all of us at Professional Transitions hope that you enjoyed your 2011 holiday season and wish you a very happy, healthy and prosperous year ahead. 

With 2012 here, doctors continue to face unprecedented uncertainty in the economy, their practices, and investments. While our feeling on that has certainly brightened due to the general trend of the economic signs over 2011 (most signs continue to point towards an ongoing and imminent recovery, visit http://economy.ADSflorida.com for indicators) and economists nationally and worldwide are optimistic, we know we are not out of the weeds yet and there continue to be constant and varying pressures on your practices.

With uncertainty in Europe continuing to affect our financial system and with a political forecast for legislative gridlock as election season heats up (and the stability of the economy is challenged by Presidential and Congressional candidates alike), it's more imperative than ever for doctors to spend the time and energy to establish a practice budget, in conjunction with a full review of their fee structure, to help assure success. Doctors, who have not already completed a budget, should begin the process now so that they can have a comprehensive budget in place as soon as possible for the remainder of the New Year. 

While only about 10% of doctors nationwide have a written practice budget, their practice profits are dramatically higher than the remaining 90% who do not. The amount of time, energy and money devoted to marketing should be inversely proportional to the level of your optimal capacity. Looking at 2009 and 2010, many doctors have reported a decline in new patients. This seems to have lessened or turned around in 2011 for most but it’s still an overall concern. To help remedy this, the first step to take in the budgeting process is to develop a marketing plan and budget to reverse this detrimental trend. It is suggested that if you are operating at 80-90% of optimal capacity, 2-3% of collections should be devoted to marketing. If you are operating at 70-80% of capacity, 3-4% of practice collections should be spent. Finally, if you are operating below 70% of optimal capacity, you should be spending 4-6% of collections, if not more, on marketing in order to boost practice production.

In addition to finding ways to attract new patients, you must also review your fee schedule and consider the timing and amount of a fee increase for 2012. We recommend that doctors select a fee percentile that accurately reflects their quality of care, and then increase all fees below that percentile up to it (request a report to find out localized percentiles for all ADA code fees at http://www.ProfessionalTransitions.com/feereport). Once your practice’s fees are at the desired percentile, you should raise every fee the same percentage across the board each year thereafter. 

Yes, every year. With inflation low, and consumer spending tepid, only a minimal fee increase of approximately 2-3% for this year may be justified, although practices that have been experiencing a rebound should look at increases of more.

From here, overhead expense must be reviewed on a line-by-line basis. 2011 expenses should be reviewed against results for 2010 to determine any areas of significant increases. Looking ahead to 2012, the expenses in every category should be scrutinized to look for possible savings.  It is also important to monitor expenses to ensure they stay within an acceptable range.

You may also consider changes in practice staffing. In practices that are down, this may involve laying off an employee, or replacing a full-time employee with a part-timer. Moreover, you must decide whether to eliminate automatic pay raises and begin using an incentive bonus plan. Finally, changes in your production and procedure mix should be reviewed to determine how they may impact 2012 lab and supply expenses.  Note that lab and supply costs increase every year which is just another justification for an annual increase in your own fees.

Once the income forecast has been completed and the overhead expense percentages have been converted into dollars, the 2012 practice budget can be finalized. Doctors can then determine the optimum way to distribute the projected practice profits between salary, dividends (Subchapter S corporations only), retirement plan contributions, fringe benefits, and professional expenses.

Your practice budget is vital for the ongoing success and health of your business.  A little time now will save stress, and dollars, throughout the year.

Questions about your practice for 2012?  Email us at question@ProfessionalTransitions.com.  For a local overview of fees for 2012, Professional Transitions is offering a customized report for you and your practice. If you are interested in receiving one, please click here to complete the form.

Greg lives in Bradenton, Florida and is a partner in Professional Transitions. Professional Transitionsis a full-service firm providing comprehensive transition services for dentists from graduation to retirement. Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions.  Greg has been associated with Professional Transitions, Inc. and sister company ADS Florida, LLC since 2004. He received his Bachelor's degree in Computer Engineering from the University of Central Florida and his MBA from Wake Forest University. Greg is also a financial analyst for the Pride Institute and Pride Transitions as well as the marketing chair for ADS nationwide. Greg has been a speaker throughout the West Coast of Florida and at several dental schools, nationally and has written for local, regional and national publications. Greg can be reached at greg@professionaltransitions.comor by calling 888.229.5764.