The Risks and Benefits of a Fee-For-Service Dental Practice

December 12, 2016
Ed Rabinowitz

Why dentistry may begin to shift back toward the fee-for-service model, and what it takes to achieve financial success with it.

What was once old is now new … or so the saying goes. And evidence of that may be on the horizon where fee-for-service dental practices are concerned.

Arun Garg, DMD, of the Center for Dental Implants, estimates that between 5 and 10 percent of dental practices today are doing fee-for-service. But that percentage, he predicts, will double or even triple in the next 5 to 10 years.

To better understand why, a brief history lesson is required.

The Backlash

Garg recalls that all dental practices were fee for service, or normal indemnity insurance, 20 or 30 years ago. Dentists recovered what they could from insurance, and billed the patient for the balance. Then HMOs became the fashion, where dentists were paid a flat amount—usually around $5—per month per patient under their care—regardless of whether or not they saw the patient.

“They liked the monthly check they received,” Garg explains. “And it was in the best interest of the doctor to keep the patient healthy, because that way he could continue collecting his $5 per patient per month, and they wouldn’t need to come in.”

Then PPOs came along. No more monthly checks, but they received a guaranteed number of patients. Dentists signed on with a PPO, got put on a list, and patients were referred to them. And while dentists performed the work patients needed for more than $5 per month, they still didn’t get full price.

“Maybe around a 30 percent discount on the usual fees,” Garg says.

But most dental practices, Garg says, operate on a 70-30 split—70 percent overhead, and 30 percent for profit. So if dentists gave PPOs 30 percent off their usual fee, there was almost no profit left.

“Now what’s happening is sort of a backlash,” Garg says. “More folks are moving away from PPOs and trying to do fee-for-service. We’ll see 15 or 25 percent doing fee-for-service in the near future.”

Gambles and Benefits

What’s happening now, Garg says, is dentists realized they were giving away 30 percent. Instead, they could charge their normal fees and spend that 30 percent on marketing to bring in a volume of patients. Or perhaps discount fees by 10 percent and spend 20 percent on marketing, essentially doing the same thing the PPO insurance is doing for them, but having better control.

“Those who feel comfortable that they have found a way to market or feel that they will find a way to market, are moving away from (PPOs) because they feel they can have a little bit better margin for themselves,” Garg explains.

The benefits, he says, are that the contract is now between the patient and the dentist. No longer is there a third party saying well, we’ll cover for the porcelain and metal crown, but we won’t cover for the all porcelain crown.

But there’s a catch-22. If a dentist has been working with 10 PPOs and decides to cut that number in half, he could lose 50 percent of his patient population. He’d have to make those numbers up quickly through marketing.

“Most folks are saying, okay, out of the 10 I accept I’ll drop one, and I’ll start marketing to compensate for that,” Garg says. “And then once I have enough volume coming in from marketing I’ll drop another one. I’ll phase them out. There are very few guys who are courageous enough to drop everything at one time.”

Tremendous Potential

Garg sees the opportunity for significant benefits for practices shifting to fee-for-service. For starters, he points to time and productivity. In the case of an extensive treatment plan, insurance requires everything be itemized—a 3- to 4-page detailed form where staff may need to look up codes for everything.

“But I can sit down with them and say, ‘We’ll do all these extractions, put in the 8 to 10 implants, do the crowns and bridges, and it will take 6 to 8 months,’” Garg says. “It takes me 30 seconds to say that, and I don’t tie up my staff for 45 minutes. And if I’m saving time, I can save costs.”

The important first step in transitioning to a fee-for-service practice is recognizing it as a new culture, Garg says. No longer will practices have patients automatically referred. Instead, you’re going to have to compete for them as any business would.

“We have to inspect our office, the way it looks,” Garg says. “Inspect everything to be sure folks will choose to spend their out-of-pocket money with us as opposed to somewhere else. And if we think we can step up to the plate and do that, then we can go down that path. It’s a culture to do that. And if the doctor and team members aren’t going to do that, it’s not going to work.”