Dropping dental insurance plans: Could your practice survive?

YOU MAY BE HAPPY with your dental fee schedule. But how often do you get paid your full fee for any given dental procedure? If you’re like much of the dental profession, the answer is not all that often due to participation in reduced-fee dental insurance plans. Plans that have you writing off 30%, 40%, or even 50% of your normal fee. Plans that require you to work harder and longer to meet your overhead and (hopefully) make a profit. Plans that have you practicing dentistry at a pace you might not have envisioned when you signed up with them. 

Since the early 1990s, we’ve watched heavy managed-care participation in the dental industry go from the outlier to the accepted norm. Nowadays, we’re at a point where a completely fee-for-service practice is the anomaly. 

Anecdotally, I can attest to this. I have lectured to and met with thousands of my colleagues over the past decade. It’s not uncommon, especially when I take on a new client, to see practices that have two-thirds or more of their patients with HMO or PPO plans. The reason for the uptick in activity is obvious. Doctors join for the promise of more patients, which answers the question as to why doctors worry about dropping plans. They don’t want to lose patients! 

I was in the same boat myself years back. My practice had dropped off by 25%. New patients had crashed from 25 to eight per month. I had three PPO plan contracts on my desk. After reading them, I couldn’t reconcile how it would work for my practice. Doing the math, it became obvious that I would have to work more to make the same. I looked at that 30% write-off to be a “participating provider” as a marketing fee. Then, I realized I would never spend 30% of my revenues on marketing! So, I took a different path. Instead of joining plans, I learned how to manage and market my practice. I did well, and eventually I became a partner in the company that trained me. 

These past 25 years I’ve seen thousands of my clients drop insurance plans. Maybe not all of their plans. A 10% write-off is not all that bad, but 25%? 30%? 40%-plus? That just does not work. And factually, these write-offs as a percentage of revenue give you a larger marketing budget than Coca-Cola, Walmart, or any major corporation! 

Looking under the hood

What’s easy to see when a practice participates in insurance plans? The volume. The practice is busy. It has more patients and more activity. That might make a doctor hopeful, but “pop the hood” on one of these offices with high participation and take a closer look. We have a few things happening. 

• Cost to deliver (materials, salaries, rent, etc.) to fee-for-service and plan patients is the same, but reimbursement is lower, lowering the margin on all procedures or, in some cases, posting a loss. 
• If the average write-off is 30% on these plans, the office ends up with a 10% global fee decrease for every one-third of the practice that is managed care—e.g., two-thirds HMO and PPO would be a 20% global fee decrease for the practice. 
• The doctor is working more, harder, and faster for less profit, hoping to make up the difference through volume, which really isn’t a concept that works all that well in a service business. 

To be clear, I am not criticizing patients in these plans. Patients are patients. They aren’t to blame for their insurance company’s fee schedule. I understand why insurance companies have gone this route—it’s cost control. But why would the average doctor subject him- or herself to working for—in some cases—50% of their normal fee? 

The reason is, we don’t know any better. No one ever accused us dentists of being great businesspeople! I think this needs to change. If you want a successful office, you need to know how to get new patients on your own steam. You need to know how to present treatment well and create an excellent customer experience with your team. 

Looking deeper

Let’s do some math. What would happen if a practice that was two-thirds managed care (with an average 30% write-off) dropped all of its plans? Sure, the practice would lose some patients, but not all of them. Some would stay. Some would leave and come back. The better the doctor’s business skills, the less attrition that would occur. That said, how many patients could this office afford to lose by dropping these insurance plans? This is where it gets interesting. 

Let’s take a look at Table 1. In this scenario, we have an office that is two-thirds managed care. It has 3,300 charts, collecting $115,000 per month with an overhead percentage of 70%, and collections per chart are $34.85. The cost per patient (overhead divided by charts) is $24.39, leaving a net profit of $34,500. The doctor now drops all insurance plans, effecting a 20% fee increase, and now look at what happens. Yes, you’re reading that correctly. Active patients drop from 3,300 to 1,980 (a loss of 1,320 patients), collections drop from $115,000 to $82,800, overhead percentage drops from 70% to 58%, and profit stays the same at $34,500 per month.

This doctor could afford to lose 1,320 patients and still maintain the same level of profitability! The doctor would be working fewer hours, most likely with higher career satisfaction, and still make the same profit margin. 

Now, obviously, I wouldn’t advise doing this without also knowing how to attract more new patients and being able to transition those plan patients over to paying your normal fee. Done correctly, you can keep up to 80% of these patients. Situationally, things can change, of course, but it’s not all doom and gloom. 

If you want to see how this type of scenario might look for your practice, I have created spreadsheets that you can download at raisemyfees.com. You can enter in your own numbers and see what would happen if you dropped plans and how many patients you could potentially afford to lose. 

Again, the focus isn’t on dropping patients, and the insurance companies’ fee schedules are not the fault of the patients. This is about having a sustainable business model, practicing dentistry the way you want, and focusing on delivering the best possible care. It’s also about having economic freedom. 

I’ll give you an extreme example from one of our clients in the Midwest. He collects about a million a year and doesn’t participate in any plans. He and his staff work about 18 hours a week (three six-hour days). His fees are above average for the area but not the highest. His profit margin is 50%. Most everyone in his vicinity participates in dental insurance plans, but he doesn’t. His view is that he’s going to be paid a fair fee, or he’s going to be home with his kids, or doing something else that he enjoys.

So, it is possible. 

I pose this concept to you to get you thinking. I care about our industry, and I see a lot of dentists who feel like they are working for insurance companies. I want to let you know there is hope! But you must be proactive. 

How do you want to practice going forward? Put some attention on acquiring a set of business skills to go along with your clinical ones. Create the type of practice you truly want.  

GREGORY A. WINTEREGG, DDS, is an internationally recognized practice management speaker and author. After transforming his small-town office into one of the top practices in the nation, Dr. Winteregg joined MGE Management Experts as a partner in 1994. Since then, he has personally consulted and lectured to tens of thousands of dentists. Visit mgeonline.com or call (800) 640-1140 to learn more about MGE and the upcoming calendar of CE events across the US and Canada.