Insurance Plans and Dental Practice Profits – What’s the Connection?

Dovetail Insurance

Have you given any thought to the type of insurance plans your clinic accepts? Most practice owners think that accepting more plans will increase revenue. At first glance it makes sense. After all, you don’t want to drive away patients simply because they don’t have the right plan to pay for dental care. In a sense, it is the same as offering multiple payment options. Some people prefer paying by cash while others use their credit cards. Why should you restrict the types of insurance you accept?

Actually, the answer to that question is more complex than it appears. There are many reasons why you should take a closer look at the insurance plans. Dental insurance plans can affect more than just the production numbers for your clinic. They also affect your profitability which determines your financial stability as well.

The Connection between Insurance Plans and Profits

Insurance plans generally have set fee schedules that don’t really change much. Imagine two clinics that accept the same insurance plan. Both the clinics will be paid the same amount, provided they performed the same treatments and procedures. However the profits of both clinics from the plan can differ quite a bit. The variance can be as much as 50% or more!

What does this mean for your practice? It means that the same plan may provide profits for you but losses for another clinic. One clinic can make a profit of 20% on production of $50,000. On the same plan, another dentist can make a loss of 10%. This means that every patient with that plan causes the practice to lose money. What happens if that insurance covers the majority of patients? That practice ends up losing quite a bit of money.

There are many reasons why profitability varies so much. These include overhead, the number and type of procedures performed and even billing costs. What exactly is overhead and what does it have to do with profitability? Simply put, overhead is the fixed costs that are involved in running your practice. These fixed costs are not directly linked to any particular procedure or product. They remain the same regardless of production volume, to a certain level. Whether you see 10 patients a week or 20, these fixed costs won’t change.

The rent on your premises, accounting or lawyer fees, EHRs subscription costs, taxes etc are all examples of overhead. If your clinic has a high amount of fixed costs, it reduces the profitability by quite a bit. So even if two clinics have the same production numbers and accept the same dental plans, fixed costs will make a difference when it comes to profitability.

Many practice owners don’t think about the administrative costs involved in running their clinics. The cost of paper, printing, mailing etc. are invisible but add up over the weeks. Even the time that your staff spends in billing and managing insurance claims is a cost. Reducing administrative costs is one way to boost profitability. Suppose you have a dental plan that most of your patients use. Even reducing admin costs by a few percentage points will increase profits because of sheer volume.

The number and type of procedures you perform will also impact profits. A dentist who uses newer techniques that are more efficient or effective will perform better than their counterparts. Even if a new procedure does not drastically affect patient outcomes, sometimes it is good to upgrade for efficiency. You should periodically review the plans you accept and make sure you have the right mix to ensure profitability.