In the Business of Dentistry, Production Is King

Much of that has changed in recent years. Many dentists are now confronted with greater student loan debt and higher interest rates on loans and financing for practices than even a year ago. Unlike in the past, dental insurance is now a part of most dental practices, with dental insurers periodically lowering reimbursements. Most recently, practices have had to tackle new regulations regarding practice operations and infection control as well as significant staffing challenges. These issues, and others, have heightened the complexity of the business of dentistry.

The good news, however, is that many practices today are thriving and experiencing annual growth in production most years. This article outlines strategies that can help practices reach higher levels of success both financially and with regard to creating a more enjoyable environment for the doctor and team.

In any business, one metric or statistic stands out as more important than any other when it comes to understanding the business and strategizing for the future. After years of analyzing and designing strategies to increase practice success, the author proposes that the number one metric for understanding dental practice is production. While many key performance indicators or statistics should be evaluated, analysis of production will reveal more about a dental practice than any other indicator when used both independently and as part of ratios relative to other statistics.

Why production? First, if a practice has the right level of production, it will be successful. For the purposes of this article, the term "production" is referring to adjusted production, which is production that can be legally collected. For example, if a practice charges a $1,400 fee to place a crown and participates with an insurance company that has a maximum allowable fee of $800 for this service, then the adjusted production is $800 because that is the amount that can be legally collected. Adjusted production is the real production in dental practices.

Production reveals a great deal about efficiency. The author's practice management consulting firm believes that most practices can increase production by 30% to 50% in 3 years. The firm has demonstrated countless times that simply changing a schedule using procedural time studies (to know how much time is truly needed per procedure) can create the capacity for that increase. These studies will help show that if a practice is operating 4 days a week and can simply save 10 minutes of time per hour using that time for other patients and procedures over the course of a year, it will increase the doctor production by 32 days (the equivalent of 2 months) per year. Wasted time and effort often goes unnoticed as the practice changes gradually over time.

Production is the starting point of improvement analysis. By examining production and production-related ratios, a practice can begin to understand its strengths, weaknesses, and opportunities. Every practice should know its numbers in the following six categories:

Production. This indicates the financial success of the practice in every dimension except for the impact of overhead. If overhead is extremely high, then even excellent production will be limited in creating the right level of financial success for the practice.

Production per hour.Reviewing production per hour begins to reveal how effective the practice is with regard to consistent production throughout the days, weeks, months, and years. These numbers also indicate whether a practice has an opportunity to increase its production per hour, which also leads to increased annual production.

Production per provider.This statistic breaks down how each doctor and/or hygienist in the practice is contributing to production and can help identify opportunities for improvement. As an example, the author's firm recently met with a practice where a young associate was identified as operating slowly compared to others. With additional continuing education and training he was able to both increase speed and improve quality of care.

Production per new patient.New patients are highly valuable to dental practices. First, they replenish lost patients. Second, they can increase the overall patient base, which also increases annual production in a practice. Third, they often refer their families when motivated by the practice, further increasing the number of new patients. Given these benefits, it is important to analyze production per new patient. Through overall practice analysis, the author's firm has found that in their first 12 months, new patients typically have a higher annual production value than current active patients.

Production/overhead ratio. As mentioned earlier, having the correct target production for a practice almost always means that the practice will be successful from a business standpoint. The exception is the practice that has extremely high overhead, and this is why the production/overhead ratio needs to be analyzed. Although production is the single-most important metric in the practice, practice profit must also be analyzed, and the production/overhead ratio will provide an indication of whether practice profitability will be on track or not. As an example, the author's firm recommends that the overhead be 59% for general practices, 51% for periodontal practices, 50% for oral surgery practices, 49% for orthodontic and pediatric practices, 42% for endodontic practices, and 64% for prosthodontic practices (which tend to have higher laboratory fees).

Production per patient.Dental practices have varying levels of value ranging from extraordinarily successful fee-for-service practices with low volume to highly successful PPO-based practices with high volume. Success refers to production and profitability. There are different models dental practices can use to attain success, but understanding production per patient provides an indication of the volume necessary to achieve goals and improve practice performance.

Many other statistics regarding production also can be analyzed. Additionally, statistics related to profit, income, collections, no-shows, last-minute cancellations, case acceptance per service, case acceptance overall, hygiene production, hygiene services, and insurance participation are also important. Identifying those data that will have the greatest impact in terms of understanding and analyzing the practice strengths, weaknesses, and opportunities is critical.

As a business, a dental practice must apply basic business principles to achieve high levels of success. Many dentists are already starting behind the previous generation in terms of usable income and savings after debt payments due to student loan debt and the cost of purchasing or opening a practice. Dentistry remains an excellent investment, but the better the practice performs and the faster it grows financially, the sooner the return on investment for the cost and time of education and cost of owning the practice will occur.

Successful businesses have highly defined systems that help ensure that the practice will reach its goals. Systems in dentistry include such areas as scheduling, financial management, insurance participation, case presentation, case acceptance, hygiene productivity, customer service, no-shows and last-minute cancellations, scripting, and team training. Each system is critical to the success of the practice, and all the systems integrate with each other to create a scenario where the whole is bigger than the sum of the parts. Practices with excellent systems are more efficient as defined by the systems, and it becomes easier to train the dental team, which is especially important at a time when many practices are hiring new people. Having excellent systems also simplifies making changes at a step-by-step level in the systems. Systems are a critical component to achieving the annual production goal and overall success.

As a business, the practice should also have very specific goals. Goals should be focused around financial targets and other opportunities for improvement every year. Each goal must be written, have a deadline, and be measurable. This way, goals can be tracked on a daily, weekly, monthly, and annual basis. Practice leaders need to include the dental team in the goal-setting process, as this will enhance team commitment and help to create a positive culture.

Dental practices are businesses, and dentistry is changing rapidly. If properly understood, the application of basic business principles can allow any business to succeed. In dentistry, the metric that allows dentists to have the best understanding of their practice is production. If production is at the proper level, the practice will flourish and opportunities for improvement will be revealed regarding both financial performance and practice efficiency. In short, practices should set an annual production goal and design systems that ensure the goal will be achieved.

Roger P. Levin, DDS

CEO and Founder, Levin Group, Inc. (levingroup.com), a practice management consulting firm that has worked with more than 30,000 dental practices

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