Managed Care Myths

I have yet to find a dentist (and I have talked to quite a few thousand of them) who says “I love HMOs and PPOs.” Or “I’m so happy I participate in all of these plans.” Even today the reaction I find when discussing plan participation is overwhelmingly negative.

Yet, plenty of doctors still participate. Why? While reasons may vary – the most common ones I’d say are:

1.  There are a number of “myths” (as I like to call them) surrounding participation in managed care. We are trained as clinicians, not businesspeople.  This lack of understanding confuses things and can make it seem that heavy plan participation is a workable solution for a dental practice (business).
2. In that same vein, I find that most doctors enroll in these plans when they are:  a) worried about being “shut out” of the plan or b) Not busy enough. Ultimately, the worry comes back to the idea that not participating will cost them money, profit or possibly put them out of business.

Let me say this here and now: You can have a successful fee-for-service office.  You can get paid what you are worth.  Managed care is not a “chronic” ailment that you just have to “live with.”  You can do something about it!

With that in mind let’s take a look at and debunk the more common managed care “myths.”

MYTH #1: Joining a plan is free.

This one is pretty easy to debunk. It does however require a change in viewpoint. True, most plans don’t charge a membership fee. You “pay” by charging less for services. Here is the problem. When we receive money and spend it, we see this as an “expense.”  But, what about money that you would have normally received and didn’t?  We usually pay this no mind.

I’d like you to change your viewpoint.  This too is an expense. I have no idea if it is from a  tax or accounting standpoint. But, if you charge $1,100 for a fee-for-service crown and $850 for a PPO plan crown – you have in effect just “spent” $250.

The costs associated with each of these crowns is the same: payroll, lab and so on.  All that’s different is you were paid less for doing it. I’m not going to even get into some of the financial “alchemy” I’ve heard about to cut costs by using different labs and so on – which can potentially threaten clinical quality.

Multiply this by enough procedures and you can see where it goes. A write-off of $20-30,000 per month is not shocking to see. I’ve also seen my share of $50,000+.

So, if we’re treating your write-offs as an expense, what are you actually spending this money on? MARKETING.

At MGE, some clients spend 5%-8% on marketing. I’ve been told that is too much by doctors who are writing off 25% or more due to managed care.

As an example, let’s say we have a practice producing $60,000 per month and collecting $45,000 due to 25% in write-offs. The truth is that the “marketing budget” for that managed-care practice is $15,000 (25%) per month.

In effect, an HMO/PPO plan is a marketing plan. Instead of marketing directly to prospective patients, you are asking the HMO/PPO company to direct patients to your practice. The difference between what you should get paid and what you can get paid is the cost of having your name in the plan’s book or website. That’s your marketing cost. I’ve had doctors argue with me about my logic here. It’s inarguable. What you are writing off is what you are “paying” the HMO/PPO company to market your practice for you.

And let me be clear: I’m not vilifying these insurance companies. For instance, I’ve seen PPOs where the write-off is between 5 and 10 percent.  Not an unreasonable amount and not out of range for a marketing percentage. In that case, this might work just fine. In the end, to evaluate one of these plans, you might want to check your write-off percentage as a whole and see if you’d be willing to spend that percentage on marketing. If not, you may have a problem.

Myth #2: It’s better to be busy with something than have an empty chair.

While I agree – no one likes an empty chair – this is true only up to a point.

We touched on this earlier and this is where managed care can become devastating to your profit. Let’s use our example above of the doctor producing $60,000 and collecting $45,000.  Regardless of how much this doctor collects, he or she is incurring the cost of producing the $60,000 of dentistry—staff, facility, materials, lab bills, etc. After incurring this cost, he or she is only collecting $45,000.

Without write-offs, they could work less, produce about $45,000, collect $45,000 and be in better shape financially.

We are normally told that overhead should be 60% or less. 60% of $60,000 is $36,000. That leaves $24,000 profit for the owner. That’s a nice living in most parts of the country. However, $36,000 of expenses is 80% of $45,000 (actual collections). This leaves only $9,000 for the owner. The write-offs can potentially devour your profit to the point where you would make more as associate. If you find yourself in this boat and feel like you’re working harder for less pay it’s because it is true.

From there you might try to save money and cut corners wherever you can just to grind out a living. Dentistry is no fun practicing that way.

Now it doesn’t seem so outrageous to spend 5-10% on marketing if it actually works, does it? Even though it’s painful to cut a check for $10,000 every month, it’s worth it if it brings you $150,000 in collections and prevents the headaches that managed care plans can bring.

Myth #3: HMO/PPO Plans are part of the future of dentistry and are required in order to survive in this economy.

I have clients all over the country that have refused to play the reduced-fee game. I talked to a client a couple of weeks ago that did our program in 1999. He doesn’t participate in any plans. He hasn’t worked more than eighteen hours a week for ten years. His overhead is 50% or less, and he nets about $500,000 a year. He picks the kids up from soccer practice in the middle of the day and has control of his life. I forgot to mention, this is in the Detroit Metro Area! Most people think, “This is Detroit, home of GM, Ford and Chrysler. Everyone is on a plan. If you don’t participate, you won’t be able to pay your bills.” He’s proof that there’s a better way to do this if you learn how to market your practice.

I have a client in San Diego. He opened from scratch in June of 2008, just before the economy crashed. He refused to participate in any plans. All the reps predicted that within ninety days he’d be joining them all. Not so. Last month they collected over $200,000 and they just added their twelfth day of hygiene per week! Yes, that’s three full-time hygienists four days a week. With a practice that hasn’t had its fifth anniversary yet.

The Truth: Lack of effective marketing can kill a practice.

Why are these clients so successful? Because they learned how to market and bring in fee-for-service patients. It’s not impossible to do, regardless of the economy.

If we are in the middle of a recession and everyone is so price-conscious, how in the world does Starbucks get away with charging customers $5 for a coffee they can get at McDonald’s for $1. How do iPads and iPhones outsell their competition? It’s about a) product quality and b) how a product is marketed.

The key here is learning how to market well. The reason managed care seems like a solution is because no other solution is apparent. On the other hand if you knew how to economically attract a ton of new patients month in and month out would you need managed care?  Probably not.

Now, I don’t expect you to start designing everything yourself, developing your own website and so on, but you should understand marketing concepts well enough from a business owner’s perspective to know: what will work (and why it will work), what won’t work (and why it won’t), and how much money you should be spending on it.

I can’t count the number of dentists I’ve spoken with who had no clue they were getting completely ripped off by their marketing companies. They didn’t realize that their marketing bore the wrong message, was being sent to the wrong people, and they were paying five times too much for it. I’ve spoken to doctors who were paying $2,500 per month for an online marketing company to do nothing but “maintain” their website. That just doesn’t cut it as a business owner.

The Moral: Take Control of Your Business!

So I’ll say it again, learn how to market and just don’t participate in unfair plans anymore. It’s still possible at MGE. You can learn the basics of marketing at the MGE New Patient Workshop, which is delivered regularly in Florida, Southern California, and New York City, and never again will you need to rely on anyone else to provide you with new patients. Call us today.