Afraid of Raising Fees?

Last updated on September 26th, 2024 at 04:13 pm

When is the last time you raised your fees?

Last year?

Three years ago?

Longer?

It’s generally understood that dentists should raise our fees every year. After all, the Consumer Price Index for the last two years has risen by 2.1% each year. You’re paying more for everything you have to buy. And as a result, it costs more to run your practice and to live your life.

Big corporations raise prices all the time. The government requires air bags in cars, so the price of the car goes up. They don’t absorb the cost of that item and cut their profits. Unions negotiate higher wages and the price of the car goes up. That’s how business works.

Unless you’re the average dentist.

In the course of my career, I’ve spoken with thousands of dentists that hadn’t raised their fees in years. The cost of living goes up, labor (payroll) prices rise and new government regulations increase our operating expenses. And what do we do? We keep our fees the same and watch as our overhead increases. And despite the average dentist being a smart person, this lack of movement on fees makes no sense from a business perspective. Why do we agree to work just as hard, or harder, for less profit?

One word: Fear

When we consider raising fees, what types of thoughts go through our minds?

• “I can’t get the reputation of being too expensive. I won’t get any new patients.”
• “ALL (MOST/SOME/A BUNCH) of my patients will leave the practice.”
• “I won’t be able to pay my bills.”
• “I’ll have to lay off staff.”
• “It won’t really matter because I’m going to get paid the same fee from the reduced-fee plans anyway—after all, they make up most of the practice anyway.”

I could go on, but I’m sure you could fill in ones I missed.

And this issue with fees has always bothered me. Why? Because it’s not how I ran my practice. From what I could tell, my fees were always in the highest percentiles. I ran at 40% plus profit. And as a result of the MGE Power Program:

• My new patients went from less than 10 to over 70 a month.
• I became so busy I had to get an associate.
• I was able to cut back to twenty-two hours per week.
• Took three to four weeks of vacation each year.
• And paid myself at or close to the highest rate in my area—with incentives and bonuses on top of that.

According to a national survey, my practice was in the top 4% of practices in the US; while practicing in a farm town of 10,000 people with eleven other dentists. And I raised my fees each year based on the cost of living and my operating expenses.

(Related: Should the Doctor Discuss Fees?)

I didn’t have as many chairs as some doctors in my area. I didn’t have as many staff as some of them. But by charging a fair fee I was able to practice the way I wanted to and do what I felt was best for my patients. I didn’t do semiprecious or nonprecious metal crowns. I used what I considered to be the finest lab in the state. I used the best restorative materials. I installed a washer and a dryer in the office, added hand pieces and other equipment as needed to comply with OSHA regulations to the letter. And on the flip side of this, the fact that I charged a decent fee gave me the obligation of not to cut corners. I took that second impression when the first one wasn’t exactly the way I wanted it. I think you’re getting the idea.

By charging a higher fee I felt like that put the pressure on me to go “above and beyond,” to deliver the best product that I was capable of delivering. And occasionally, patients would raise the fee issue. Our response – my staff and I would inform them (proudly) that our fee structure it helped make it possible for us to deliver the best dentistry that we possibly could.

Not too long ago, I decided to tackle this fee issue head on; while keeping in mind that the most common objection to raising fees is the possibility of loss of patients and revenue.

So, I looked at a few factors:

1. If a dentist raises their fees – their average revenue per patient goes up.
2. The cost of performing a procedure stays relatively the same (barring inflation). In other words, the cost of delivering a prophy for a PPO patient at $69 is the same as the cost for a patient that pays full fee. Same with a crown assuming you use the same lab. You don’t pay your staff, landlord or lab less because it’s a $600 PPO crown, versus a $1,000 full fee crown. Similarly, if you raised that crown fee by 10% to $1,100 the cost to deliver, again, stays about the same.
3. With the above in mind, a dentist that raised their fees could theoretically, generate the same amount of revenue while working less. Or, more revenue with no change in work output.
4. If all of the above were true a dentist, in theory, could actually sustain a loss of patients from the practice, and work less while potentially earning the exact same dollar amount of profit.

So, I sent out to create a formula that would show me (and you): If a practice were to raise their fees by 10%, how many patients could they afford to lose and still maintain the same dollar amount of profitability.

Analysis

These are actual numbers from an analysis I recently ran with a dentist who practices in the Midwest. He has been in practice for thirty years, has eight days a week of Hygiene and participates in many reduced fee plans. With that in mind, let’s start with showing how a 10% average increase in fees would affect his office if no patients left:

Some definitions:

• # Active Patients: We defined ‘active patient’ as anyone other than a new patient that had been in the practice for any procedure in the past year.
• Average Mo. Collections: Would be the average monthly collections for the office.
• OH%: Overhead percentage
• Net %: Net income percentage as a percentage of Collections per month.
• Income/Pt: Dollar value of income per patient. This figure is obtained by dividing Avg. Mo. Collections by the number of Active Patients.
• Cost/PT: Cost per patient. This is what it costs to service this doctor’s patient base, divided by the number of active patients. This is calculated by dividing he average collections (Income/Mo) by the # Active Patients. By calculating the ‘cost per patient’ we don’t need to discuss the doctor’s fees, rent, how much they pay the hygienist etc. This gives us the cost of having each of those 3,300 patients in the practice. That number will not change as we move forward with my calculations (as explained earlier) and is expressed a dollar value.
• Net/Pt: Net (profit) per Active Patient. This would be figured by taking the Income/Pt and subtracting the Cost/Pt. This is your net profit per Active Patient.
• Profit: This would your “net.” The dollar amount you get to keep each month

With this graphic above, observe that with a 10% increase in fees the OH% drops by 6%; and the Net/Pt goes from $10.45 to $13.94 – an increase of $3.49/each or 33.4%! If nothing else were to change in his practice other than a fee increase, he would also see a dramatic increase in profit of $11,500; because the cost per patient stays the same.

But wait just one minute you say! If this doctor were to raise his fees by 10% all of a sudden – he’ll lose most if not all of his patients, right?

Well, probably not. I would expect him to lose some. Especially those who are more interested in the cost of the dentistry than the provider or the quality. But that said, people are not as fixated on cost as you might suspect. I talk about this later. Having seen countless practices change policies, drop plans and so on over the years. I’d have to say in many cases these offices lost far fewer patients than they expected they would. Of course, I’ve always been surprised, but the losses sustained were, again, in most cases less severe than anticipated. So yes, he’ll lose some patients. But I would confidently assert that he wouldn’t lose “all” of them.

And with all of that in mind, let’s take our experiment here to the next step. If this dentist were to raise his fees by an average of 10% across the boards – how many patients could he afford to lose (i.e. leave the practice), and still maintain his current level of profitability of $34,500 per month.

We’ll start with the same two rows calculations I did above.

And now we’re going to add a third row,

So, what happens after this 10% fee increase?

1. Active patients drop from 3,300 to 2475 (a loss of 825 patients),
2. Collections drop from $115,000 to $94,875
3. Overhead Percentage drops from 70% to 64% and
4. PROFIT stays the same at $34,500 per month!

Yes, your eyes are NOT deceiving you! With a 10% fee increase, our formula tells us that this practice could sustain a loss of 825 patients (25% of this doctor’s active patient base), a drop of $20,125 in gross collections (Income/Mo) and still maintain $34,500 in profit!

How?

Well, with our fee increase, our income per patient went from $34.85 per patient to $38.33 per patient while our cost per patient has not changed. By increasing our income per patient – this doctor would collect more with less patients!

I know this sounds impossible but it’s just…math. As a business owner, you have to decide what is most important—numbers of active patients, income, OH%, Net Income % or profit. I always voted for Profit!

(Related: Are You Selling Yourself Short to Your Patients?)

Prior to becoming an MGE client, my practice was contracting. I was down by 25% from prior years. I had three reduced fee plan contracts on my desk. I didn’t want to participate but I had bills to pay. As I looked at the proposed fee schedules in these plans, there wasn’t one of them that was going to compensate my practice enough for a prophy to pay my hygienist to do it. Several thoughts went through my mind: “Is this a joke?” “Why does anyone sign up for these?” “I’ll have to lay off staff,” and “I’d rather work for someone else than lose money doing a procedure.” With no profitability – or having to work untold hours to meet my bills, I’m just working for the supply company, my lab, the insurance company, my landlord, etc.

Profit is a function of business. And that being said though, I did a ton of free dentistry for people that couldn’t afford it, missionary and charity work. I knew profit was important for my business and my personal livelihood – but I decided which charitable cause I would contribute my efforts to! It was my choice. I wasn’t going to work at a 50% fee reduction in an effort to “stay busy,” so I could help an insurance company save on costs. Insurance companies aren’t charities and I wasn’t going lower my fees to increase their bottom line!

Now, all of this might sound a bit wild, but let me really blow your mind. Let’s do something crazy and use our formula to project what would happen if we raised fees by 20%. We’ll do it Just for fun, because I wouldn’t conceive of doing something so ridiculous, but hey, let’s have fun with it!

What happens here? Well, with the same staff and expenses, the Overhead percentage drops to 58%, Revenues drop from $115,000 to $82,800 (a drop of $32,200), profit stays the same at $34,500 per month and we could afford to lose 1,320 patients – or 40% of the practice! I know it’s silly to even run these numbers but in our example above, this doctor by raising fees by 20% (a $1,000 crown goes to $1,200) he could lose almost half his patients and still remain at the same level of profitability!

If this practice had 1250 patients on an HMO plan or poorly compensating PPO patients, this means that, in theory ALL of these could leave the practice and the doctor would see a zero percent drop in his profit!

And let’s look at something else. All of the work and effort to produce and collect that extra $32,200 by participating in these plans results in a net zero gain for the business. Yes, you are helping these patients. But from a business perspective, this added effort, work, hours, supply costs, etc., is being done in effect to pay the costs of the added expenses for those 1,320 patients.

And now comes the real punch line. Are you ready for it?

As I mentioned above, the dentist in this example participates in a considerable number of managed care/reduced fee plans. If he were to simply drop these plans, he probably wouldn’t have to raise fees by a penny. Dropping all the reduced-fee plans would, in essence, act like a 20% fee increase. And now the profit from the fee-for-service patients is no longer subsidizing working for the reduced-fee plans at little to no profit.

OUCH!!

All of this work and research was actually inspired by an MGE client that completed the Power Program back in the early 2000s and practices in a big city in the Midwest.

Here’s his set-up:

• He does about a million a year.
• He and his staff work eighteen hours per week—three six-hour days.
• He doesn’t participate in any reduced fee plans.
• His fees are above the average for the area but not the highest.
• 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, rather than just work to pay the bills of someone else.
• His profit margin is about 50%.

That’s $500,000 per year in profit while no one in the office works more than eighteen hours per week! And he’s been doing this for the past ten years.

(Related: Fee Schedules — What Should You Charge?)

Now, compare this client to another dentist (non MGE client) that I spoke with recently. He’s been in practice for over thirty years. He just joined a group that was going to help him get more patients and market his practice. Their strategy is to sign up for more reduced-fee plans to get more patients. I asked him how it was working out. His reply? “I’ve never worked harder in my life.” And that’s something to hear from a doctor that has been practicing since the mid 1980s!

I also asked if all this work was showing up as more profit.

He hung his head and said “No. But my patient base is growing like crazy!”

Interesting. Doesn’t sound like all that much fun to me.

HOW IMPORTANT IS PRICE?

With all this talk about fees, reduced fees and fee increase, let’s look at a critical question:

How much do patients really care about price?

I recently commissioned a general survey of one hundred people (broad public across all demographics). I wanted to discover their feelings about being “sold,” and the sales process in general.

I chose to have this survey done on Clearwater Beach because at any given time, you’ll find people there from every walk of life. Regardless of income, age or economic status, everybody likes to go to the beach! My survey had eleven questions, but I want to focus on only one of them for now.

The question was: “With regards to being sold and the sales process what do you find infinitely valuable?”

I was looking to find what people considered most important when buying something. And the answers? Are you ready?

• 39% said they wanted the sales representative to be nice, friendly and interested in helping them.
• 19% said they wanted the sales representative to have product knowledge.
  Drum roll please!
• 6% said they were most interested in getting a good deal.

WHAT?!?!?! Get outta here!!!

To that end, this agreed with a study done by Walker Research not too long ago (you can find it here) In it, they stated:

“by 2020, customer experience will overtake product and price as the key brand differentiator, and therefore more emphasis will need to be placed on the experience a company delivers to create a competitive advantage.”

This also explains something else. I can’t tell you how many times I’ve had a client tell me about patients who left their practice when they dropped a HMO or PPO plan – only to come back willing to pay normal fee because they loved the doctor and being a patient in their practice.

The moral? Yes, there will always be some that are looking for the cheapest price no matter what. But it’s not EVERYONE! Think about it. If everyone had to have stuff cheap then we wouldn’t have Rolex, Ferrari, Mont Blanc, Mercedes, Louis Viton, Ritz Carlton, etc.

(Related: The 1 Thing That’s Ruining the Dental Industry)

Now I’m going to make you confront this other factor.  All the people who have the cheapest price as the ultimate goal shop at the same places: Walmart, Kmart, Motel 6, EBay, etc.

What kind of patients do you want to attract?  The ones more interested in value or the ones more interested in price.  Your call.

So let’s stop being the ‘cowardly lion’ and raise the fees.  I did it annually by holding the line with a small increase on recall and pedo fees and a larger increase on the rest of the services.  It was rare that I lost any patients at all.  That fee increase allowed me to practice the high-quality dentistry that was best for the patients and made me feel good about it.  It also allowed me to treat others who were a bit down on their luck for free.  The staff felt great about working for me and we all made regular bonuses.

I have a good friend, David Brier, who wrote a bestselling book on branding: Brand Intervention: 33 Steps To Transform The Brand You Have Into The Brand You Need

I highly recommend it. Great information and you can get through the entire book in a quick few hours. You can purchase the entire book on Amazon by clicking here.

Here’s what he says about price.

“Price is what someone pays. Value is what someone gets. Every brand must offer more than a good price. The more value you provide, the less price becomes the driver.”

“A cheaper price may inspire a purchase but it won’t inspire loyalty. Why? Because the only value you offer is less impact on someone’s wallet. That’s less pain, not more gain.”

David very eloquently states what I’ve been trying to say. Create value for your dental services and the majority of people won’t care about the price. They will be loyal to you. And many may even stay with the practice if you drop their plan. They will love you and refer.

Being the cheapest dentist in town doesn’t breed loyalty at all. It costs you a ton of lost profit. And in the end, it really isn’t worth it. Dentistry is too hard to deliver to give it away.

So, it really is just a small percentage of patients that are looking for the cheapest dentist. Shocking isn’t it? Then why does it seem like such a large number? I think that what happens is that those who must have it cheap make so much noise they scare us into thinking its everyone and we forget about all the other patients who are very happy.

Now What?

Maybe I’m sounding like a radical for proposing you drop out of the fixed-fee plans; but I know that there are some of you reading this that are fed up with working harder for less. I’m sure there have been times you’ve wondered if it was worth it. For everyone else I’ll propose a less dramatic approach. The Consumer Price Index has gone up 2.1% for each of the past two years. So let’s do this on a gradient. Raise your fees at least 4% and break even.

You can break out a calculator and raise every fee. Another approach could be to do like I did and raise fees slightly on hygiene and pedodontic services as these are the fees that patients are used to paying. Then raise the other fees a larger percentage.

Another thing I did is each year I bought a fee schedule for my zip code area. It breaks the fees for the services down by percentiles and you can see if your current fees are average for the area. I tried to keep my recall and pedo fees in the 60th-70th percentile and the other fees in the 80th-90th percentile range.

This can now be found here:

National Dental Advisory Service 2017 Fee Report Book

There may be other companies that provide this service but this is just $129 for what I’m talking about.

Now this is very important to say.

I never charged a fee that I thought was too high or that I didn’t feel good about. This is not all about the money. What it’s about is me being compensated a fee that I think is fair for the quality of dentistry that I provide. I wanted everybody to win — the patient and my office. By charging a fair fee rate, the pressure was on me to provide that level of care and service.

My purpose here has been to make you confront what you are charging for your services and the impact that not raising your fees regularly has on you, your family and your staff. Also, just how much cutting your fees to get into a book or onto a mailing list may be costing you. How you are compensated is no minor issue. It’s huge! Do your own numbers and decide for yourself. Don’t take this lightly. It will change your life.

I hope this has helped. If you have any questions, as always, you can email me at greg@mgeonline.com, or for immediate help, you can call us at (800) 640-1140.