The Law of Diminishing Returns in Dentistry

Last updated on September 26th, 2024 at 05:06 pm

When trying to stimulate practice growth, there is a big mistake that I see many doctors make. Let’s dive into what that is and explore what you should do to achieve sustainable expansion without falling into this trap.

Let me give you an example that illustrates this:

The Law of Diminishing Returns: A Simple Dental Practice Example

Imagine a dental office makes $90,000 a month, and $40,000 of that comes from the 30 new patients they see on average (about $1,300 per new patient).

Thinking of growth, the owner-dentist figures: “If 30 new patients bring in $40,000, then 60 should bring in $80,000, right?” So, they aim to double their new patients to boost their total monthly income to $130,000.

After investing in marketing to attract another 30 new patients, they don’t see the expected jump in production. Instead of adding another $40,000, they only see a $10,000 increase, reaching $100,000 a month.

Why didn’t income go up commensurately with new patients? This is the Law of Diminishing Returns in action.

What is the Law of Diminishing Returns?

The Law of Diminishing Returns:

“A theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output.

For example, a factory employs workers to manufacture its products, and, at some point, the company operates at an optimal level. With all other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations.” 

• Investopedia
  https://www.investopedia.com/terms/l/lawofdiminishingmarginalreturn.asp

In other words, there are a number of factors that contribute to production. If you increase one of the factors, production will still be limited by the other factors that remained constant.

Why doubling new patients didn’t double the revenue

In the original example I gave above, simply doubling the number of patients didn’t double the revenue because other important factors didn’t scale up the same way.

In this scenario, the office changed one thing—the number of new patients coming in or the “input” into the practice—but didn’t change any of the other variables involved in production capacity.

More new patients mean that more doctor time is required to do the exams and present treatment, as well as more Treatment Coordinator time and hygienist time (if new patients are going through hygiene).

A few things can happen that choke production:

1. The doctor’s time is limited, so they need to rush through the initial exams/case presentations, as well as hygiene checks and consults for existing patients. This results in poor case acceptance.
2. The Treatment Coordinator isn’t able to spend enough time with each patient.
3. The hygiene schedule gets crowded, forcing new patients to schedule further out (thereby increasing cancellations/no-shows) and possibly resulting in less effort to get patients-of-record scheduled for recall.

So when you’re trying to expand, you have to think about the entire process. Not just how many new patients are we seeing, but what happens when these new patients actually arrive in the office?

Example Scenario 2: Expanding the Hygiene Department

The two main ways of driving practice growth are through new patients and hygiene. So let’s look at a common scenario when trying to build up the hygiene department:

Imagine a dental practice where the owner-doctor works four days a week, supported by one full-time hygienist and one part-time hygienist. Seeing an opportunity for growth, the doctor notes the potential to increase hygiene services. They have a lot of inactive patients they could fill hygiene slots with.

So, to activate more patients and maximize hygiene productivity, they make an effort to reactivate overdue/inactive patients, resulting in successfully doubling the hygiene capacity.

Now they have three full-time hygienists while the owner-doctor remains the sole practitioner.

Unexpected Consequences

While the hygiene department’s productivity soars, an unforeseen issue arises with the doctor’s schedule. Now, the doctor finds themselves interrupting their work multiple times an hour to perform recall exams for the increased hygiene patients.

This constant interruption significantly cuts into the time available for more complex, higher-revenue procedures.

The Impact on Practice Operations

Doctor’s Time: The additional hygiene appointments reduce the doctor’s availability for patient consultations and complex treatments, directly affecting the practice’s ability to generate higher revenue from dental procedures.

Quality of Care: With the doctor spread thin, the quality of patient interaction may decline, potentially impacting patient satisfaction and treatment acceptance rates.

Operational Costs: When the dental practice decided to double its hygiene services, it meant hiring more hygienists and maybe even more staff to help with the extra work. This move increased the practice’s operating costs. However, even with these extra costs, the practice didn’t see the big revenue boost it expected.

Why? Because hygiene appointments aren’t as profitable as high-value treatments for the doctor. A big part of hygiene’s value is the amount of treatment that can be diagnosed for the doctor through hygiene exams—but you lose that value when the doctor is spread so thin that they don’t have time to get these cases accepted or completed.

Understanding the Real Challenge

The core issue isn’t just about balancing hygienist and dentist time; it’s about understanding that unchecked expansion in one area can strain other parts of the practice, leading to inefficiencies and reduced returns on investment.

This isn’t to say that the owner shouldn’t have tried to grow or build up the hygiene department—but they did need to consider all the factors and plan accordingly, perhaps by having an associate doctor ready to come in when they reached the right threshold.

Diminishing Returns with Staffing

You may have experienced diminishing returns when expanding your staff complement. Let’s say you have four or five employees that have been with the practice a long time and know how to do their jobs very well, but they’re overloaded. So, you hire more people, figuring the extra help means that more work will get done and therefore your potential production will increase.

The thing is, an office with 5 employees doesn’t operate the same way as a practice with 8-10 employees does. Without creating clearly defined roles, training, and management systems, the extra employees just create more confusion and eat up more of the doctor’s or office manager’s time trying to give these employees work to do.

So, when you hire more people, you also need to increase the level of organization, training, and communication to ensure you don’t wind up doubling your payroll for only incremental production increases.

Strategies for Mitigating Diminishing Returns

When looking for practice growth, you must consider the whole picture. This means:

Evaluating the Impact of Expansion on All Practice Areas: Before increasing inputs, like hygiene or new patient appointments, consider how this will affect the dentist’s workload, patient wait times, number of chairs, and overall practice efficiency.

Implementing Complementary Adjustments: As services expand, make parallel adjustments elsewhere. This could involve hiring additional staff, including dentists, to handle the increased workload or investing in technologies that streamline operations.

Continuous Monitoring and Adjustment: Growth should be a dynamic process, with ongoing assessment of how changes affect the practice’s efficiency and profitability. Being willing to adapt and make course corrections is key to avoiding the pitfalls of the Law of Diminishing Returns.

The Importance of Organizational Skills in Maintaining Quality of Care as You Grow

This might mean conducting an in-depth analysis of how much time is spent with each patient and ensuring that any increase in patient numbers can be accommodated without sacrificing care standards. It’s about asking, “Can we maintain the same level of attention and care for a larger patient base?” If the answer is uncertain, it’s crucial to reassess the expansion strategy.

Now, to do that, you need organizational skills. Organizational prowess becomes indispensable as practices grow.

Effective organization isn’t just about managing more patients or services; it’s about enhancing the practice’s overall capability to handle growth efficiently. This might involve strategic hiring, investing in training, or adopting new technologies.

Navigating the “Chicken or the Egg” Scenario

Growth strategies often present a “chicken or the egg” dilemma: Should you expand your team in anticipation of increased patient numbers, or wait to hire until after you have enough patient volume?

The answer depends on your confidence in generating the expected growth. If you’ve been intentionally limiting your marketing efforts and you know for a fact that you could easily flip a switch to start seeing more new patients immediately—then sure, go ahead and scale up your capacity now.

But that’s only if you’re highly confident. On the flip side, if you’re just testing the waters, then you may need to start increasing volume first and then begin hiring or adding more chairs later on. This means you will have a period of inefficiency and wasted potential until you can scale up your production capacity. Oh well. It’s worth it in the long run.

The important thing is that you do analyze your entire process and patient experience from start to finish, so those other production factors get adjusted quickly when it is appropriate.

Summary

To wrap up our discussion on the Law of Diminishing Returns in dentistry, it’s clear that successful practice expansion requires more than just ambition. It requires thinking holistically and creating a strategic plan.

It’s not just about adding more patients or services; it’s about ensuring every part of the practice is prepared to support growth sustainably. This means considering how new patients will be integrated into the practice, how their care will be managed, and how the practice’s infrastructure can support an increased load without compromising service quality.

If you want to see what your practice’s true potential is and what factors you should consider for creating growth, schedule a free consultation here.

And for those looking to dive deeper into strategic practice growth, look into the MGE Power Program for tools to manage expansion sustainably.