Sudden Impact Solution: Taking the Fear Out of Fees

It’s the first quarter, when many dentists ponder whether to raise fees or ignore them for another year. It amazes me how stressful fee increases are for dentists. In most businesses, a fee increase is a natural event; but with dentists, it’s marked with warning letters to patients, or debates with the staff. Many dentists have a strong desire to be liked and admired, which results in their setting fees that serve others to the detriment of the practice’s needs. Fees, along with all operational matters, become easier to handle when you accept the fact that to deliver high quality care, you must have a business that is profitable.

I have five tenets to help you take the fear out of fees. If you’re still fearful after learning them, raise your fees anyway.

1. Fees must represent your practice’s vision, values, and quality. Consumers understand the trade-offs between shopping at Nordstrom and Sam’s Club, i.e., between having a personal shopper at our beck and call and carrying our groceries out in a cardboard box. In dentistry, too, prices are based on the kind of practice, service, and outcomes you offer, rather than on affordability to patients or competitiveness with other dentists.

When I help dentists analyze their fees, I give them a workbook to complete with their teams. It includes questions like this: “On a scale of zero to 100, rate the level of clinical care and service your practice provides.” I have never received an answer lower than the 70th percentile on care and service. However, I certainly have analyzed many fees lower than the 70th percentile for a practice’s area. If you rank high in clinical excellence and customer service, why wouldn’t you charge fees to reflect that? Your patients are ready; it just takes your courage.

2. Competitive fees don’t mean middle of the pact. Setting your fees at the 50th
percentile is like posting a giant sign saying, “Look, we’re mediocre.” Exceptional practices need to set commensurate fees and to explain them to patients. When a shopper says, “Dr. Smith down street charges $25 less for his composite,” your answer might be something like this: “I can’t speak for Dr. Smith. But I know our fees represent the high quality of care and service we deliver, and the quality of materials we use for effective, long-lasting restorations. Our patients appreciate our care and gladly pay our fees. And you will, too.”

3. Patients will pay any fee if: a) they like you, b) they are committed to the treatment you presented, and c) you can make that treatment affordable through flexible financial arrangements. I’m sorry to tell you that when a patient leaves you to go down the street for a $5 cheaper prophy, I truly believe the person is saying, “I’m not really fond of you, and I don’t buy into your vision and values.”

Pride has the wonderful opportunity of working with exceptional dentists in Scandinavia, where socialist policies pressure dentists to charge low fees. In Norway, one of our dentists awoke one Sunday to find a newspaper story about dentists’ fees. Lo and behold, the article charged him with having the highest fees of any dentist. Expecting fallout from this exposure, he rallied his team for an emergency meeting to handle cancellations and even a mass exodus of patients. The next day, as people arrived for their appointments, no one mentioned the article. Finally, the dentist had the temerity to ask a patient if she had seen it. Of course, she replied, she had not only seen the article, but also proudly pasted it on her refrigerator—because she always knew he was the best! As a result of the article, the dentist actually acquired new patients and lost no one. This happy result occurred because he had made his patients aware of how his high level of care was superior to the average. His patients simply concluded that excellence was worth paying for.

I’m not suggesting you make headlines as the most expensive dentist in town, but only that you feel comfortable charging fees representative of your services and that you communicate this to patients.

4. Raise fees yearly, as businesses generally do. Don’t raise fees in reaction to insurers raising or lowering their payments. When setting strategic annual goals for technological, service, and clinical enhancements, analyze with your team the fee schedule required to support them.

5. Fees must insure profitability. A fee should reflect the time the procedure takes, the expense involved, and the quality and longevity of the outcome. Are your fees profitable? To find out, select the 10 most popular procedures you do, and analyze their fees. (Caution: This may be a cold dip, especially if you discover that you are performing your favorite procedure at a loss!) Here’s how to analyze your fees, taking a PFM crown fee of $950 as an example.

To arrive at your gross profit, subtract from your crown fee three figures:

1. Lab cost. Let’s assume it’s $225.
2. Dental supply cost for the procedure. Let’s assume it’s $89. (Space constrains me from showing the calculation; however, it’s based on your dental supply cost for the previous year, divided by the estimated hours worked in the previous year, multiplied by the dentist’s production as a percentage of total production, multiplied by the number of hours it takes to prepare and seat the crown.)
3. General and administrative (G&A) cost for the procedure, i.e., the staff, facility, and other expenses of keeping the doors open. Let’s assume it is $328. (You arrive at this figure by the same method used to compute the dental supply cost.)

Your gross profit is as follows: $950 crown fee minus $225 lab cost minus $89 dental supply cost minus $328 G&A equals $308.

Is a gross profit of $308, or 32% of your fee, enough? Absolutely not. Before you arrive at the doctor’s compensation, you must subtract from gross profit any practice loans, leases, and taxes per the procedure time. Our gross profit range for restorative procedures is 40 to 60 percent. The doctor in our example has not set the fee profitably and therefore has three choices: 1) to raise the fee, 2) to reduce the costs, or 3) to reduce the time spent delivering the service. The right choice can be made only by examining the vision, values, and goals of the doctor.

The moral of this article is that by approaching your fees as a businessperson, your fears will vanish and you’ll be able to make routine, sensible decisions. I challenge you to take a fresh look at your fees—because you deserve to charge appropriately for your services.

Amy Morgan is CEO and lead trainer of Pride Institute.

Originally published in Dental Economics, February 2007