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7101 York Avenue South, Suite 300 Edina, Minnesota 55435-4407
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January 2011

download_pdf_buttonBulletin, January 2011

The Latest in Area Economic and Technical Trends
Exclusively to Clients and Friends of Advanced Practice Management

The Growth of Multi-Location
GroupPractices:

Years ago we thought the trend would be franchise practices in retail settings. It hasn’t exactly happened that way but there has certainly been a growth of multi-location group practices. In most cases, the model is less formalized than say an “Arby’s.” Of course, there are the more “corporate” type of large clinics in multiple locations, such as Metro (37) and Park (23). But, if you look at the recent activity in the Midwest, what you see are groups such as Midwest Dental and Heartland (word is Heartland is coming to our area). As discussed in a previous bulletin, Midwest Dental owns more than 77 upper Midwest practices. Heartland (centered in Illinois) has about 300. Then there are smaller multiple location groups such as Main Street Dental (5 locations in southern Minnesota) and Family and Cosmetic Gentle Dentistry (12 locations) in the Metro area. There are other niche-type practices such as The Smile Center (7) and Emergency Dental Care U.S.A. (7 Nationally). Midwest Dental and others are eager to buy and they’re growing. Heck, Heartland Dental even owns a corporate jet! You have to be making some serious moola to have one of those.

Let’s take a look at how some of these groups do it.

But, if you look at the recent activity in the Midwest, what you see are groups such as Midwest Dental and Heartland (word is Heartland is coming to our area). As discussed in a previous bulletin, Midwest Dental owns more than 77 upper Midwest practices. Heartland (centered in Illinois) has about 300.

Then there are smaller multiple location groups such as Main Street Dental (5 locations in southern Minnesota) and Family and Cosmetic Gentle Dentistry (12 locations) in the Metro area. There are other niche-type practices such as The Smile Center (7) and Emergency Dental Care U.S.A. (7 Nationally).

Midwest Dental and others are eager to buy and they’re growing. Heck, Heartland Dental even owns a corporate jet! You have to be making some serious moola to have one of those. Let’s take a look at how some of these groups do it.

Purchasing a Practice:

Example:
Practice/Collections/Month $100,000
Practice Operating Net per month (at 36%) $36,000
Dr. Production per month (2/3 of $100,000)  
Non-Owner Dr. Compensation $66,000
(30% after lab and write offs) $19,800
Practice Sale Price (36,000x12x1.75)  
Debt Service/Mo. on Practice $756,000
($756,000 x 8 years x 8%) $10,687
The Pay Off:
Practice ÒOperating NetÓ/mo. $ 36,000
Doctor Compensation $-19,800
Debt Service $-10,687
Operating Profit/mo. $ 5,513
Operating Profit $432,000
Doctor Compensation $-237,600
Debt Service $-128,244
Operating Profit Per Year $66,156

The Bottom Line: For an outlay of $128,000 a year in debt service, the owner(s) receives $194,000, a 50% Return on Investment. Where else can you get that kind of R.O.I?? So what seems to be on the surface a sort of slim net of about 5%-6% on collections per month when leveraged really adds up over the course of the year. Now add to that some solid management for practice profitability and growth and the numbers really pop.

Doctors, you are sitting on a goldmine:

If you can step outside yourself for a moment and look at your labor as a Doctor separately from your role as an owner, you can see what a desirable investment your dental office is. Now let’s look at key points in increasing the profitability of a practice (whether you own just one or 20):

  • Hygiene productivity makes a big difference on the bottom line. Your sweat aside, it’s largely where the profit of ownership comes from! An approximately $10 per hour (or patient visit) increase in hygiene translates to an almost 10% increase in profits.
  • The average hygiene prod/hr. is $139 in the Metro Area and $122 for Outstate. Why would any Doctor (owner) in his right mind pay market rates for hygienists that are producing at less than the market?
  • Lower Costs: Some of these group practices have negotiated better prices from the supply houses and labs.
  • Negotiating with PPOs: Because they have a network of practices, they are sometimes able to negotiate better reimbursement.
  • Standardized Systems, training and supervision.
  • Serious Business Ethic: These groups are less tolerant of sub-standard performance than private practitioners often are.

Your advantage:

You don’t have the group buying or bargaining power that these large groups do but you have one key advantage. You’re an on-site owner! You are totally invested in your practice, both financially and personally. And one more thing, you have the best management team in the upper Midwest (if not the country) eager to support you and add to your success (us). Our depth of experience and perspective in advising and receiving data from over 200 offices gives you a powerful ally in the marketplace.
Our Job: Group practices aren’t the enemy, but as long as you own your own practice, you are competing with them and their economies. It’s our job to help you continue to thrive in an increasingly competitive marketplace.

So, relish the fact that you own your own business. Be resolved this year to leverage our recommendations and your business systems into greater profits. Be resolved to let your staff know that you want them to be happy and focused. And, be resolved to hold them accountable for working the systems as planned and be resolved to reward them well for performance. You and your staff will prosper in direct proportion to how well you follow through on our advice.

It starts with goals:

You hear it from me every year. Now it’s time to reflect on the past year. Note your accomplishments and challenges. Outline your goals for the coming year. Write down what you’d like to see happen. Share them with us and we’ll help you make them happen.

Most of our clients with written goals reach most of their goals. It costs so little and it can be so rewarding. Just take an hour right now and do it.

The latest word in Practice Overhead:

KDV* has just released its bi-annual general practice overhead survey. It’s a sample of 70+ full-time, mature practices. As such, it’s the best and most detailed information of its kind available for our area.Some highlights:

  • Average Net Income was $259,842. This was down from the $275,302 average in 2008. KDV said this marked the first decrease in 25 years of preparing these statistics.
  • Overhead as a percentage of fees received increased a point to 65%. So the average net is now 35%. What is yours? Remember, average is not necessarily your aspiration.
  • Staff gross wages are still about 26%-27%. If you can’t clearly compare your statistics to the industry standards and don’t have a clear look at your bottom line, we can help. Get QuickBooks Pro really working for you. No serious business owner would go without clear financial reports.

This overhead survey is a very valuable perspective to help you in budgeting. It will be posted online at AdvancedPracticeManagement.com on the “Surveys” page. You’ll also find other useful information there on the current Dental Economy, Technology and Insurance Participation. Our Fee surveys are also online and were recently updated in October.

* Davich, Wilson and Morrow, who have been doing these overhead surveys for 25 years, merged with KDV (KDV.com).

Howard is coming to town!

Dr. Howard Farran, successful practitioner, lecturer and founder of Dentaltown, will be here September 9, 2011 as our guest.
The reason why Dr. Howard Farran is easily one of the Top 10 lecturers in Dentistry is that he sees and describes the big picture like no one else! He eats, sleeps and breathes economics and the business of dentistry.

His presentation is not for the faint of heart. He doesn’t have a politically correct bone in his body and he’s guaranteed to offend everyone in the lecture hall at one point or another. However, he’ll also enlighten you if you keep your mind open. He’s rude, bombastic and a genius!

As you can tell, I’m a big fan of Howard’s. I recently saw him again at the Madow Brothers T.B.S.E. Seminar in Las Vegas and I can tell you age has not mellowed him.

We last sponsored Dr. Farran in 2002 and it was a sell out. As clients, you’ll get first dibs and a bit of a deal. Details will follow, but mark your calendar for September 9th now. Treat your staff to a world class presentation guaranteed to stimulate!

Happy New Year! Let’s make 2011 your best year ever!

Sincerely,

BillBlueSig

Bill Rossi, Robyn Kain, Shelly Ryan and Matt Lahn

Bill Rossi , Robyn Kain, Shelly Ryan and Matt Lahn