Bulletin, August 2010
The Latest in Area Economic and Technical Trends
Exclusively to Clients and Friends of Advanced Practice Management
Your Last Three Or Four Laps
Most of my clients in their fifties are at least contemplating one day selling or transitioning their practice. If you have a practice that is plenty big for one but not enough room to keep two providers busy, chances are you’re going to do an outright sale. Of course, this sale is an important stage in your career. You want to make sure your patients and staff are well taken care of. You also want to make sure that you get a nice kick to your retirement funds. So you want to get the best practice price.
There are many factors that go into appraising a practice and determining its ultimate sale price. A very important factor is your profitability. Even if you have a highly producing practice, even if it’s growing, if your profitability is significantly less than industry standards (under 36% of collections in our area) it will have a negative effect on your value. A very rough rule of thumb of value for your practice (not including Receivables) is to use 1.75 x Your Earnings (what you make for draw and retirement before taxes). So for every $50,000 you increase your operating net income, your practice value will go up $87,500 (all other things being equal). The trouble is, many practitioners in their mid fifties will lose their profitability edge. Most of my clients at this stage of practice have plenty of business… but they sometimes have too many staff or too many underperforming staff. That’s the most common reason the net % is low.
For example, if you are paying your hygienist market rate but getting less than market performance (the average for the Metro Area is $139/hour worked and for Outstate Areas is $122/hour worked), then it’s going to hurt your profitability. An underperforming hygienist will look exactly the same as one who is performing well. They may more or less appear to be busy all day long, nice people, etc., but some hygienists are just better at delivering services to patients than others.
Likewise, it’s common for Doctors in this age group to have too many assistants or front desk people. As we get older we mellow, I guess, and it’s harder to let go of people who are maybe trying but not really able to keep up.
If you consciously make that decision (to keep underperformers), then you have to understand that you are missing an opportunity for a double bounce… more money now and more money at practice sale.
Practice appraisers typically look at the last three years’ worth of data on a practice to come up with their valuations. So if you are 3-5 years out, it’s time to “stage” the practice just like you would if you were getting ready to sell a house. In other words, you want to keep putting out effort all the way through the finish line and perhaps a “kick” to boot.
I checked with Kevin Shea and Ryan Brengman at Shea Practice Transitions*. They say that it’s pretty much a seller’s market in the Upper Midwest now. Even practices in Outstate Minnesota are selling relatively well. Currently there are more buyers than sellers. As far as financing goes, that doesn’t seem to be much of a problem. Mr. Shea says that qualified buyers still get 100% financing. The bankers take a closer look at the numbers nowadays though (that’s why, again, profitability is key). Obviously, any buyer has to have enough profit around so that after they pay the debt service they are making a decent living.
If you haven’t already done so, check out the Overhead Survey (by KDV Accountants, website: www.KDV.com) on our website under “Surveys”. It’s the most relevant detailed overhead survey of this type for our area. And, if you haven’t already done so, work with us to get a management friendly Income and Expense report so you can clearly see the bottom line and compare your expenses to the industry standards (like the survey on our website).
*Shea Practice Transitions www.sheatransitions.com, 1-877-275-2727
The Dental Dow
Comparing the first half of this year to the first half of 2009 we find that Practice Production is up just .3% and Collections are virtually even with the same period last year. Open Time in Hygiene is up 10%. New patients are down about 12.5%. Crown and Bridge is down about 3.4%. However, Recall Exam Flow is holding and there is a bit of a lift in Production (a little less than 2%) in both Doctor and Hygiene production per hour.
Please keep in mind that the practices we sample for the “Dental Dow” are carefully picked for what they are not doing. We exclude from our sample Dentists who are adding associates, new clients and clients with brand new facilities. We purposely pick basically mature stable practices to better ascertain the background economic trends.
As practices mature, it’s hard to really commit to new things because you have to let go of old things which have worked more or less OK. I think the conscious or subconscious thought might be “At least I know I’m getting a decent outcome with this…and any significant change might make things worse rather than better plus it’s a hassle to change!” However, where we see Doctors and staff consciously learning and working new routines, things almost always go up (not down).
We’ve seen it over and over again. If you practice the same amount of courage, energy and optimism as when you first started (or took over your practice), great things can happen.
Another Word about Profitability and Overhead Control
Want to make sure your net is good? Overhead Control really consists of:
- Confrontation: Often, reducing overhead comes down to confrontation such as:
- Bargaining with your lab guys.
- Holding your staff accountable for results (given the correct direction and training— that’s our job to help).
- Terminating staff members who are not performing well.
- Making sure you are price shopping and bargaining when making any significant investments in technology, facility, anything.
- Enforcing work place rules (time clock, reasonable vacation time and coordination).
- Result Control: Making sure that for whatever technology, equipment, facility or advertising you invest in you get a good “bang for your buck.” Please see the “Result Control “articles I’ve written regarding this on my website (under Articles) AdvancedPracticeManagement.com
- Keeping an eye on the numbers. You can’t manage what you don’t measure and many dental offices have Profit and Loss reports that don’t clearly show the bottom line and don’t organize the expenses into rational groups that make it easy to compare to industry standards.
- Wise selection (or de-selection) of PPO participation to limit discounts.
- Increasing practice productivity through seeing more patients or doing more for the patients you see.
How Health Care Reform Will Impact Your Practice in 2010
The Patient Protection and Affordable Care Act (PPACA) will impact you and your employees beginning this fall. There are still major aspects of the bill that are open for interpretation and are subject to change, however, it is important you know how this bill will affect you and your employees in 2010.
What’s New in 2010?
Small Business Tax Credit: Employers that offer group health insurance, employ fewer than the equivalent of 25 full time employees, and pay average annual wages of less than $50,000 (e.g., most dental offices) are eligible for a tax rebate. Qualified employers can receive a tax credit up to 35% of their premium contribution. The credit will be based on the size of the group and the average salary with the highest rebates going to groups with fewer than 10 employees and average salaries less than $25,000. You will be able to claim your tax credit in 2011 when you file your 2010 corporate return.
Guaranteed Health Care Coverage for Children: Health insurance carriers will be required by law to accept all children up to age 19 without pre-existing conditions beginning September 23rd, 2010. Currently, if a child or adult were to be turned down by a private health carrier they would be left with joining Minnesota’s high risk pool called Minnesota Comprehensive Health Association (MCHA). According MCHA’s website (www.mchamn.com), the high risk pool currently provides health coverage for over 30,000 Minnesotans. On average the high risk pool costs between 10% and 25% more than insurance through the private market.
Lifetime Limits: Plan years beginning on or after September 23rd, 2010 will prohibit health insurance carriers from imposing lifetime limits on insured’s. Insurance carriers will also be prohibited from canceling policies except in cases of fraud or intentional misrepresentation.
Preventative Coverage: Plan years beginning on or after September 23rd, 2010 will have to cover specific preventative care services without cost sharing by the insured. All health carriers will also be required to treat emergency services as any in-network benefit regardless of where they receive treatment.
Dentistry: Starting in 2014 dental coverage for children will be covered in all Exchange plans and new plans sold to individuals and small businesses. What “coverage” really will be and how the fees will be set is not yet known.
In Summary: The Patient Protection and Affordable Care Act changes in 2010 will provide tax incentives for select small businesses, additional options for “unhealthy” children, remove lifetime limitations and offer greater preventative services to its members. The additional benefits and requirements on the insurance providers will not come without a cost. The cost of these additional services and mandates will lead to increased premiums. Small business owners can also expect to devote additional time to benefit tracking and reporting to the IRS. Coming in 2011 small businesses will be required to account for their contribution to each employee on their W2. There are many additional items that will be required by small businesses in the future. For additional information please contact
Tim Schatz at Minnesota Health Insurance Network has specialized in small business administration and employee benefits for over seven years. He specializes in helping small businesses create comprehensive benefits packages for their employees. Tim provides free consultation services and benefit analysis to small business owners. As a licensed Independent Agent, Tim is able to work with all of the major health, dental, life, disability and long term care carriers offering insurance in Minnesota. For a free consultation contact Tim Schatz at 952-465-0072 or firstname.lastname@example.org. Quoting site: www.healthquote.mnhi.net.
Smile Center Wins $5 Million Settlement
David M. Aafedt of the Winthrop & Weinstine P.A. (email@example.com, 612-604-6447), law firm reported that he obtained a $5 million settlement in a federal lawsuit on behalf of the Smile Center Clinics (primary owner, Dr. Ed Silker), a group of clinics that provide dental care to predominantly low-income Minnesotans. The suit alleged that the Minnesota Department of Human Services and other high-ranking Department officials acted illegally by arbitrarily excluding the clinics from participating in the State of Minnesota’s Critical Access Dental Provider Program based upon vague and ill-defined standards, which were contrary to the laws governing the Critical Access Program. The $5.0 million settlement was the full amount of the damages sought in the case.
Dr. Silker and the Smile Center’s case against Delta is still pending. Stay tuned…
A Sure Way to Increase Your Bottom Line
Make sure that you and your staff know how to handle the most difficult subjects in Dentistry: Money and Insurance.
Collections Made Comfortable—The Team Approach is coming September 24th. This has been a perennial favorite. It’s not just about collecting money. It’s about moving patients to treatment. It’s about patient relations. It’s about dealing tactfully with these most difficult areas.
Anyone (including yourself) who has not seen this useful seminar should attend. And if it’s been a while, it’s time for a refresher.
As clients, you are entitled to an additional $20 per attendee discount (a total savings of $40/person with early registration). Please call our office today at 952-921-3360 to reserve your space. These seminars sell out. Get yourself and your team there. You will not be disappointed.