PPO Vs Fee for Service Dental Practices: How to Make This Crucial Decision WiselyPPOs (Preferred Provider Organizations) have taken control of dentistry and are here to stay. In exchange for participating in a PPO and agreeing to discounted fees, insurance carriers list the dentist as a provider on their directories and web sites and send patients to the dentist's office.
While a steady volume of new patients is a great asset for any office, there is one underappreciated problem with the concept of PPOs. The fixed cost for dental procedures - labor and lab costs - are the same whether the dentist participates in the plan or not. Therefore, on a discounted plan, the main "discount" comes from the profit the dentist makes.
For this reason, many dentists look at non-PPO participation or a fee-for-service practice (FFS) as the holy grail. Our experience is that in an ideal situation, every dentist would like to have a FFS practice, but not all dentists are suited to running a FFS practice.
To make a better decision about PPO participation, compare the characteristics of a successful heavy PPO practice with those of a FFS practice.
Characteristics of a Heavy PPO Practice
* Doctors are intensely busy. The appointment books are full for 2-4 weeks, sometimes more. The doctors are on "roller skates" and are seeing a high volume of patients. They are addicted to being busy.
* Treatment is mostly single-tooth treatment.
* Doctors do little or no external marketing. The PPOs provide a healthy flow of new patients.
* Write-offs are usually significant and fall in the 21-29% range. This implies that for a practice with gross income of $1,000,000, the write-offs are in excess of $210,000.
* Profit margins are on the lower side and typically range from 27-35%, although we know of heavy PPO practices with even lower margins.
Some of the heavy PPO dentists operate multiple offices, often taking on associates to deal with the high volume of patients, since they have not figured out how to make enough money from just one office. This commonly leads to high stress and the doctors running themselves ragged.
Dentists often eventually burns out. We also see higher staff turnover in these offices.
Characteristics of a FFS Practice
* Doctors see fewer patients and the daily schedule is not as full or cramped.
* New patients can be seen the same week.
* Treatment is more comprehensive.
* The office spends more money on external marketing. Marketing budget ranges from 5-8% of revenues.
* Write-offs are less than 5%.
* Profit margins are on the higher side, ranging from 34-47%.
While this business model is something that all dentists desire, there are specific requirements that must be met to run this type of practice successfully. The Northeastern region presents particular difficulties as it is ravaged by managed care and has an unfavorable dentist/population ratio.
To succeed with a FFS office, the dentist must have four factors in place: excellent case presentation skills; staff with excellent communication skills; state-of-the-art equipment; and excellence in one or two advanced clinical areas, such as sedation dentistry, veneers, implants or orthodontics.
As noted, these two profiles represent the extremes. A dentist can become much more profitable between these extremes by accepting PPOs selectively and leaving those that are unprofitable for that particular office.