A Good Dentist Deserves a Reasonable Fee Increase

Editorial
by Jim Du Molin

"Okay, I'm ready to raise my fees... Now what?"

This is the third (and final) installment in my series about dental fees. First we discussed the role dental patients play. Last week, I talked about insurance companies. And now that I've convinced you that it's time to raise your dental fees, let's move on to how you should do that.

One of the toughest questions we face in dentistry is "How much should we raise our fees?"

We've previously discussed the fee restrictions imposed by insurance companies, especially those which may have the effect of imposing a ceiling on dentists who choose to indenture themselves to a pre-set fee structure. We also dealt with the more subtle issue of overcoming fee objections from patients by enhancing the perceived value of the dentistry.

In this section, we look at the question of how much of a fee increase is reasonable, other limitations aside. There are three key elements to consider.

1. Is your practice producing a reasonable economic return?


2. What has been the inflation rate for your cost of providing service since your last fee increase?


3. Are you being adequately compensated for the quality of materials you use and your personal experience in providing your primary treatments?

How large a fee increase you "need" will depend on whether you need to increase profits, or merely maintain profits in the face of inflation.

Is your practice producing a reasonable economic return? If your practice is running a chronic monthly deficit, clearly the answer is "no." On the other hand, are you narrowly avoiding a deficit in the practice by under compensating yourself?

In either case, the practice is not realizing a reasonable return and we must address the basic issue of economic survival. You are providing a necessary health care service to the community. However, to continue doing so, you must be able to pay all of your bills each month and take home a reasonable personal income.

How much is "reasonable"? A reasonable income compensates you for the risks you have taken. These include the cost of your education, the cost of purchasing a practice and/or equipment, operating loans taken against your practice, and the investment in time and energy that you and your family have made to establish your practice.

Just as important, a "reasonable" income includes setting aside enough each month to provide for retirement and/or financial independence. Ninety-two percent of the dentists in America continue to work past the age of 65. Some of them are doing so because they enjoy treating patients. In reality, many probably do not have a choice, and must continue working to maintain their lifestyle.

Raising fees alone may not increase profits enough to eliminate your chronic monthly practice deficit, fully cover your personal lifestyle needs, and allow you to accumulate the funds needed for long-term financial independence. That's a big bill to fill. However, fees are a primary strategy.

The unique thing about raising fees as a strategy to increase profits is that, assuming collections are well managed, virtually 100% of a fee increase goes straight to bottom-line profits.

In contrast, most other strategies for increasing profits require an increase in production, and that means additional costs in the areas of treatment supplies, lab fees, and staff costs. Moreover, it means the dentist or other providers in the practice have to see more patients.

Raising fees gives you more dollars without doing more work. That means more profits without increasing stress.

The second element in the fees equation is the dental inflation rate since your last fee increase. This is the percentage increase in your overall operating expenses, including staff salaries, rent, insurance cost, supplies and lab fees. It is important to remember that inflation acts as a hidden tax on your income. If the cost of providing your services goes up by 5% and you raise your fees only 3%, the 2% difference comes out of your pocket.

To calculate the inflation rate for dentistry, take an estimated consumer inflation rate of 2.5% and divide it by 12 to get the monthly average rate of inflation (0.20). Then multiple the monthly consumer inflation rate by the number of months since your last fee increase (lets say 6 months) to generate consumer inflation since your last fee increase (0.20 X 6 = 1.2).

Unfortunately we can't stop there. According to the ADA, dental inflation traditionally runs at about 1.74 times consumer inflation. (If anyone has seen a recently updated dental inflation rate from the ADA, please feel free to email me.) So we have to almost double the consumer rate of inflation to get the true rate of dental inflation. Another way to look at it is that you are currently discounting your fee by the rate of dental inflation since your last fee increase.

The final and one of the most important areas to consider in setting your fees is "How much more should you be compensated for the quality of materials you use and your experience in providing treatment?"

The real issue we are addressing here is that not all dentists are created equal. How should you be compensated, relative to other dentists, for the fact that you have years of experience, obtain an extraordinary number of hours of continuing education per year, and/or maintain the latest technology in materials and equipment?

Shouldn't your higher level of experience, training and technical delivery warrant a premium when setting your fees? Is this worth an additional 3%, 6% or even 10% over less experienced and less qualified practitioners in your area? Only you know how you compare in this area.

How much of a fee increase is the "right" amount? Assuming that your fees were reasonable a year ago, a simple 3.5% to 4% increase to cover inflation on your costs is a reasonable place to start. Of course, if your fees have not kept pace with inflation for two or more years, a larger increase may be necessary to catch up.

On top of this, add whatever premium you feel is warranted for the quality of materials you use and your experience as a practitioner. This is a highly subjective matter, and there is no "right" answer.

Some doctors will need to add a third layer to their fee increase to derive a reasonable economic return. These are the doctors who need to increase the bottom line so that the practice is profitable and compensates the dentist fairly.

You deserve to take home enough income to keep up with inflationary increases in your personal living expenses such as food, clothing, and child care, and also put away some dollars for financial independence.

Remember that quality treatment must be supported by fees. The fees you charge should adequately compensate you and allow you to maintain your staff, facilities and continuing education at the highest levels.