What’s going on with the inflation, interest rates, and labor market can have big implications for private practice dentists—but trying to keep up with it all can be a headache. So this week, Jeff breaks it down simply and gives some key tips for dentists that want to keep growing and maximize profitability.
Links:
Fees & Plans Analysis - https://www.mgeonline.com/fees-and-plans
Practice Analysis - https://www.mgeonline.com/free-practice-analysis
Fee Lookup - https://feelookup.com
Wasserman Guide – https://wasserman-medical.com/product-category/dental
Employment Stats - https://www.bls.gov/news.release/pdf/empsit.pdf
Job Opening Stats - https://www.bls.gov/charts/job-openings-and-labor-turnover/unemp-per-job-opening.htm
Small Business Stats - https://www.nfib.com/surveys/small-business-economic-trends
Inflation Stats - https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
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Questions From This Episode
Why does Jeff say the headline inflation number people hear each month is misleading?
The commonly reported figure is a year-over-year percentage, but Jeff explains that inflation compounds, each year's increase builds on an already-higher base, so a slowing year-over-year rate doesn't mean prices are dropping, it means they're still climbing, just at a different pace. He walks through the math: something that cost a dollar in March 2020 cost about $1.19 by mid-2023, roughly 19 percent higher overall.
How does Jeff say inflation has affected different spending categories differently since March 2020?
Using figures from March 2020 to July 2023, he cites shelter up about 19.7 percent, food up about 25.2 percent, electricity up about 28 percent, and gas up about 30 percent, while education, telecom, and medical expenses rose far less, medical care by just under 11 percent.
What did Jeff find when he compared MetLife's published PPO fee ranges to the Wasserman Guide?
Checking a local zip code, he found MetLife's out-of-network fee estimates looked outdated and too low compared to 2023 Wasserman Guide figures for the same area. Comparing specific codes, he found gaps approaching a 50 percent write-off on procedures like crowns, steeper than the roughly 30 to 40 percent write-offs PPOs used to represent.
Why does Jeff say hygiene growth is central to building a stable practice base?
He walks through an example: 25 new patients a month, even with a 20 percent attrition rate, compounds into roughly 12 days of hygiene a week after 10 years if the flow is maintained. That volume becomes both a steady source of production and profit and the mechanism that keeps identifying new treatment for patients over time.
What are the four things Jeff says MGE is currently recommending to clients?
Get out of network so fees can actually be adjusted to keep pace with inflation, build a solid practice base by growing hygiene without neglecting routine, bread-and-butter dentistry in favor of only big cases, and use staff efficiently through clearly defined roles and proper training rather than generic, overlapping job functions.
Episode Transcript
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At several points over the last two years, we've dedicated episodes to what's happening with the employment and job market in the United States, along with economic issues like inflation and interest rates, and how they might affect your practice. It's time for an update. To be clear, I'm not interested in doing a deep dive into a ton of boring economic data that's going to put all of us to sleep. My primary interest is making sure you're aware of what's happening, the effects it could have on your office, and most importantly, sharing the guidance we're giving our clients to help them increase growth and profitability in the current environment. And to be clear, I'm not an economist, and looking at the last 15 or 20 years, I think that's actually a good thing. So any decisions you make as a result of listening to this are your own responsibility, but I'm going to share what we're going over with clients.
My name is Jeff Blumberg, and I'm your host, and I'll be hitting two major areas in this episode: the staffing and labor market, and what's happening right now with inflation. At the end, we'll touch on the four actions we're recommending MGE clients take to successfully navigate through all of this.
Let's start with the labor market. From time to time you run into issues where someone's having trouble finding staff, or it's very tight in their area, or wages have been driven up heavily. The data I'm giving you is more national, but it'll give you a flavor of what's going on, obviously this can vary regionally depending on where your practice is located.
Let's start by looking at overall unemployment in the US. Currently it's at 3.8 percent. To frame that for you, that's not high, it's been a little lower recently, but it's still sub-4, and this was as of the September report. I'll put links to all of this on the episode webpage.
The next number is unemployed people per job opening. In other words, if you have one job opening and one unemployed person, that number is one. If you have two job openings and one unemployed person, that number is 0.5, meaning there's half a person for every job currently available. Right now that number is at 0.7. It's been lower in the past, and it's been creeping up ever so slightly over the last few months. This was as of the August report, the latest data, and it comes from the Bureau of Labor Statistics.
From there, since you're a small business owner, there's an organization called the National Federation of Independent Businesses. They publish an economic survey on business and economic trends, and I have their September survey here. The first number I want to go over is one you may have heard before if you've been listening to this podcast for a while: percent with positions not able to be filled. What they do is survey a ton of small business owners across the US and give these numbers as percentages. This particular statistic is the percentage of business owners who answered the survey saying they're not able to fill a position right now. So if a hundred people were surveyed and 50 of them said they're having trouble filling a position, that number would be 50.
The number for September was 43 percent. So 43 percent of small business owners are having trouble filling an open position in their business, which isn't shocking. That number has been higher in the past, as high as 51 percent in September of 2021 when the labor market was really hot, and it got a little hot again last summer in June and July. But 43 percent is still historically pretty high, if you go back to 2018 and 2019, it was in the 30s.
Next is something called actual employment changes, the net percent increase or decrease in the last three months. If you hadn't lost any employees, your number would be zero. If you were employing fewer people than you were three months ago, that number would be negative, and if it was more, it would be positive. The number for September 2023 was minus 2 percent, meaning the average respondent had a 2 percent decrease in employees over the last three months. Historically, back in 2018 and 2019, these numbers were consistently positive, something like plus 7 or 9 percent. Since the pandemic hit the economy hard around April 2020, it's been a negative number for most months. This year it was actually positive in January, February, and March, meaning respondents had 2 percent, 4 percent, and 2 percent more employees than they had three months prior. But since June of 2023, it's been negative: minus 2, minus 2, minus 4, and this past month, minus 2 again.
Which brings us to the last number from this survey: qualified job applicants. This is the percentage of survey respondents who had few or no qualified applicants for their open positions, and that number for September was 57 percent. So 57 percent of respondents had few or no qualified job applicants. And remember, as we covered earlier, 43 percent of small business owners currently have job openings they can't fill, what they call the hard-to-fill index.
There's quite a bit of data in this economic trends report, but the last survey point I want to highlight is the single most important problem respondents are facing right now. According to 23 percent of respondents, almost a quarter, that problem was inflation, tied for number one with quality of labor. I've talked about defining labor quality in prior episodes, in a nutshell it's work output in a certain amount of time, meaning people who can actually fill the position and do the job being asked of them. So inflation and quality of labor are tied for the single most important problem small business owners are facing, and based on the unemployment numbers, we do have a tight labor market right now. That doesn't mean you can't win and do well within it, but there are a number of factors that go into it, and I'll give you a couple of tips before we wrap up.
Let's pick up with inflation next, because I think, whether it's in a seminar, on this podcast, or in a video, I've said this before: the problem with inflation is we hear a number, and we don't relate that number to anything else, it's just a number. Inflation was down last month, or inflation was only 2 percent last month, or inflation was 9 or 10 percent, we hear the number, but it doesn't mean much in isolation.
The number you'll hear most often, whether on TV or online, is usually the Consumer Price Index, the CPI. What that is, essentially, is a basket of goods, things we all buy: food, housing or shelter, fuel, electricity, telecom, and so on. They look at the price of that basket this month versus the price the following month, but the number we hear most often is year over year. You'll hear something like "the CPI was up 4 percent," and that's an average across everything in the basket. Gas could be up 30 percent while healthcare didn't go up at all, or even went down, and you get this blended average. That's the number we're given, and it's based on a year ago, so if you're hearing a number in July, it's telling you how much more things cost this July compared to last July.
Here's the problem, and I think this is what people miss: inflation compounds. As an example, the overall year-over-year inflation number for July was 3.16 percent, and we think, wow, that's much better than July of 2022, when it was 8.46 percent, so it must be going down, isn't that great? But we're missing something: every month it goes up from the prior year means prices are getting higher and higher, on top of what was already higher.
Here's some reality on that. If you bought something that cost you a dollar in March of 2020, that same thing cost you a dollar four cents in March of 2021, a 4 percent increase. What did it cost in March of 2022? A dollar thirteen. In March of 2023? A dollar eighteen. These numbers creep up slowly, like slow water rising. So where do we stand from the beginning of the pandemic, March of 2020, to now? Remember, this is the average across all these different categories. What cost you a dollar in March of 2020 now costs almost a dollar nineteen, a dollar 18.88 to be precise. So we've had almost 19 percent overall inflation since March of 2020, and for most people, myself included, that doesn't feel like all that long ago, we're only talking about three and a half years.
How does that break down by category, since remember, this is an average of all of these things? Let's look at some basic numbers, using the inflation rate from March of 2020 to July of 2023, since those were the latest figures I could pull. Shelter, housing, in March of 2020, a dollar's worth now costs a dollar twenty, an increase of 19.72 percent, so a bit higher than the average. Food has increased by 25.22 percent, so a dollar's worth of food in March of 2020 now costs a dollar 25.22. What about energy, your electric bill? A dollar in March of 2020 now costs a dollar twenty-eight, a 28 percent increase. How about fuel, gas? A dollar's worth of gas now costs a dollar thirty, a 30 percent increase.
The areas that haven't gone up much, and you might get a laugh out of this, are education and telecom, so your cell phone bill hasn't been hit that hard, and medical expenses, which have only seen just under an 11 percent increase since March of 2020.
The problem with this inflation situation is it's not just affecting you, it's not just that your supplies or wages are higher, but why is that? Because it's affecting your team too. It's costing them more to get to work, more to rent or buy a home, more to buy food. So you've got a combination, which varies by region, of a tight labor market and an inflationary environment. That means people are competing for employees while inflation is going up, so wages are shooting up, or at least demands for higher wages are. I've talked about this extensively in prior episodes, how in Southern California I was talking to a client who was paying a hygienist in the forties per hour back in 2018 and 2019, and now the going rate there is 60 to 65 dollars an hour. This isn't just limited to providers either, it's happening with front desk staff too, because it's a competitive environment.
So it puts you in a bad situation if your revenue doesn't go up in step with inflation. How do you get revenue up? You deliver more services, which is always good, but you also have to raise your fees. So here's a question worth asking yourself: if the official overall average inflation number is 20 percent since March of 2020, and keep in mind, I'm a bit cynical here, government numbers tend to be published in a way that makes things look more favorable, so I suspect some of these inflation numbers might actually be higher than reported, have you raised your fees by 20 percent since March of 2020? Across the board, a bitewing, a cleaning, whatever it is. Chances are, based on a lot of conversations I've had with doctors, you probably haven't. You've maybe done some fee increases, but probably not a full, across-the-board 20 percent increase, and that can feel jarring if you haven't been incrementally raising fees all along and suddenly need to catch up all at once. My suggestion in that case is to incrementally bring your fees up over time until you hit that number, sooner rather than later.
So what are the four things we're recommending to our clients? Number one is basically what I've been talking about: you need to keep your fees on pace with inflation, and that's easier said than done if you're heavily in PPOs. If you're PPO-free, this is easy, you just raise your fees incrementally, keeping an eye on the CPI every quarter or so. But what if 70 percent of your practice is PPO, and what are PPO fees like in your area? Let's say a crown, CDT code D2740, has a recommended fee of $1,300 to $1,350, and your PPO fee for that same crown is $800. That just doesn't work.
I've referenced this before, there's a site owned by MetLife called feelookup.com, I'll put a link on the episode webpage. I pulled up the zip code nearest our office here just to give you an idea of what MetLife PPO looks like. Take code D0120, a periodic oral exam. The MetLife in-network fee is $27. What's the out-of-network range? $55 to $59. Here's what's funny about this too: I took these MetLife figures, since they list both the in-network fee and the out-of-network range, and held them up against the Wasserman Guide, which has been used in the dental industry since the 1990s. I'll put a link to the Wasserman Guide on the episode webpage too, we're not affiliated with them in any way, but I think it's a great tool.
The Wasserman Guide, held up against that same zip code, showed that MetLife's out-of-network estimated fee range was actually too low based on 2023 fees, it looked like their numbers hadn't been updated in a few years. They're saying a periodic oral exam is $27 in-network and $55 to $59 out-of-network, when the actual number, if you're in the 50th to 60th percentile of the Wasserman Guide, is higher. What about bitewings? $32 in-network, $72 to $74 out-of-network. A three-surface posterior composite, CDT code D2393, $144 in-network, $301 to $335 out-of-network. How about a crown? $726 in-network, $1,297 to $1,320 out-of-network. PPOs used to mean roughly a 30 to 40 percent write-off, these numbers are close to a straight 50 percent write-off. I didn't do a full analysis of it, but you can see the picture.
So if you're heavily in PPOs, you're facing 20 percent inflation over the last three years, and whether that continues, and again, I'm not an economist and can't predict the future with complete accuracy, but I do think we'll be seeing more of it, if you've already seen 20 percent inflation over the last three years while taking 50 cents on the dollar for procedures that now make up a large share of your practice, that's a recipe for trouble, especially in a tight labor market where your team expects higher wages just because of what's happening with inflation generally.
So the first recommendation we're making to clients: you need to get out of network. We used to suggest this, now we're recommending it. For some people this is easy, maybe it's only 10 percent of the practice, no big deal. For others it's 80, 90, even 100 percent of the practice, and that may take two or three years, but you need to start, because there are a couple of problems with staying in. One, you can't control your fees if you're in network, so you can't respond to what's happening in the broader economy, you just have to accept a fee that doesn't work anymore. Meanwhile your vendors are charging more, new staff expect more, and existing staff are looking for more too, because they have no choice given what's happening around them. You could keep giving everybody raises and paying more for everything, but eventually the person who ends up in real trouble is you. If you asked the average business owner how they'd feel about some outside company controlling their fees, they'd probably laugh, it's just not a good situation.
Is inflation over? Will it stop? It'll never fully stop, but are we looking at more of it in the near future? A few things suggest we might be. We've seen what's happened with interest rates over the last few years in response to inflation. Why raise rates in response to inflation? The simple explanation is that higher rates slow the circulation of money, people put money in the bank instead of spending it, and people don't take out loans because rates are too high, so less money gets poured into the economy. And the essence of inflation is more money chasing the same or fewer goods and services, if you gave every American a billion dollars, we'd see astronomical inflation because of all that extra money sloshing around.
The other thing that raises prices is demand. Back in the eighties, there was something called a Cabbage Patch doll, and I remember my sister desperately wanted one, and my parents paid three or four times list price because they were so hard to find, that's demand driving prices up. The Federal Reserve has been raising rates to try to quell inflation, but if the economy starts to suffer, they'll eventually have to start lowering rates again so more money flows through the economy, and if they do that, you'll likely see more inflation.
The other wildcard in all of this is any increase in oil prices tied to what's happening in the Middle East right now. I don't want to get too heavily into that, but it's worth being aware of, because anything that requires oil to move it can go up in price if oil prices rise sharply. I was at the post office a couple of months ago talking to the clerk at the counter, who was complaining about oil prices, and gave me some formula, I don't remember the exact figure, something like for every penny gas goes up, it costs the post office some number of millions of dollars a day. Eventually, if you're a restaurant and your supply house is charging more for meat, produce, or tablecloths because their own costs from higher gas prices are going up, they pass that cost on to you, the consumer. So that's another potential vector inflation could come through.
If you're in a situation where you haven't raised fees and you're stuck in a lot of PPOs, thinking, well, inflation's dropped a little, I wouldn't bet the house on that continuing. You need the ability to actively control your fees, so my suggestion is to start getting out now. How do you get out? We offer something called a Fees and Plans consultation, it's free, I'll put a link on the episode webpage. You can talk to one of our practice management specialists, and they'll look at what's happening in your practice and give you ideas on how to start migrating out of managed care. Start now, since this can take a while.
The second thing we're advising clients to do is build a good, solid base in a normal general practice. What do I mean by that? Hygiene should be continually growing if you're bringing in new patients. Say you open a scratch practice getting 25 new patients a month, and you lose 20 percent of those patients along the way, they don't come back for whatever reason. 25 new patients a month is 300 in year one, lose 20 percent of those and you're left with 240 patients. If your office is open 50 weeks a year and you're seeing each of those patients twice a year for recall, that's 480 recall visits, or 9.6 hygiene patients a week, a bit more than a day of hygiene in year one. Extrapolate that forward 10 years, keeping that 20 percent drop rate roughly consistent, and you'd end up with about 12 days of hygiene a week. That kind of flow makes hygiene a real source of production and profit, and it's also what keeps patients coming back so you can maintain their health and identify treatment along the way. We've done several episodes on building out hygiene, and it gives you a solid base to grow from.
The next part of having a good base is building your practice on regular, bread-and-butter dentistry too, not just big procedures. I'm not saying don't do full-mouth reconstructions, All-on-4s, or All-on-6 cases, if you can do them, by all means do them, those are great things to offer your patients. But I've seen doctors get so focused on high-end procedures that they neglect the basic dentistry flowing through the practice, and that's dangerous, because a good base means being able to provide the full range of services your patients need. If your hygiene flow is growing and you're doing all the basic dentistry too, it might mean you need an associate at some point, and that's fine. There will always be big cases you'll want to do as well, but you should be able to deliver for everybody. If you're pushing routine filling appointments out six to eight weeks because your schedule is slammed, you might need an associate doctor. Your practice should be able to organically expand, and if you've built a good base, that shouldn't be a problem. But living for the mega-procedures alone puts you in a precarious position.
The fourth thing is using your staff efficiently, especially if you're only adequately staffed, or bringing on new people, or replacing someone who left. You have to get the most out of the team you have, which means being well organized: making sure team members are properly trained and properly utilized. We've talked in other episodes about having specific functions rather than a generic "front desk person," you might have two people up front, one as receptionist and scheduler, the other as financial coordinator, or an office manager and a financial coordinator, whatever the structure, you want specialization of function so people can be more efficient and there's more accountability in the office. We run a full program on organization and executive skills, the MGE program, I'm not going to cover all of that in a podcast, but if you want to know more about what's happening with your staff and how to use them more efficiently, we're happy to provide a free practice analysis, I'll put a link on the episode webpage.
So those are the four foundational points we're pushing with clients right now: get out of PPOs so you can control your fees, focus on building a good base by growing hygiene and not neglecting bread-and-butter dentistry, and make sure you're using your staff efficiently and training them to increase their effectiveness over time.
That's about all I have for you this week, folks, just a bit of an update. I'll put links to everything I mentioned, including the Fees and Plans analysis and the practice analysis, on the episode webpage. I hope this helped, and if you want to know more about MGE, you can find us online at mgeonline.com or call us at (800) 640-1140. Have a great week, and we'll see you at the next episode.