Ep. 8: Inflation is Soaring! What to Do About it In Your Dental Practice
Inflation is the highest it’s been in a long time, and this is starting to have very real effects on the cost of doing business for dental practices. So in this episode, we look at the numbers and discuss what you can do to ensure you stay profitable and secure the future of your practice financially.
Topics:
1:01 – The current inflation numbers
3:20 – How this impacts your practice’s overhead
8:58 – Ways to raise your revenue without raising your costs
10:57 – What about insurance fee schedules?
Links:
BLS Inflation Statistics - https://www.bls.gov/news.release/pdf/cpi.pdf
NFIB Study - https://www.nfib.com/surveys/small-business-economic-trends/
Overhead Guidelines - https://www.mgeonline.com/overhead-materials/
Wasserman Fee Guide - https://wasserman-medical.com/product-category/dental/
Learn more about MGE – www.mgeonline.com
Listen to full episode :
Questions From This Episode
Why does Jeff say rising inflation puts extra pressure on dental practice staff costs specifically?
He points to a combination of two forces happening at once: inflation is driving up the cost of everyday living for existing and prospective staff, gas, food, housing, while a genuine labor shortage is giving workers real leverage to ask for higher pay. He cites NFIB survey data showing over half of small businesses had at least one unfilled position, with worker headcounts actually declining month over month.
What does Jeff say most doctors get wrong about how many patients they'd lose by dropping a PPO plan?
He says most doctors guess they'd lose somewhere between 50 and 80 percent of patients on a given plan, but the real average is closer to 30 percent. Using a simple crown example, he shows how a practice can end up with more total revenue on fewer patients after dropping a plan, since costs like lab fees, assistant time, and materials scale down along with patient volume.
How does Jeff explain heavy PPO participation acting like a hidden, ongoing fee cut?
Using a roughly 30 percent average PPO write-off, he shows that if a third of a practice's patient volume is on PPO plans, that's effectively a 10 percent cut to overall fees, two-thirds PPO is a 20 percent cut, and being fully in-network is a full 30 percent cut. He frames getting out of plans as, in effect, its own form of a fee increase.
Why does Jeff say PPO participation doesn't work as a long-term business model, even setting aside the reimbursement itself?
He points out that a practice's actual costs, lab fees, assistant time, materials, don't get discounted just because a patient is on a lower-paying plan, so heavy insurance participation squeezes margins from both directions. He compares it to how HMOs and PPOs reshaped medicine, chiropractic, optometry, and podiatry over past decades, and argues dentistry is following the same trajectory.
What does Jeff recommend as concrete next steps for a practice facing rising costs?
Confirm your full fees are actually competitive, using a percentile-based tool like the Wasserman Guide, he personally targets the 60th percentile or higher, implement a fee increase (phased in gradually if a full increase feels like too much at once), and start the process of exiting the worst-performing insurance plans in the practice.
Episode Transcript
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We know inflation is here. You might not be following the exact numbers, but you've most likely felt it at the gas pump, the grocery store, or wherever else you tend to notice prices. Keep in mind, if you're feeling it, so is your team. That's what we're talking about on this week's episode of Dental Business Rx: inflation. It's here, what now? I'm your host, Jeff Blumberg, and I want to focus less on decrying inflation itself and more on what you, as a dentist in private practice, should actually be doing to stay ahead of it and keep your practice competitive.
Let's look at some basic numbers, without going too deep into the weeds. As of this recording, the official government report for September 2021 puts inflation at 5.39 percent year over year. That might not sound dramatic on its own, I'd always mentally benchmarked around 3 percent, which is roughly what we'd seen for the prior 15 or 20 years, but 5.39 percent is a real jump, and certain categories are running well above that. Energy costs, gas, heating oil, and similar, are up close to 25 percent. Food costs are up a bit under 5 percent. Overall inflation, again, is running just over 5 percent.
It helps to extrapolate that a bit. If you had a dollar last September, what that dollar bought you then now costs about a dollar five. Put another way, that same dollar you're still holding onto now only buys what about 95 cents would have bought a year ago. Five cents on its own doesn't sound like much, but scale it up: say you had $100,000 sitting in the bank last year, earning close to nothing in interest, not invested, just sitting there. That $100,000 has effectively lost about $5,000 in purchasing power. To buy today what $100,000 bought you last year, you'd now need roughly $105,000.
So yes, we're all feeling inflation, whether or not you've looked at the official numbers, you're seeing it at checkout. But if you're feeling it, so is your team. It's costing them more to get to work, more for their electric bill, more for food, and so on. Here's where this becomes a real business problem: dental practices generally operate best when each overhead category stays within a certain percentage of revenue. You don't want rent exceeding a certain share of revenue, you don't want payroll exceeding a certain share, and so on. We have overhead guideline benchmarks by category for a solo practitioner linked on the episode webpage if you want to see how you measure up.
Rent is often locked in, maybe with a modest annual increase, so where you're likely feeling inflation right now is in energy costs, possibly supply costs, insurance, marketing, and especially staff costs, which I want to spend some time on. Here's a number worth keeping in mind: total staff costs, meaning payroll for everyone except associates and the owner doctor, including payroll taxes, should not exceed 22.5 percent of your revenue. So if you're grossing $100,000 a month, total team payroll, including payroll taxes, for your office manager, hygienists, and the rest of your staff, excluding associates and yourself, shouldn't exceed $22,500.
So why are staff costs climbing? Part of it is straightforward, it's costing your existing and prospective staff more just to live day to day, gas, food, and other essentials are all up. But there's a second factor layered on top: a genuine labor shortage. This isn't new, jobs have been harder to fill for a while now, I covered this a few episodes back. Let's look at a few basic labor statistics to see whether that trend is continuing, because it is.
First, job openings. I'm recording this in October of 2021, and there's typically a lag on national statistics like these. Job openings did decline from July to August, from 11 million down to 10.4 million, a drop of about 600,000, which sounds like improvement. But compare that to January of this year, when there were only about 8 million openings, or May, when the number was already higher than that. So yes, it's eased slightly, the pain went from roughly a 10 down to a 9, so to speak, but it's still elevated relative to where the year started.
That's the national total, though, so how is this actually affecting small businesses specifically? The National Federation of Independent Businesses, the NFIB, runs regular surveys on exactly this. As of the September survey, the percentage of small businesses with at least one unfilled position is at its highest level on record, over 50 percent. More than half of small businesses currently have at least one open position they're struggling to fill. And looking at net change in worker headcount, small businesses have actually seen negative numbers over the last two months, meaning on average they have fewer workers now than they did previously. So you've got fewer available workers and more open positions at the same time, a real labor supply shortage.
If you look at what drives inflation generally, especially wage inflation, it comes down to two things: the overall loss of purchasing power in the currency itself, and scarcity. When something is genuinely scarce and people want it badly enough, they're willing to pay more for it. Right now, a lot of employers are competing hard for the same limited pool of workers. I've seen this play out directly, someone I know has a spouse who was a paralegal, genuinely liked her job but started having friction with coworkers, so she left, found another position quickly, and is now making more money. That's the environment right now.
So general costs, marketing, insurance, supplies, are climbing, and labor costs specifically are climbing too. I'm in the middle of delivering our Financial Planning and Profitability seminar right now, and I like to survey clients while they're in the room, so I recently asked what people are currently paying hygienists. One client said $52 an hour, another said $46. If you're listening and paying noticeably more than you were two years ago, you're not imagining it.
With all of this happening, costs are rising across the board, materials, general goods, and labor, and I'd argue labor costs specifically are currently running somewhat artificially high, though I do think they'll eventually normalize, possibly settling a bit above where they were before. So what should you actually be doing? I mentioned earlier that a healthy practice keeps each overhead category under a certain percentage, payroll at or under 22.5 percent, for instance. If you're running 24, 25, or 26 percent, that's when real problems start to show up. The fix is to raise your revenue without raising your costs, and the only real lever for that is raising your fees.
Maybe you already do this consistently, we've always recommended clients do an annual fee increase, ideally decided in November so it launches in January. Some clients have kept up with this, some haven't, and in calmer economic times, skipping a year or two wasn't the end of the world, you could just catch up incrementally later. That's not really the environment we're in anymore. You need to raise your fees now. Sabri, our Deputy Chief Operating Officer, who you've heard on a few prior episodes, has been telling clients directly that a 10 percent increase right now is warranted. If that feels like a lot to implement at once, we typically recommend phasing it in, maybe 3 percent this month, another 3 percent a couple months later, and so on. Even with phasing, if costs keep climbing the way they have been, you may still need to revisit it again down the line, but do it in whatever way feels manageable and sustainable for you. If it were my practice, I'd be raising fees right now, without hesitation.
Naturally, the next question that came up when I covered this in yesterday's seminar was: what about insurance patients, if I'm a participating provider? And here's where it gets genuinely frustrating. While staff costs are climbing, general inflation is climbing, and supply chains are disrupted, some insurance companies are actually lowering their reimbursement rates. I won't name specific companies, but it's happening with more than one of them. If you're a participating provider, you've agreed to accept their fee schedule, so if you were getting $800 for a crown, some are now offering even less.
Here's the underlying problem: if you don't increase revenue while costs keep rising around you, you will eventually lose your competitive edge, both in attracting new staff and, over time, in retaining the staff you already have. If you're paying a dental assistant $22 an hour and the going rate climbs to $24 or $26, you can't really blame them for looking elsewhere, even if they genuinely like their job, nobody should be faulted for choosing a better financial position for themselves and their family. So staying competitive on fees isn't optional.
A general fee increase is straightforward enough, but what about patients on plans where you're locked into a fee well below your normal rate, say $800 for a crown that would normally be $1,400? A few things worth considering. First, my lab isn't discounting their fee because the patient happens to be on a PPO. My assistant helping prep that crown isn't working at a discount. My scheduler isn't discounted either. From a pure business model standpoint, PPOs simply don't hold up long-term. I've watched this exact pattern play out in other fields, medicine, chiropractic, optometry, podiatry, and it's increasingly hitting dentistry the same way. Reimbursement used to be straightforward decades ago, then HMOs and PPOs made deeper inroads, and now you see situations like an MRI billed at $2,500 while the actual negotiated insurance rate is $500. That's not a direction you want your practice heading.
Here's something worth asking yourself directly, and I've surveyed clients on this before, so I already know the general answer: if you're participating in a number of insurance plans, pick one of the larger ones in your practice and imagine dropping it. What percentage of those patients do you think would actually leave? Most doctors guess somewhere between 50 and 80 percent. That's not accurate. The real average tends to land around 30 percent.
Let's run the math. Say your normal crown fee is $1,400, but your in-network fee for that same plan is $800, and you have three patients on that plan who each need a crown. At $800 each, that's $2,400 in revenue for all three. Now say you drop the plan. With a roughly 30 percent attrition rate, one of those three patients, more precisely about a third, decides to leave rather than pay full fee. You're left with two patients paying $1,400 each, $2,800 total. So you go from three patients generating $2,400 to two patients generating $2,800, and setting aside that the departing patient still needs treatment somewhere, which matters, but is a separate consideration, look at what happened on the cost side: you used less impression material or fewer scans, you needed less chairside assistant time overall, and you have one fewer lab case to pay for. You've lowered your costs while increasing your revenue.
So why don't more doctors get out of these plans? Largely fear, something I've covered on other episodes. It's genuinely not as difficult as it seems, we have clients doing it regularly specifically to avoid ending up in this exact bind. The real risk is this: the more heavily your practice is embedded in insurance plans, the harder the decisions get as inflation keeps climbing, especially if insurance companies keep refusing to adjust reimbursement upward, and that's a position I'd rather you avoid altogether.
The bottom line: inflation is here. I'm not a psychic, I have no idea how long it sticks around, probably nobody genuinely does, but it's real right now, and we're in a genuinely competitive labor market. To stay ahead of it and remain competitive, your fees need to go up, in whatever way feels manageable to actually implement. But you can't be in a position where 60 percent of your practice is tied up in PPOs and you simply can't raise fees on that portion at all. Think about it this way: if the average PPO write-off across your practice is around 30 percent, meaning something that would cost a fee-for-service patient $100 nets you $70 under the plan, and that's a fairly generous assumption, it's often worse, then once a third of your patient volume is on PPOs, you've effectively cut your overall fees by 10 percent. Two-thirds PPO gets you a 20 percent effective cut. Fully in-network gets you the full 30 percent. So getting out of plans is, in a very real sense, its own kind of fee increase.
If you're wondering what your fees should actually be, there are a number of resources out there, I'm admittedly a bit old-school and still like the Wasserman Guide, no commercial relationship with them, I've simply used it for years. It gives you percentile-based fee data by zip code and CDT code, so you can see, for a given procedure, what the fee looks like at the 40th, 50th, or 60th percentile in your specific area. If you're at the 50th percentile, that means half the practices around you charge less and half charge more. I'll put a link to the Wasserman Guide on the episode webpage if you want to check it out yourself, or you may already use a different service for this.
So to keep the action items simple: make sure your full fees are actually competitive, I personally like targeting the 60th percentile or higher, though that's ultimately your call, raise your fees if they need it, and if you're heavily tied into insurance plans, particularly the worst-paying ones, start working on getting out. If you'd like help with any of this, we're glad to assist here at MGE, you can email me directly at jeffb@mgeonline.com, find us online at mgeonline.com, or call us at (800) 640-1140. I wish you the best, and this is genuinely a period where you need to stay attentive, the waters are a little choppy right now, but that doesn't mean you can't still reach where you're trying to go. Have a great week, and we'll see you next week.