MANAGEMENT TOOLS FOR A SUCCESSFUL PRACTICE

p. 28 p. 88 p. 108 DENTAL ECONOMICS EIGHT PERMANENT GAME-CHANGERS FOR TODAY S DENTIST PRACTICE TRANSITIONS: AVOIDING DOUBLE TAX FROM WEBSITE TO DYNAMIC WEB PRESENCE THE NATION S LE ADING BUSINESS JOURNAL FOR THE PROFESSION OCTOBER 2012 10 TOP MANAGEMENT TOOLS FOR A SUCCESSFUL PRACTICE p. 99 SPEC IAL SECTIO N FINANCIAL ANALYSIS p. 65 LOIS BANTA

SPECIAL SECTION Financial Analysis THE DENTAL ECONOMICS/ LEVIN GROUP 2012 ANNUAL PRACTICE SURVEY CHALLENGES CONTINUE FOR DENTISTS NATIONALLY BY JOE BLAES, DDS, EDITOR FOR MORE on this topic, go to www. dentistryiq.com and search using the following key words: Dr. Roger Levin, annual practice survey, practice, collections, overhead. The recovery remains slow for much of dentistry. That s the overriding message sent by participants in the Dental Economics/Levin Group 2012 Annual Practice Survey. It is best illustrated by four significant metrics reflecting changes from 2010 to 2011: Gross per doctor is down by 9.1% Average doctor income decreased by 4.81% New patients entering practices are down by 5.1% As a percentage of the total mix, elective procedures have declined by 18.3% On balance, there are some modest signs of improvement: Average overhead is down to 60.8% from 62.3% Overall practice edged up an average of 1.2% The fee collection rate finally started moving up, from 92.7% to 94.4% ROGER P. LEVIN, DDS Dr. Roger P. Levin, chairman and CEO of Levin Group, attributes the negative indicators to two major factors. One is new, postrecession consumer spending behavior. Current patients are more cautious, shopping around for lower-cost dental services, and postponing or rejecting elective treatment. The other factor, according to Dr. Levin, is increased competition for new patients in many areas. Dentistry has had another challenging year from an economic standpoint, says Dr. Levin. This reflects lingering problems in the U.S. economy, as well as several additional changes that have taken place in the dental economy. To succeed in this new environment, dentists must respond to these changes with proven business strategies and systems. ABOUT THE SURVEY This is the sixth year we have conducted the Dental Economics/Levin Group Annual Practice Survey. The comprehensive findings play an important role, allowing dentists to gauge the state of dentistry across the country, observe trends as they develop, and see how their own attitudes, conditions, and practice performance measure up against their professional peers. The results of this survey correlate with other data gathered by the Levin Group Data Center. Drawing on more than 27 years as a leader in dental practice management, Levin Group designed the survey, collected the data, and analyzed the numbers and comments to provide dentists with accurate, timely information about the state of dentistry. This year s survey asked general dentists to provide information in six critical areas: 1. Practice Overview 2. Practice Production 3. Collections and Billings 4. Procedure Mix 5. Overhead 6. Doctor Satisfaction www.dentaleconomics.com 10.2012 65

SPECIAL SECTION Financial Analysis Approximately 4,000 dentists have responded to this survey over the past six years. Although the number of responses varies slightly from year to year, the survey represents a crosssection of U.S. general dentists, ranging from solo practitioners to multidoctor practices, from dentists in rural areas and small towns to those in suburbs and large cities. Survey respondents were geographically distributed in a pattern that closely matches the pattern reflected in ADA and U.S. Census statistics. Our thanks go to all the dentists who were willing to spend time responding to our 2012 survey. 2012 SURVEY HIGHLIGHTS TWO KEY DOCTOR NUMBERS ARE DOWN In 2011, what doctors produced and what they reported as income declined since 2010. Average doctor dropped from $634,979 to $576,964. This is the lowest number in four years! Take-home pay for doctors was also down, from an average of $229,441 in 2010 to $218,424 in 2011. In last year s report on survey findings, we indicated that many practices were working more hours in an attempt to maintain the same revenue level. This year, we see a reversal of that trend. Only 12.9% of dentists were working five days a week in 2011, compared with 19.9% in 2010. It is notable that 67% of dentists report that inefficient practice systems are their biggest challenge right now. That number has doubled from just a year ago. More dentists realize that, in order to succeed in the new dental economy, practices must be operated as excellent businesses. This means implementing innovative systems that will increase and profitability by addressing current economic challenges. OVERALL PRACTICE PRODUCTION INCREASING SLOWLY, AND PROFITS ARE DOWN Average practice during 2011 was $1,186,563. This was marginally higher (1.2%) than 2010. A 53.2% majority of practices participated in that growth. Virtually the same number 53.3% reported increased through the first six months of 2012. This suggests there may be some bounceback as we head toward the end of this year. On the other hand, average daily per doctor was $3,230 in 2011, down 12.8% from $3,703 in 2010. Average daily per hygienist remained flat at $1,010. Even more significant, profit per practice owner fell 7.91% to $241,857 in 2011 compared to $262,641 in 2010. This brings owner profits back to the levels we saw in 2008 and 2009. LESS ELECTIVE TREATMENT, FEWER NEW PATIENTS The new economy has created a generation of patients who are hesitant to accept elective treatment recommendations. More of them are shopping for better options or are postponing decisions. Their ability to pay factors into decisions more than ever. Practices all around the country continue to see increased use of credit cards to pay for treatment (and a corresponding decrease in billing the patient after treatment). However, these patients are opting only for necessary care. Last year, only 18.8% of GP cases were elective, down from 23% in 2010. Continuing a trend we noted last year, the average number of new patients per month during 2011 was down to 26.2 from a peak of 30 in 2009. In order to combat lower new patient averages, many GP practices are engaging in internal marketing to reactivate their existing patient base. More than half of responding practices (52%) saw an increase in active patients, though 24% saw a reduction and 24% remained flat. Without new internal marketing systems, GP practices will be hardpressed to increase in the new economy. CONTINUING A TREND WE NOTED LAST YEAR, THE AVERAGE NUMBER OF NEW PATIENTS PER MONTH DURING 2011 WAS DOWN TO 26.2 FROM A PEAK OF 30 IN 2009. 66 10.2012 www.dentaleconomics.com

SPECIAL SECTION Financial Analysis Prior to the Great Recession, the marketing efforts of many dentists were inconsistent, observes Dr. Levin. Now they are beginning to recognize the value of running consistent, multistrategy programs to generate more patient referrals and increase average per patient. He believes it is critical for doctors to update their practice systems, including internal marketing. The systems that worked several years ago will not work in today s economic environment. PRACTICE OWNER PROFITS ARE DOWN BY 7.91% Though average profitability moved up thanks to reductions in overhead, the actual dollar amount of profit for practice owners declined in 2011. Here s why: Elective treatment decreased by 18% in 2011 over the previous year. Practices continue to see fewer new patients per month: down to 26.2. Production per hygienist is down 4.6%. LESS OPTIMISM AND HIGHER STRESS Among survey respondents, 51.9% expect practice to continue growing in 2012. However, this is not as optimistic as the responses were last year when 60.9% of respondents felt practice would continue to grow. In keeping with those numbers, the percentage of dentists expecting declines in 2012 increased from 12.4% to 17.9%. Pessimism seems to be growing. In numbers that also reflect the mental state of dentists across the country, more than a third of responding dentists (35.2%) said they are experiencing high or extremely high stress. This represents a marked increase in professional stress, even when compared to last year s high 28.5% response. It comes as no surprise to Dr. Levin. Last year, doctors worked longer hours but achieved little growth. Many feel tired and powerless in dealing with financial pressures. Stress will remain high until effective business solutions are implemented. THE GOOD NEWS: OVERHEAD IS DOWN, COLLECTIONS AND PROFITABILITY ARE UP Practices are beginning to realize that they can increase their profit margin by decreasing expenses and increasing. This year s survey indicates that the average practice reduced overhead in 2011 from 62.3% to 60.8%. This means that profitability is up to 39.2% from 37.7% definitely a move in the right direction. Even though is up only slightly, practices are doing a better job of getting paid for the services they provide. Collected fee rates are up to 94.4% from THIS YEAR S SURVEY INDICATES THAT THE AVERAGE PRACTICE REDUCED OVERHEAD IN 2011 FROM 62.3% TO 60.8% 92.7% last year. I remain very optimistic about the long-term outlook for our profession, says Dr. Levin. However, we have entered a new economic era for dentistry. Those who recognize this fundamental fact and make the necessary adjustments will be the most successful. PRACTICES SEEKING SOLUTIONS We hope the Dental Economics/Levin Group 2012 Annual Practice Survey has encouraged you to think about your own practice and sparked your interest in making positive changes. Our thanks to everyone who participated in the survey. By making your voice heard, you have helped your colleagues come to a better understanding of the state of dentistry today. We appreciate the time you took to complete the survey, and look forward to your participation in 2013. To view the complete survey results, visit www.levingroup.com/gp or www.dentristyiq.com. 67 10.2012 www.dentaleconomics.com

Question Practice Overview How long have you been in practice? 1-5 years 6-15 years 16-25 years > 25 years SMALL TOWN MAJOR METRO LARGE CITY MEDIUM TOWN ALL DRs 26.2% 12.3% 14.1% 9.9% 7.9% 21.8% 29.6% 29.4% 21.8% 20.1% 15.9% 17.3% 22.4% 33.3% 20.5% 34.9% 42.0% 34.1% 36.4% 51.4% How many days per week do you work < 4 Days / Week 4 Days / Wk 4.5 Days / Wk 5 or more Days / Wk 0.0% 0.0% 1.2% 1.1% 20.1% 0.0% 1.2% 1.2% 1.1% 49.3% 4.3% 7.4% 5.9% 6.6% 17.6% 4.3% 4.9% 11.8 11.0% 12.9% MEDIAN MEAN MEDIAN MEAN MEDIAN MEAN MEDIAN MEAN MEDIAN MEAN Number of doctors in practice: General Dentist 1.00 1.45 1.00 1.85 1.00 1.79 1.00 1.55 1.00 1.68 Number of staff in practice: Front Desk/Administrative 2.00 1.91 2.00 2.10 2.00 2.30 2.00 2.25 2.00 2.18 Clinical 2.00 2.28 2.00 2.21 2.00 2.82 2.00 2.46 2.00 2.46 Hygienists 2.00 1.94 2.00 1.77 2.00 2.64 2.00 2.22 2.00 2.18 How many days per week do you work? Response 4.00 4.00 4.00 4.20 4.00 4.12 4.00 4.16 4.00 4.09 What was your practice's gross for 2011? Response $650,000 $817,536 $863,500 $1,393,415 $984,760 $1,352,153 $1,050,000 $1,058,104 $894,787 $1,186,596 What was the gross per DOCTOR for 2011? Doctor #1 $442,352 $482,050 $565,000 $578,870 $625,870 $622,919 $486,977 $576,289 $525,000 $577,293 Doctor #2 $375,000 $387,323 $450,000 $452,550 $550,000 $590,679 $380,000 $384,152 $450,000 $460,513

SMALL TOWN MAJOR METRO LARGE CITY MEDIUM TOWN ALL DRs What was the gross per HYGIENIST for 2010? RDH #1 $100,000 $123,395 $163,484 $175,350 $170,000 $203,608 $150,000 $157,153 $150,000 $168,437 RDH #2 $103,675 $104,595 $156,000 $145,610 $149,000 $136,300 $130,000 $141,974 $135,000 $136,631 current average daily per DOCTOR? Doctor #1 $2,500 $2,711 $2,972 $3,088 $3,200 $3,237 $3,250 $3,620 $3,000 $3,241 Doctor #2 $2,500 $2,202 $3,500 $3,558 $2,900 $3,126 $2,800 $3,231 $2,800 $3,199 current average daily per HYGIENIST? RDH #1 $800 $831 $1,000 $1,090 $991 $991 $1,000 $1,131 $1,000 $1,040 RDH #2 $700 $749 $998 $1,112 $900 $878 $1,000 $1,013 $949 $966 average number of NEW PATIENTS per month? Response 20.00 21.36 10.00 23.42 24.50 34.53 20.00 24.58 20.00 26.20 What percent of practice fees are collected? Response 96.50 95.57 95.00 92.72 95.00 93.84 97.00 95.54 96.00 94.41 What percent of Accounts Receivable (A/R) are: Current 77.50 69.35 60.00 58.96 66.00 64.04 65.00 64.95 65.00 64.03 Less than 90 days 17.50 26.60 20.00 28.38 15.00 16.63 20.00 19.56 20.00 25.03 Older than 90 days 5.00 8.20 11.50 14.75 8.50 12.23 10.00 13.07 10.00 12.30 Written off as uncollectible 1.00 2.15 2.00 4.32 4.50 4.17 2.00 4.44 2.00 3.85 What percentage of your annual is? Need-Based Treatment 90.00 84.30 85.00 81.94 80 75.34 84.00 83.00 85.00 81.15 Elective Treatment 10.00 15.70 15.00 18.06 20.00 24.45 15.00 17.00 15.00 18.80 "Approximately how many times each month do you refer to the following specialists? Prosthodontist 0.00 0.13 0.00 0.09 0.00 0.75 0.00 0.41 0.00 0.34 Endodontist 4.00 10.37 3.00 6.71 4.00 7.29 4.00 5.92 4.00 7.30

SMALL TOWN MAJOR METRO LARGE CITY MEDIUM TOWN ALL DRs Pediatric Dentist 1.00 2.50 1.00 1.56 0.50 1.53 2.00 2.78 1.00 2.09 Orthodontist 5.00 8.78 2.00 4.38 5.00 7.00 5.00 7.44 4.00 6.74 Periodontist 2.00 3.98 3.50 6.29 1.50 2.54 2.50 4.03 2.00 4.31 Oral Maxillofacial Surgeon 10.00 10.09 5.00 7.86 5.00 9.50 8.50 9.25 6.00 9.07 What is your overhead percentage? What is your overhead percentage for the following categories? Keep in mind, the numbers may not add up to 100%. 60.00 57.00 65.00 51.00 65.00 52.40 61.00 61.70 63.00 60.80 annual compensation for? At what age would you like to retire? Supplies 8.00 10.90 10.00 13.40 8.00 12.50 9.90 15.20 10.00 13.30 Lab Fees 10.00 10.80 10.00 13.00 10.00 12.40 10.00 12.10 10.00 12.20 Staff 27.00 27.20 31.00 34.30 29.10 30.50 26.00 29.90 28.10 30.60 Facility 7.00 9.20 10.50 16.00 12.00 16.50 8.50 11.60 10.00 13.30 Owner Doctor $152,500 $171,684 $185,000 $211,154 $225,000 $259,341 $250,000 $287,576 $200,000 $237,404 Owner Doctor #2 $116,000 $116,000 $200,000 $228,714 $225,000 $350,000 $375,000 $257,429 $200,000 $260,682 Associate Doctor $125,000 $125,000 $96,000 $110,167 $150,000 $146,800 $130,000 $119,556 $135,000 $123,682 Associate Doctor #2 $65,000 $65,000 $170,000 $170,000 $130,000 $133,333 $125,000 $116,667 Response 65.00 65.50 63.00 64.19 65.00 64.76 65.00 63.40 65.00 64.33