Active Patient Count in Dentistry

Recently this number has become a totally over-blown issue. It is simply one of many metrics that a dentist can use to determine if the treatment philosophies are similar. The due diligence process should be used to answer the most important question a buyer can ask: What can I expect to produce/collect on this particular patient base? Looking at the types of procedures, the number of prophys, the type of recall system AND a patient count should help answer that question.

 

Patient Management in Dentistry: Active Patients

As dentists, we do not even have a definition for an “active patient”. Generally, most of us in the transition business have accepted the definition to mean any patient that has been in the office for at least one visit in the past two years. Arguably that might not include the terrific patients that definitely get their major treatment performed but may only show up every three years, or when something breaks. It also counts the patients that are one-timers only who may not come back.  I have never seen a situation where the Seller truly believed he had less patients than what the Buyer counted!

 

Every buyer is strongly encouraged to do their own chart count to make sure they can duplicate the production on that particular patient base. Essentially their perceived number of patients is irrelevant to market price and is really only relevant as it relates to them duplicating the production. This conclusion may sound strange, but it is the reality of practice sales. Only the buyer can determine if a particular practice is a good fit.

 

Patient Treatment Plans

In my seminars, we could present a patient case and ask for 10 dentists to give a treatment plan. We would probably have 10 different treatment plans, with some possibly advising eventual full mouth reconstruction and others advising few restorative needs, while watching the remaining teeth. I can also tell you that every dentist believes that they are “just right” when it comes to their own treatment plans. Therefore, I could place those 10 dentists in a practice purchase and I might get two failures, two wildly successful outcomes and six dentists that finish within 15% of the original practice collections. ALL WITH THE SAME PATIENT BASE! The Practice Price is NOT based on the number of patients.  It is based on the collections and profitability!

 

Patient Throughput: Should You be Concerned?

Every patient base is unique based on their needs and their ability to pay.  The number of patients may not be as important as the type of patients.

 

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First, Let’s define the problem, as there is a great deal of misunderstanding on this issue. About four or five years ago, Delta decided that all new contracts with dentists would include both the Premier and the PPO contract. There was no choice on the matter from the dentist. On face value, this did not seem like a big deal in practice transitions as the assumption was that the buyer would keep all the “premier patients” on the higher fee schedule and that he would acquire many more new patients on the PPO fee schedule, albeit at a lower fee schedule. In fact, it seemed like a good way to grow the practice after the transition.

 

The first time we discovered this assumption was incorrect, was upon listing a practice that voluntarily added the PPO product to his office. He also assumed that his current ”Premier” patients would keep their fee schedule. He soon found that Delta was paying 25 to 30 percent less on about 90% of his past Delta Premier patients. However, he finished off that year with his highest production ever, due to the increased patient flow!

 

What we did not fully comprehend is that Delta has not really sold any new “Premier” plans for many years. Each year, the percentage of Delta Premier patients is reduced  compared to the PPO plans. Currently the percentage of Delta Premier patients is approximately 7%.  Today’s current “Premier Only”  doctors normally do not realize that as much as 93% of their “Delta Premier” patients are really what we refer to as “PPO Plus”, meaning that Delta has agreed to pay the Premier fee schedule for the time being, but any change in the contract will reduce all of these patients to the standard PPO fee schedule.

 

We have also witnessed transitions over the years where the practice’s gross receipts did suffer after the buyer was forced to take the lower fee schedule. However, since 2011 when we began following this phenomenon, I can say that there is no direct correlation to declining revenue just because of the Delta fee change issue. We recently sold a predominately Delta practice that had 1.7 Million in gross receipts. We expected this practice would suffer as this practice did not need to grow their patient base with the additional PPO patients. Six months after the sale the monthly collection numbers were actually greater!

 

It is imperative that buyers understand this issue and find out how much of the revenues are generated by a “Delta Premier only” office. However, it is just one of the many variables a buyer should understand in making a good decision to purchase a practice.

 

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Debra was my last patient of the morning. We just finished prepping a couple of crowns, taking impressions, and making temporaries. She was right, it was easy. At this point in my career it should be easy. Like most the procedures I do daily, I have repeated them thousands of times. Debra wasn’t there for all of the previous procedures, nor was she there for the hundreds of hours of Continuing Education that made it easy for her today.

 

We hone our skills through the years, making even the most difficult procedure appear easy. We also assess the patient and procedure to minimize the possibility of exceeding our professional limitations. The most successful practitioners realize it is better for both the patient and doctor to refer out some procedures to others with more expertise. Throughout our careers, we seek the advice of mentors with skill and experience (Pankey, Spear, Kois, Pride…).

 

Similar preparation is necessary as you plan for retirement and the transition of your practice. Now that your professional and financial goals are met, which experts will you turn to assist in transitioning you into retirement?  Who will make it easy on you?

 

I’ve met with doctors that have started down the road to transitioning their practices on their own. While some are successful, I have assisted many doctors in the eleventh hour of a chaotic sale and even more who hit road blocks resulting in failed transitions. After interviewing the doctors, I realize many of these transitions would have been much easier and transitions could have been saved with sound advice from an experienced broker.

 

I recently met with a very successful doctor who “sold” his practice. Everything seemed to be ready: there was agreement on price and conditions, date of sale was set, the contract was signed, the doctor had his retirement party! However, the sale fell apart for reasons that an experienced broker probably could have mitigated, and the buyer has since moved on and purchased another practice. This sale could have been saved by a few seemingly easy steps that an experienced broker had learned from performing similar procedures on many previous occasions.

 

The best way to minimize the chance of a tumultuous sale is to start by listing with a seasoned broker who has a great team backing them up.  There is no substitute for experience, someone who has been down the road dozens of times and knows where potential potholes lie and how to avoid them before the sale gets derailed.  The process may appear easy, but the seller and buyer generally remain unaware of many backroom issues that are resolved before they impede the transition of the practice. Every sale is different, with its own unique set of pitfalls, just like every treatment plan has its own unique set of issues.

 

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