February 12, 2024

Dentists: Considering Dropping Insurance? Here’s What to Know.

By Leigh Ann Faight  Upstream Dental Practice Coaching

If you are working harder by seeing more patients, but not seeing more profits, it’s time to review your in-network relationships.

A common complaint we  hear from dental practice owners is a version of, “I’m working harder than ever but don’t feel like I’m doing better financially.” Some dentists report that cash flow is getting tighter, even though they’re seeing more patients. How can this be?

Rising Costs Not Matched by PPO Payouts

The chief culprit is probably insurance. Since the pandemic, costs for dental practice owners have gone up for just about everything, especially salaries. Despite rising costs, insurance reimbursements have remained flat, which negatively impacts revenue. That’s left a lot of dentists feeling like a hamster on a wheel, running hard but getting nowhere.

Calculating the Impact of PPOs on Your Practice

Part of the problem is that it can be difficult to track the impact of insurance on your practice. Practice management software is a great tool for a lot of things, but most software doesn’t make it easy to parse out gross production/collections per plan along with write offs per plan, so you can see how much revenue your PPO patients bring in. However, you should be able to come close by following these steps:

  • Identify your top 25 ADA codes
  • Track down how many patients you have under each insurer
  • Find the average write-off on your top codes for all patients with insurance

Using this process, you’ll get a good idea of what your patient base looks like and how much you’re writing off. For instance, you might learn that 50% of your patients have Delta insurance and you’re writing off 40% of your costs. You may not like what you learn, but if you want things to improve, you need to know.

Deciding if You Should Change

Identifying the problem is the first step, but there isn’t a one-size-fits-all answer when it comes to deciding whether to stay in network with an insurer. Before taking action, there are several factors you should consider.

  1. Cashflow – It’s essential to look at the numbers and evaluate cash flow before making any changes to insurance, because the practice will need a financial cushion to get through the transition.  Going out of network can impact the number of patients you treat daily, as well as how those patients pay. A healthy cash flow along with a cash reserve will allow for a smoother transition.
  2. Patient Count – A typical practice with one-doctor and two hygienists might need to see about 1500 patients annually to successfully operate out-of-network. This patient number could be slightly lower or even higher depending on your practice vision and philosophy.
  3. Patients with Insurance – It’s important to know what percentage of your patient base uses insurance. If one insurance plan accounts for 80% of your patient base, you will want to create a solid plan for how to retain the most patients when you go out of network. Understanding how each plan affects your patient base will help you decide where to start. We recommend starting small and get your team in good practice.
  4. New Patients – How many new patients do you get on average each year and where do they come from? If the majority of new patients come through your PPOs, you’ll need to find a different way to attract them before making the switch.
Practices Don’t Need to Eliminate Insurance All Together

Practice owners don’t need to cancel all their PPO relationships. Instead, the goal can be to reduce the number of PPOs and just keep those that make sense financially. We generally recommend that a healthy practice should limit insurance-pay to 40% or less of their patient base as long as the fee schedules offer reasonable reimbursements. You should focus on identifying and keeping the carriers who offer higher reimbursements and dropping the others.

Creating a Process to Transition Successfully

By the time a dental practice owner decides to make a change, they are often eager to cut their ties with an insurer as fast as they can, and rush to send out the letter announcing the insurance change to patients. We get it – once you realize you’re in an unhealthy relationship, the impulse is to end it quickly. But to make this change work, you first need to focus on your team.

A Successful Transition Begins with Your Team

Securing team buy-in is essential to making this change work, and it begins with good communication. We recommend practice owners hold team meetings, so the entire team understands the reason for the change. It also gives the team a forum to ask questions, learn how to explain the change to patients, and make sure everyone is on the same page.

Regular meetings are essential to building a strong team and a healthy practice. When you’re undertaking a significant change like dropping insurance, it’s even more crucial.

Be Wary of Free Advice

Like all professionals, dentists like to learn from each other. That makes sense up to a point, but when it comes to sharing ideas for how to go out of network with an insurer, you can’t afford to take advice from a colleague, no matter how well-intentioned it may be. That’s because every dental practice is different, and what worked great for one dentist could lead to disaster for another. As we’ve already noted, factors like practice size, patient demographics, cash flow, and other important metrics, as well as the insurance landscape, all influence your strategy for a successful transition.

If you have questions about how to reduce your participation in PPOs, Upstream Dental Practice Coaching can help. We work with practice owners to build high functioning teams that provide a strong foundation for a healthy business. We also recommend that every practice owner work with a CPA that specializes in the dental industry. Contact Engage Advisors to get industry-specific advice on how to navigate complex financial decisions and make your dental practice more profitable.