Monday, October 28, 2013

Getting pricey! The high costs of discounts and courtesies

By Rhonda R. Savage, DDS

Dr. Sam Stevens had a heart of gold. He loved working with his patients and really disliked having to deliver bad news. One day, his long-time patient, Fred Simms, came in for an emergency appointment. He’d broken a tooth and desperately needed a buildup and a crown. Dr. Stevens said, “Fred, we’ll just do this for you for $800, instead of our normal fee of $1,200.” In the next operatory, Vanessa, in the chair to get her crown done, heard the comment. She’d saved for seven months to afford the crown. She turned to the assistant and indignantly said, “Really?! What about me?” 

Having practiced for 16 years, I know that doctors can let their “nice gene” get in the way of patients’ financial arrangements. It’s important to realize, however, that if patients compare notes, they’ll have hurt feelings. In addition, the routine extension of courtesies and discounts can affect your bottom line.

How can giving away dentistry affect your bottom line? 

Here’s an old study by Eastman-Kodak:

If you’ve ever wondered how much your business must increase in order to keep an even keel after cutting prices, here are some figures from Eastman-Kodak’s research department:

Assuming an anticipated profit of 25% (or a 75% overhead) on selling price, a 2% cut in that selling price means you must increase your volume of sales by 8.7% to make the same profit obtained before the price was lowered.

A 3% cut means a 13.6% increase in sales is necessary.
A 5% cut means a 25% increase in sales is necessary.
A 7.5% cut means a 42.8% increase in sales is necessary.
A 10% cut means a 67% increase in sales is necessary.
A 15% cut means a 150% increase in sales is necessary.
A 20 % cut means a 400% increase in sales is necessary.

To reverse the process, or increase prices:

A 3% increase means the same profit on 90% of sales volume.
A 5% increase means the same profit on 83.5% of sales volume.
A 7.5% increase means the same profit on 77% of sales volume.
A 10% increase means the same profit on 71% of sales volume.
A 15% increase means the same profit on 62.5% of sales volume.
A 20% increase means the same profit on 55.5% of sales volume.

These calculations didn’t make a lot of sense to me early in practice. Over time, I realized the cost associated with courtesies is high because of the associated fixed and variable overhead costs, which continue marching along. You can’t assume that if you do 5% more dentistry, you’ll make up for a 5% courtesy. Will it cost you the 20% off your net? 

Not necessarily so. This depends upon your mix of services, the laboratory you choose to use, or if you do your porcelain in-house with CEREC or E4D. Other expenses vary from practice to practice: staff overhead, fixed costs, and your ability to be efficient with your production (quadrant dentistry or treatment in multiples). Practices that take Medicaid patients and/or participate in PPOs can be profitable; it’s important to consider the courtesies, however, as they can impact the bottom line.

Do you have an office policy regarding discounts or courtesies?
If you’re accepting PPO reimbursement, or the patient is paying with CareCredit or a credit card, Miles Global does not recommend extending a courtesy. Instead, consider offering courtesies to a senior or other patients at an even more reduced rate (2-3% courtesy), if at all. 

We recommend no more than a 5% courtesy for patients across the board, if they pay with cash or are seniors paying cash. 

However, many doctors do not offer a cash courtesy and their patients still schedule for treatment.

Patients accept your recommendations because of the verbal skills of the entire team. Does your patient hear a consistent message throughout the office? Do you create value at the time of diagnosis? Does the patient understand the advantages of the treatment and the disadvantages if the patient postpones? Are you focused on verbal skill training? Can the staff talk for the doctors? 

To train your team, consider obtaining our Verbal Cue cards and Linda Miles’ book, Dynamic Dentistry. Best yet, consider ateam retreat with Miles Global on the beautiful Royal Caribbean line, March 22-26th, 2012, and learn from the master of verbal skills, Linda L. Miles!

Verbal skills, connecting with the patient, and excellent case presentation are incredibly important, but let’s focus on courtesies and discounts.

Does a courtesy increase case acceptance? For some patients, especially in this economy, a discount can incentivize the patient to schedule and complete treatment earlier. To create a sense of urgency, let the patient know that the fee and courtesy are valid for the next three or six months only. 

There are a number of areas you need to consider within this topic:

1. Be careful: If you’re in contract with an insurance company, you may be contractually obligated to extend the same courtesy to the insurance company.

2. We see kind-hearted dentists getting involved with courtesies, discounts, and giveaway dentistry, even to those patients who can afford it. With this situation, staff thinks: “Great, there goes my raise (or bonus).” This is especially true if the team isn’t getting raises or reaching the bonus level. If this is the case, resentment builds as well as frustration. Morale will go down, and with that, productivity.

I find employees love to give, but consider asking them to help select families in need and give to those families. 

3. If you’re in a partnership relationship, I recommend setting a cap on the “giving” because one dentist, who gives a bunch away, affects the bottom line of the practice. Resentment builds in the partnership and staff/patients feel the tension. I enjoy facilitating communication between partners as well as working with solo dentists in these matters, and we do this often. Our goal is to increase productivity, efficiency, communication, and morale in the office.

4. Back to courtesies: Rather than a percentage, consider a lump sum discount. As an example, for a $10,000+ case, allow your front staff to offer a $500 courtesy if they pay cash or upfront. If the case is $1,000, offer a $20-$50 courtesy. Have a courtesy/discount policy in writing at the front desk and let them handle it!

Doctors: Don’t talk finances at the chair. Is it time to turn off your “nice gene”? With all due respect, I recommend you pass this responsibility to your experts at the front desk. 

If the patient asks about a courtesy or a discount, say, “Fred, my expert at the front desk takes care of all of this. I know just enough to be dangerous, especially with finances and insurance. Did you know there are over 3,000 insurance plans out there? Sarah, up front, can help you with these arrangements.” Fred responds, “Sure, Doc, but if I pay cash, can I get a discount?” To which you say, “Fred, Sarah will help you with this. She’s our expert and knows all about the finances. If I talk about it, I do it wrong and get into trouble! She’ll get you all taken care of.”

Is it time to look at the practice with a fresh set of eyes? Run a full adjustment report and have a frank discussion as a team about the office financial policies. As with any change process, it will most likely be three steps forward and two steps back. Agree to be coachable and allow others to say, “Gee, Doc, you’re falling back into old habits again.” The doctor’s job: Say, “Thank you. I’ll try to do better!” 

The bottom line: Routinely giving away dentistry and/or discounted dentistry can hurt your bottom line!

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