WHAT IS YOUR FEE REALLY WORTH?

You quote a fee of $4,000.
The patient agrees to pay that amount.
You begin treatment.
You finish treatment.
But, how much did you really receive for the case?

You received $4,000, right? Wrong, you quoted a fee of $4,000, but the amount you receive is actually substantially less, usually in the range of $3,600 to $3,120.

How does this happen? There are several factors which reduce the actual amount you receive for your services. Let's look at a few of the demons which eat up your fee.

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Time Value of Money.
If you quote a fee of $4,000 and receive the money over 24-30 months, you are losing 5% - 7% of that money. The longer you extend your payment terms, the more you lose.

Here is a simple example. If I offered you $100 today or $100 in 24 months, which would you prefer? You would obviously take the $100 today because $100 is worth more today than it will be in 24 months. That is because money devalues over time in our current inflationary economy. Even at a low inflation rate of 3.5% per year, the $100 that you think you are receiving in 24 months is really worth only $93.

Let's go a step further. If you receive the $100 today and invest it in a safe account at 5%, that $100 would be worth over $110 in 24 months. Compare that to the $93 you receive in 24 months. The difference is $17.

Charles Blair, a principle of Blair McGill & Co.¹ and a leading financial management consultant, estimates that an orthodontist loses 6% of the fee when paid over a 24 month period due to the time value of money. With this element alone, your $4,000 fee is now worth $3,760. Let's look at some of the other demons.

Billing and Collection.
How much does it cost you to bill and collect your fee? The answer depends on the efficiency and effectiveness of your systems.

There are the obvious costs associated with billing and collection such as staff time, statement or coupon costs, and time spent on collection calls. In the average practice, the range is 2% to 4% of the fee. Charles Blair, who has studied data for hundreds of orthodontic offices, estimates the range to be 1% to 2% for offices who have excellent billing and collection systems.

Then there are the intangible costs such as the staff stress caused by collecting late payments, parent stress due to missed payments and missed appointments, and delays caused by inconsistent follow-up.

Add the percentage cost for billing to the lost value of money and your $4,000 fee is now worth $3,680. Let's go on to the next demon.

Write-Offs.
Jackie Shoemaker of J.M. Shoemaker Consulting, Inc.², a leading practice management consultant in the area of financial arranging and collections, estimates that an average practice writes off 3% to 7% of its production. She notes that this is due to inappropriate financial arrangements and ineffective billing and collection practices.

Practices with excellent financial arrangements and systems have better performance, usually in the range of 1% to 2%.

Add the write-off percentage to the previous two factors and now your $4,000 fee is worth $3,560.

Prolonged Treatment. Another demon is extended treatment. This can occur in two ways. First, perhaps you extend your treatment time to accommodate a patient's payment schedule, even though you could clinically finish the case sooner.

Consider this typical situation. A doctor receives an initial payment of $920 for a $4,000 fee. That leaves a balance of $3,080. The doctor feels that families in the community can only afford $110 per month. Accordingly, the payment term becomes 28 months and, coincidentally, the treatment time is matched to the payment time.

The second situation is a family who falls behind in their payments. Known as the "financial wire" phase of treatment, in some offices this results in extended treatment and several more appointments while waiting for the family to finish paying.

In this situation the treatment time is not for clinical reasons - but, the treatment time for financial reasons.

There are two cost factors at work here. First, you have the lost value of money impact as you extend the treatment time. Second, you incur the costs of additional appointments.

Charles Blair estimates that each patient visit costs a doctor $50 to $60 assuming gross revenues of $100 per visit. If you extend the treatment time from 24 to 30 months to keep monthly payments low or because payments are late, those extra six appointments cost you $330 at $55 each.

The Total Impact.
Let's add up the various demons and review their impact on your fee.

Your $4,000 fee is now worth: $3,600 at the low range $3,360 at the mid range $3,120 at the high range.

You can calculate the impact on your practice using the guidelines above. All orthodontists are subject to the first three demons. If you never prolong treatment you can exclude the costs from line 4 of the calculations above. Doctors who extend treatment for financial reasons need to include these costs.

Conclusion.
What can you do?

First, what we have learned at OFP (Orthodontists Fee Plan, Inc.) is that patients are not concerned by the amount of the fee - they are concerned about how they make the payments. This suggests that you can raise your fee and our clients do this regularly with no resistance.

Second, remove yourself from the banking business. This is not your chosen profession. Companies like OFP can manage your patients' payments better and at a cheaper cost than you can yourself. Plus, you do not have the headaches and stress associated with financial problems.

Third, shorten the payment terms for those patients that use your office payment plan. OFP and most leading consultants recommend that you set the payment term at 2-4 months less than the treatment time. This gives you some extra cushion if there are missed appointments or delays. We have found that patients do not resist making higher monthly payments to the doctor so long as there is an attractive low monthly payment plan like OFP offered as another option. Oddly enough, the resistance is usually in the minds of the doctor or treatment coordinator, not the patients. Once an office makes that minor shift to a shorter payment time, there is no looking back.

Fourth, invest your money wisely and conservatively, especially if you are concerned about meeting expenses in later months. There are several safe bank and investment options which give you a fair return and give you access to your money when you wish.

By following these simple suggestions, you will begin to eliminate unnecessary costs, increase your profit margins, accelerate your cash flow and reduce some of the more stressful elements of your practice. You will practice orthodontics in a more financially and professionally satisfying environment. Cast out the demons!

Blair/McGill publishes The Blair/McGill Advisory newsletter. Dr. Blair holds degrees in accounting, business administration, mathematics and dental surgery. He is also the Director of Orthodontics Profits Plus+.

2. J.M. Shoemaker Consulting, Inc.
P.O. Box 277
Vero Beach, FL 32961
Tel # 561-770-2000

Jackie Shoemaker is also the developer of the AccounTracTM System which is designed to reduces billing and collection costs in a practice.

William F. Brady has a financial interest in Orthodontists Fee Plan, Inc. and can be reached at: feeplan@aol.com