The rising costs in oral healthcare – Time to reboot & reset clinics for economics (Part 2)

(Author Disclaimer: This article of mine is targeted at small to medium level dental practitioners and new practitioners who deal in a limited level OPD and have small to medium-sized premises. No disrespect, whatsoever to those who are having big spacious interiors, jam-packed OPD’s and big numbers (financial) associated with their name. I would like to re-iterate here that the distinguishing factor is the number of patients and size of the practice and not the skill set of any individual which can be highly inequitable. The only reason for dishing out this disclaimer is that highly successful running dental clinics won’t find the content of the article identifiable and suitable for adaptation in their enormous practices, but, if willing to, can read on and send your feedback to me)

ABSTRACT

The most prudent upcoming challenge in the post-COVID-19 era is the increase in the cost of oral health services which can limit the patient access to health care as limited resources lead to rationing and delaying and denial of care to people in need. We are in the Lockdown almost all over the world due to a pandemic called ‘Coronavirus’ aka the COVID-19. Of course, the human race has been known to overcome all such challenges in the past. One aspect is, however, getting absolutely clear; practising Dentistry in future (Post-COVID-19 era) is never going to be the same as the Pre-COVID-19 era. Dentistry was already cited as one of the costliest professions in India, by most of the ‘poor’ (and also by some rich, as well) Indian patients; believe me, this bar is all set to go higher and further milestones are going to be breached in near future as and when we resume the regular operations of dentistry, anytime 1-3 months from now. The rampant exploitation of natural resources brought us face to face with animals that harbour these novel viruses (in this case, presumably, a bat). Eminent public health researcher Dr Peter Daszak and his team have estimated that there are as many as 5,000 coronavirus strains globally waiting to be discovered in bats. We may possibly be looking at a future where pandemics and epidemics become a part of life and health takes the centre stage in public policy and even, election campaigning, dare I say that. We will have to learn to live with the virus is the new eternal but bitter truth. I might be sounding silly here, but, health care would finally seem to take precedence over all other key issues and is slowly but surely and steadily going to get its legitimate due, very soon. As dentists and more importantly, as health care professionals we have to play our part in preparing our patients for this new reality. It was said a few years back that the World War III will not be fought with weapons; isn’t that ‘prophecy’ coming true in this COVID-19 era when thousands (rather, lacs) of people all over the world are dying for without any fault of theirs.

Click here to read Part 1 of this series

Part 2 begins...

REVENUE/CHARGING

I would suggest that Pareto’s principle of 80–20 is all set to play a bigger role in our dental clinics also, as it does in most spheres of business and life. I am not going to go into the intricate details of this principle, per se for lack of space. The understanding of the charging part begins from the breakdown of our income from our record-keeping setup.

Do we have to first analyze where does the majority (80%) of our clinic come from?

Which services are the most predominant ones contributing to our revenue, primarily in the clinic (80%)?

One can be a Periodontist but earning may be coming mostly from crown and bridge. The start, thus, has to be from the minute aspects.  So, have a breakdown first to arrive at those services which contribute to the 80% income category (believe me, those will be just a handful) and those falling in the 20% income contribution (they would surely be a lot in number) category. Let us assume that you have arrived at a figure that your overall costs are going to increase by 25% as increased costs.

So, how do you decide the raise?

Do you make a raise in all services in the clinic?

The answer would be a No.

This is a world of smartphones, thus, smartness is expected in this smart age as well from us.

We don’t have to raise all our services by the escalated charge but just the handful of those services contributing to our 80% revenue.

A simple formula would be to increase 25%–30% in the 80% contribution category services and 10%–15% in the services of 20% category so that your average cost increase still comes up to almost 25%.

I believe this should be the basic formula to start with after resumption of dental services and as we arrive at the exact percentage increase in costs after 2–3 months of working, the tweaking can then be done accordingly based on the actual numbers. Some amount of raise in consultation fees is also desirable; although not on the exorbitant side would be the suggestible part by me.

Raising every service by 25%–30% sends across a wrong message to your target group as well.

I will demonstrate the above via a few examples (different scenarios) below.

 

Scenario 1

Assume the average revenue (gross collection/income) per month of an XYZ clinic is Rs. 1 Lac.

The Clinic Expenses/Overheads are generally presumed in the range of 50% – Rs. 50,000.

Thus, Carry Home Net Income is also in the range of 50% – Rs. 50,000 (Rs. 1,00,000 – Rs. 50,000).

Assume the enhanced expenses are in the range of 25% increase – Rs. 12,500 (25% of Rs. 50,000).

Total expenses then becomes Rs. 50,000 + Rs. 12,500 = Rs. 62,500.

If you don’t increase the charges, your carry Home Net Income would be down to 75% – A fall of 25% – Rs. 37,500 (Rs. 1,00,000 – Rs. 62,500).

The above is in case of the same revenue being generated in immediate post-COVID –19 scenario which is highly unlikely to happen, at least immediately.

 

Scenario 2

Let us presume a situation where the monthly revenue or gross collection falls by 25% – a highly likely possibility.

Assume the average revenue (gross collection/income) per month of an XYZ clinic NOW post COVID–19 is down by 25% from Rs. 1 Lac to Rs. 75,000.

The Clinic Expenses/Overheads are in the range of 50% – Rs. 37,500.

Add your enhanced expenses which are in the range of 25% increase – Rs. 9,375 (25% of Rs. 37,500) – let us round it off to Rs. 9,500 for ease of calculation.

Total expenses is Rs. 37,500 + Rs. 9,500 = Rs. 47,000.

So, if we don’t raise our charges, our carry Home Net Income would come down to 56% – A fall of 44% – Rs. 28,000 (Rs. 75,000 – Rs. 47,000).

Imagine for a 25% fall in income, our carry home will reduce by 44%.

 

Scenario 3

Let us presume a situation where the monthly revenue or gross collection falls by 33% – quite a possibility.

Assume the average revenue (gross collection/income) per month of an XYZ clinic NOW post COVID–19 is down by 33% from Rs. 1 Lac to Rs. 67,000.

The Clinic Expenses/Overheads are in the range of 50% – Rs. 33,500.

Add your enhanced expenses which are in the range of 25% increase – Rs. 8,375 (25% of Rs. 33,500) – let us round it off to Rs. 8,500 for ease of calculation.

Total expenses is Rs. 33,500 + Rs. 8,500 = Rs. 42,000.

So, if we don’t raise our charges, our carry Home Net Income would come down to 50% – A fall of 50% – Rs. 25,000 (Rs. 67,000 – Rs. 42,000).

Imagine for a 33% fall in income, our carry home will reduce by 50%.

 

Scenario 4

Let us presume a situation where the monthly revenue or gross collection falls by 50% which is although a remote possibility but not unlikely.

Assume the average revenue (gross collection/income) per month of a XYZ clinic NOW post COVID-19 is down by 50% from Rs. 1,00,000 to Rs. 50,000.

The Clinic Expenses/Overheads are in the range of 50% of above – Rs. 25,000.

Add your enhanced expenses which are in the range of 25% increase – Rs. 6,250 (25% of Rs. 25,000) – let us round it off to Rs. 6,500 for ease of calculation.

Total expenses is Rs. 25,000 + Rs. 6,500 = Rs. 31,500.

So, if we don’t raise our charges, our carry Home Net Income would come down to 37% – A fall of 63% – Rs. 18,500 (Rs. 50,000 – Rs. 31,500).

Imagine for every 50% fall in income, our carry home will reduce by 63% (Alarming).

 

SOLUTION – The Coveted Formula – for Mr India(n) Dentists

You have to plan to increase via Pareto principle phenomenon:

1. 80% of paying services (although handful in number) escalated by 25%–30% (average 27.5%) – the average raise contributing to output is 22%.
2. 20% of services (a bigger lot in number) escalated by 10–15% (average 12.5%) – the average raise contributing to output is 2.5%.

So, adding up the 2 above 22% + 2.5% = 24.5% or close to 25% increase in revenue.

 

Scenario 5

Now, let us apply the above solution in Scenario 1 mentioned above.

Assume the average revenue (gross collection/income) per month of a XYZ clinic is Rs. 1 Lac.

If now, raising the charges by applying the above formula of 24.5%.

Enhanced Revenue now after raise – the revenue becomes close to Rs. 1,25,000 (rounded off from Rs. 1,24,500).

The Clinic Expenses/Overheads are in the range of 50% (of the original income before raising costs) – Rs. 50,000.

Adding enhanced expenses which are in the presumed range of 25% increase – Rs. 12,500 (25% of Rs. 50,000).

Total Expenses – Rs. 62,500 (Rs. 50,000 + Rs. 12,500).

Carry Home Net Income Now would be plus by 25% as well to 125% – Rs. 62,500 (Rs. 1,25,000 – Rs. 62,500) – A raise in carry home amount.

This is in case of the same revenue being generated in post-COVID –19 scenario which is not a possibility, at least in immediate future.

Imagine if the revenue generated is the same, but with a raise in charges selectively and with increased costs as well post Covid-19, our carry home amount will rise by 25%.

 

Scenario 6

Let us take up a different scenario and expect the monthly revenue or gross collection to fall by 25% – a highly likely possibility.

Now, let us apply the above solution in Scenario 2 mentioned above.

Assume the average revenue (gross collection/income) per month of an XYZ clinic NOW post COVID-19 is down by 25% from Rs. 1 Lac to Rs. 75,000.

If we apply the same Pareto principle system of charges raise as done above – apply the 24.5% or 25% to our revenue.

Addition of 25% (average enhanced charges) to Rs. 75,000 = Rs. 93,750 – rounding it off to Rs. 94,000 for ease of calculation.

The Clinic Expenses/Overheads would also still be in the range of 50% (of the original income before raising costs) – Rs. 37,500.

Add your enhanced expenses which are in the range of 25% increase – Rs. 9,375 (25% of Rs. 37,500) – let us round it off to Rs. 9,500 for ease of calculation.

Total expenses is Rs. 37,500 + Rs. 9,500 = Rs. 47,000.

Carry Home Net Income now in this case with a 25% dip in revenue would be down to 94% – A fall of only 6% – Rs. 47,000 (Rs. 94,000 – Rs. 47,000).

Imagine for a 25% fall in income, but with a raise in charges selectively and with increased costs as well post Covid-19, our carry home amount will reduce by just 6%.

 

Scenario 7

Let us take up a different scenario and expect the monthly revenue or gross collection to fall by 33% – quite a possibility.

Now, let us apply the above solution in Scenario 3 mentioned above.

Assume the average revenue (gross collection/income) per month of an XYZ clinic NOW post COVID-19 is down by 33% from Rs. 1 Lac to Rs. 67,000.

If we apply the same Pareto principle system of charges raise as done above – apply the 24.5% or 25% to our revenue.

Addition of 25% (average enhanced charges) to Rs. 67,000 = Rs. 83,750 – rounding it off to Rs. 84,000 for ease of calculation.

The Clinic Expenses/Overheads would also still be in the range of 50% (of the original income before raising costs) – Rs. 33,500.

Add your enhanced expenses which are in the range of 25% increase – Rs. 8,375 (25% of Rs. 33,500) – let us round it off to Rs. 8,500 for ease of calculation.

Total expenses is Rs. 33,500 + Rs. 8,500 = Rs. 42,000.

Carry Home Net Income now in this case with a 33% dip in revenue would be down to 84% – A fall of only 16% – Rs. 42,000 (Rs. 84,000 – Rs. 42,000).

Imagine for a 33% fall in income, but with a raise in charges selectively and with increased costs as well post Covid-19, our carry home amount will reduce by just 16%.

 

Scenario 8

Let us take up a different scenario and expect the monthly revenue or gross collection to fall by 50% which is a remote possibility although not unlikely.

Now let us apply the above solution in Scenario 4 mentioned above.

Assume the average revenue (gross collection/income) per month of an XYZ clinic NOW post COVID-19 is down by 50% from Rs. 1 Lac to Rs. 50,000.

If we apply the same Pareto principle system of charges raise as done above – apply the 24.5% or 25% to our revenue.

Addition of 25% (average enhanced charges) to Rs. 50,000 = Rs. 62,500.

The Clinic Expenses/Overheads would also still be in the range of 50% (of the original income before raising costs) – Rs. 25,000.

Add your enhanced expenses which are in the range of 25% increase – Rs. 6,250 (25% of Rs. 25,000) – let us round it off to Rs. 6,500 for ease of calculation.

Total expenses is Rs. 25,000 + Rs. 6,500 = Rs. 31,500.

Net Carry home profit in this case with a 50% dip in revenue would be down to 62% – A fall of 38% – Rs. 31,000 (Rs. 62,500 – Rs. 31,500).

Imagine for a 50% fall in income, but with a raise in charges selectively and with increased costs as well post Covid-19, our carry home will reduce by 38%.

 

Bottomline

So, even if the revenue falls by 33% or 50%, the dip in carrying home income won’t be that substantial if we stick to Pareto principle system of raising charges selectively in our practice. It also conveys a message that hiking all types of pricing in general for all the services of a dental clinic is not going to serve much purpose especially those services which we are not doing much in our practice anyways. The aim should not be to send across a message that we have hiked charges exorbitantly to our target group rather that we are offering latest facilities following the strictest guidelines and protocols in the form of value addition and all that comes at a price escalation (in only a few services). Thankfully, we don’t have to explain the same as most people are learned in that sense of education vis-à-vis the awareness on TV news channels and internet currently regarding enhanced safety protocols. ‘Seeing is believing’ these days and when they see the same, they will pay accordingly keeping their safety paramount and also spread the view about you. There is an adage very commonly used in marketing – If you can’t convince them, then confuse them.

Summary of the Charging part

We have to genuinely think that the baseline of the above system of raise was record-keeping and further segregation as to where does the 80% income come from, which is not followed meticulously in most of the small to middle-level clinics in India, although it is mandated to be diligently resorted to as per the Dental Council of India regulations, Revised Guidelines 2014. So, that should be the first step to start after the lockdown for most dental clinics conscientiously post Covid-19. Realistically, the other uncommon way of calculating the same in such clinics is via their lab bills. Most small to middle-level clinics have their majority income (60%–80%) courtesy lab work and for this usually, Kacha (informal) lab bills are retained by them for calculation which can serve as a baseline for above calculations and serve as a roadmap for them.

 

The Catch

The first catch here is that I have taken expenses as 50% average whereas, in reality, it might be 30%–40% or 60%–70% (less or more). Secondly, I have kept the average carry home fixed at Rs. 50,000 and made the calculations of increase or decrease assumptions accordingly. Thirdly, with every percentage fall in revenue, I have proportionately reduced the expenses/overheads in accordance with a decrease in income whereas in actuality, some fixed expenses may still be there which are fixed and not reduced and only the variable expenses are reduced. The reason for doing so in the manner as mentioned above was that if my calculations were difficult taking fixed and variable expenses separately, the same would have gone like a bouncer from the head of most of the reading dentists. After all, most of us opted for Medical in 10+1 standard for the fear or hatred for Mathematics. My basic idea was to put across the simple calculation that identifies with the hoi-polloi of the dentist population. If I opt for the real-time calculations for a standardized clinic, the actual figures will be skewed a lot more and the carry home will decrease more. I fully understand, however, that each clinic is unique and has different resources, so the best answers are known by the one who handles those. My basic aim is just to give a road map for calculation for the above. The rosy picture or the saving grace in my above examples is that I have taken the figures of revenue on the higher side (Rs. 1 lac) and expenses at almost 50% range (Rs. 50,000) and which will genuinely not be affected the great deal with a rise or fall of revenue (if resorting to fixed–variable costing type calculation) as shown in 8 scenario examples above as most small to middle clinics would slot more or less in this range only. The variation would come if the clinic size is really small and revenue on the much lesser side than the average shown in examples above. The parity of this formula would then be tough to justify over there and other ways and means would have to be resorted to, for the same.

So, this was a small attempt to demonstrate revenue or charging part.

What about expenses and overheads?

In a survey done very recently amongst dentists of mixed group online, there were many stark findings noted. Although they can in no way be a general opinion of the dentists, still can serve as a road map for many of us who fall in such categories.

1. Around 40% of the dentists who answered were from Tamil Nadu and the next big chunk from Andhra Pradesh (19%).
2. Majority participants were between the age ranges of 25-42.
3. Majority of private clinics were governed by local municipality or corporation.
4. Majority of dentists were private practitioners.
5. At least 50% of dentists were not post-graduates.
6. A very high percentage of all dentists were general practitioners.
7. A very high percentage of dentists were stand-alone practitioners.
8. A huge majority had either one or a two-chair practice.
9. A big percentage of dentists had either one or two assistants in their practice.
10. A big percentage of dentists had either one or two associates in their practice.
11. The size of most clinics ranged from 150 Sq. feet to 2,000 Sq. feet.
12. Almost 2/3^rd of the clinics were in a rented place.
13. A very high percentage of the dentists (78%) were charging consultation (without X-ray) from Rs. 100-200.
14. Around 32% of dentists were charging consultation (with X-ray) from Rs. 100-200 and around 47% were charging consultation (with X-ray) from Rs. 200-400.
15. Around 53% of dentists were charging less than Rs. 500 for a simple extraction whilst around 38% were charging between Rs. 500-1,000 for the same.
16. Around 38% of dentists were charging between Rs. 1,500-2,000 for a regular impaction of third molar whilst around 35% were charging between Rs. 2,000-3,000 and around 20% above Rs. 3,000 for the same.
17. Around 52% of dentists were charging between Rs. 750-1,000 for a Class-I Silver Amalgam restoration whilst around 47% were not doing it altogether.
18. Around 74% of dentists were charging between Rs. 750-1,000 for a Class-I Composite restoration and around 14% between Rs. 1,500-2,000 whilst around 11% were not doing it altogether.
19. Around 52% of dentists were charging between Rs. 1,500-2,500 for a RCT (Anterior/posterior) and around 30% between Rs. 2,500-3,500 for the same.
20. Around 67% of dentists were charging between Rs. 500-1,000 for a Scaling (Ultrasonic) and around 22% between Rs. 1,000-1,500 whilst around 11% were not doing it altogether.
21. The average PFM charges for 59% were below Rs. 3,000 and around 33% were charging between Rs. 3,000-6,000.
22. The average Zirconia charges for 38% were between Rs. 3,000-6,000 and around 39% were charging between Rs. 6,000-8,000.
23. The average Complete Denture charges for 52% were between Rs. 10,000-15,000 and around 33% were charging between Rs. 15,000-25,000.
24. The average Single Dental implant case with a PFM Crown charges for 38% were between Rs. 20,000-30,000 and around 29% were charging below Rs. 20,000.

The interesting part below this when asked how many of you will invest for gadgets and which ones post Covid-19?

25. The graphics:
    1. No Investment – 5%
    2. High Volume Suction – 38%
    3. Hepa filters – 38%
    4. Extra-Oral Suction – 49%
    5. PPE – 87%
    6. Fumigation Machine – 63%
    7. The rest upgrades were desirable as negligible (less than 1%)

 

Thus, all these above will be leading to an increased costing in dentistry in coming times. The initial investments will increase, along with running expenses (consumption) along with overheads.

How to deal with that?

Let us discuss further.

 

 (To be Continued ...in Part III)

 

 REFERENCES

1. https://www.amboss.com/us/knowledge/Principles_of_medical_law_and_ethics
2. https://www.bookkeepingfordentists.com/post/how-to-calculate-dental-office-overhead
3. https://blatchford.com/resources/dental-practice-management-articles/three-ways-to-better-manage-overhead/
4. https://www.cda.org/Home/News-and-Events/Newsroom/Article-Details/return-to-practice-roadmap-for-dentists-in-post-covid-19-pandemic
5. http://www.contempclindent.org/article.asp?issn=0976-237X;year=2018;volume=9;issue=1;spage=97;epage=104;aulast=Kemparaj
6. https://www.dentalcare.com/en-us/practice-management/collections/how-to-run-a-dental-office-and-control-spend
7. https://www.dentaleconomics.com/money/article/16388539/getting-on-the-fast-track
8. https://www.dentaleconomics.com/practice/overhead-and-profitability/article/16393116/you-choose-your-overhead
9. https://www.dentaleconomics.com/practice/article/16389638/gross-profit-margin-an-underutilized-tool-in-managing-profitability
10. https://www.dentistryiq.com/practice-management/financial/article/14040333/understanding-profit-in-the-dental-practice
11. https://www.dentistryiq.com/practice-management/financial/article/16365707/des-business-lab-video-part-2-how-to-calculate-dental-practice-overhead
12. https://www.dentistrytoday.com/news/todays-dental-news/item/3292-understanding-overhead-in-the-dental-practice
13. https://docs.google.com/forms/d/e/1FAIpQLScYOsy6RSjzWsGTQ-34zO1wEpE2cgZkU3s8H4WDNq6PlQubMQ/viewanalytics
14. https://www.healthsystemtracker.org/brief/how-health-costs-might-change-with-covid-19/
15. http://www.jeed.in/article.asp?issn=0974-7761;year=2012;volume=2;issue=2;spage=65;epage=68;aulast=Sridharan
16. http://www.jofs.in/article.asp?issn=0975-8844;year=2016;volume=8;issue=2;spage=128;epage=134;aulast=Kesavan
17. https://www.nature.com/articles/s41415-020-1482-1
18. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5863419/
19. https://www.ncbi.nlm.nih.gov/pubmed/29599593
20. https://nexacollect.com/debt-recovery/dental-office-overhead/
21. http://oxfordmedicine.com/view/10.1093/med/9780199600830.001.0001/med-9780199600830-part-1700

 

Author:

Dr Bhavdeep Singh Ahuja graduated in 1998 from Punjabi University, Patiala. He has specialized in Implants from BioHorizons Inc. USA in 2004-05 & in Advanced Course from LACE-ICOI, USA in 2006. Apart from Dentistry, he holds a Triple M.B.A. in Hospital Management, Finance/Human Resources (dual) & Marketing from three premier Institutes/Universities of India viz. the IIMM Pune, IGNOU Delhi & Annamalai University, Chennai respectively. He also holds Post Graduate Diploma’s in Medical Law & Ethics (NLSIU - Premier LAW School of India), Clinical Research, Cyber Law, IPR's (Intellectual Property Rights), Disaster Management, Financial Management, Bioinformatics amongst many more from different Universities. He is a Certified Health Care Waste Manager from IGNOU & is qualified in Consumer Law as well. He is an academically oriented dentist & has more than 75 Original Scientific Publications to his credit in many International & National journals. He lectures all over India extensively on the topics of Practice Management, Medical Law, Ethics and Consent and Finance for Dentists and he is writing a series on all these topics in multiple journals simultaneously. He has been the Past Editor-in-Chief, L.E.D. E-Journal & PAGE 3 OLA-D E-Newsletter, the twin Publications of IDA Ludhiana Branch. Presently, he is into his 21st year of Clinical Private Practice in Ludhiana, Punjab.

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