The rising costs in oral healthcare – Time to reboot & reset clinics for economics (Part 3)
COVID-19 is having an unprecedented impact on the global economy, including that of the dental industry. Most dental clinics are shut and a few are offering only the emergency services. Dr Bhavdeep Ahuja will analyse "the rising costs in the oral health care services and how to reboot and restart the dental clinics" in his 5 part series. "Expenses – A Small Leak will Sink a Great Ship" - is the third article of the series.
(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)
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.
Part 3 begins...
The Facebook dentistry approach to dentistry too will have to be shunned away to indulge in an impulsive buy just because of the FOMO (fear of missing out) approach. We have to closely examine each category of expenses of the clinic and see where the mistakes are being committed and under which sector. We would also have to look at our material buying pattern (consumption wise) and the ones we bought in the hope of a good discount in the garb of bulk buying but due to lack of consumption, they ended up being expired and rather became a loss-making facet for us in the longer run. All such bargain buys will have to be eliminated from future purchases. The demand in the post-COVID-19 era will have to be re-estimated and the spending channelized accordingly in that direction.
Will, there be any newer equipment needs, be it a fumigator, HEPA filter, fogging machine or a negative ion generator etc. or where does the buck finally settle on, only time will tell?
There will be refills also needed for the above equipment along with the other necessary purchases for wiping, cleaning, sanitizing along with the PPE part which is going to be the most expensive out of all. The target group (patients) purchase power will surely need to be evaluated when the need to order anything arises. An optimum balance will have to be maintained for future buying, of course.
Inventory Control, thus, acquires assumingly more importance in times to come.
Unless the above is done, the balance sheets would start to appear as bleeding ones (continually in red) and dentistry won’t be as lucrative as a profession as it really should have been.
This is bad if this happens at all.
Because after all, a Dentist decides how a person smiles!
The cost-revenue-expense is a jigsaw puzzle which will need to be solved very soon by all of us lest we should not drift into a loss zone. As I discussed above, applying the Pareto principle styled price raise in charges in our dental clinics and with that, even if there is a drop in the sales, the loss in carrying home income won’t be much.
Let us now just see the numbers below for costing as an example in a table below for a normal dental clinic setup which is moving with changing times:
|Average Monthly Gross Collection||Figure Assumption||2,00,000
|S. No.||Over Head Name||Monthly Costs – Amount||Expenses Percentage Contribution|
|4.||Occupancy expenses like rent, office utilities, repair and maintenance, office furnishings||10,000||5%|
|5.||Administrative costs (Depreciation, accounting, licenses, dues, telephone, internet, website renewal etc.)||10,000||5%|
|7.||Personal improvement via continuing education||14,000||7%|
|TOTAL Monthly Overhead||1,00,000||50%|
(Table Source: Dr. Bhavdeep Singh Ahuja)
The above is one way of calculating the expenses. The title and content from serial number 5-7 may vary but the amount may remain the same. As per the above table, the overheads are in the range of 50% and the carry home net amount is Rs. 1 Lac (out of gross 2 lacs). Another way can be by looking at the balance sheet or the Income & Expenditure sheet filed by our CA’s. The easiest way is to have a look at the various overhead categories and understand your income and expenditure account aka the profit and loss statement (see image below) of the previous financial year along with a similar expense sheet of the current financial year’s first or second quarter. These expenses, naturally, will indicate a loss of our profits, which in hindsight, will determine what causes us greatest overheads. These ones are needed for an easy reference and help us reduce our fretting about our profit and loss, in general, and expenses (overheads) in specific. Rent, bills, materials and inventory are a few aspects which may not be first on our list of concerns in our busy OPD of treating patients, but overhead is a key factor in any business and dentistry is by no means, an exception.
(Image Source: Dr. Bhavdeep Singh Ahuja)
We as dentists need to understand all the different categories of overhead, how to calculate them and then decide on how, when and which way to make adjustments in post-COVID-19 times. We have to remember that every clinic is a unique one and will have a different set of costs and charges even if it is situated adjacent to a neighbouring dentist in the same locality in the same area with the same number of chairs and staff members. Once we understand the average monthly costs and the corresponding revenue, making a successful financial model for our practice becomes a cakewalk for us.
How to calculate your overhead costs is a question that will have to be answered if we want to end up in Green zone (profit). All too often, dentists are often in the dark regarding what their overhead is, speaking in a category by category basis. It is really important to analyze monthly overhead in categories, get feedback from our CA or any financial expert (you trust) continually to identify opportunities to decrease expenses. Calculating your dental clinic overhead can be intimidating sometimes, but as soon as we lay out the groundwork, we can look forward to decreasing it.
The bottom line is pretty much simple – a limited overhead means a larger take-home income from our dental clinic, whether one is a solo practitioner or working with a team.
The best way to decrease overhead is to have strong systems in place. It is worthwhile to create a working system for both professional needs as well as personal ones for the dental clinic. One should have a proper form of accounting process to keep track of the profit and loss. A system is a “standard operating procedure” (SOP) that the team does repetitively and is documented so each person can easily do the job. Without the above in place, decreasing the overheads surely seems to be one bumpy ride. Just see the categories listed in there (see image above); dental materials, dental lab, municipality taxes, water sewerage, electricity, printing, stationery etc. Each of these categories represents a different form of overhead, with some more important than others. Unless we list them down, analyze and evaluate, it won’t be clear where we need to make some cutbacks. Such templates made time and again will surely carve out a better path for future giving us a direction as to where we need to head straight whenever the system goes overboard the next time and make a re-calculation. We have to understand if the clinic overheads are in the range of 50% (on an average, presumed), it means we take home Rs. 50 of every Rs. 100 that comes in the clinic and God forbid, if the revenue goes down by 20% (I am supposing the bare minimum immediately post Covid-19), the take-home will reduce drastically by 40% which is a significant drop (a differentiation from what I discussed in the charging part – the costs remain the same mostly). When times are good, a 50% net is certainly acceptable, but we may be, can deliver excellent care with a 55% overhead.
So, why not operate at a much lower overhead when times are tight, we are still feeling rewarded?
Overhead is sometimes, a choice of how to operate. Thus, it is important to understand that there are two types of expenses: Fixed and Variable. Fixed expenses are those over which you have little to no control and can’t be changed regardless of whether or not the practice is open or closed, like for example, rent, salaries, bills like electricity, water, sewerage, telephone etc. The variable expenses are those which often change based on the volume of patient care, like for example, lab bills, materials (consumption pattern), higher electricity bills (increased use of AC especially in North India). Well, the more lab work we have, higher will be the lab costs, but interestingly, an increase in lab costs more or less always represents an increase in output and revenue, something that we would always strive for. Staff overhead is one overhead which becomes overloaded in established clinics usually.
Have we wondered why?
They get a raise every year for being loyal from the dentist for retention purposes and incentive as well. As the longevity increases, they are at a salary well above the prevailing market rates even though both the dentist’s income and practice revenue might be increasing but not proportionate to the raise or were stagnant or maybe even declining. The situation is a Catch-22 one; you can’t ditch your staff and you can’t downgrade the salaries (pay them less) as well. Thus, the solutions can be only two – either the income increased (highly unlikely in immediate post-COVID-19 era) or decrease in the overheads other than salary.
I would recommend that we shift to an incentive system for staff for the current and next year till routine income and regular OPD normalizes for the clinic so that some financial burden can be taken care of easily and I am sure, the staff is also gonna understand the same in such testing times. The decrease in overheads other than salary would come only from a decrease in supplies of materials and inventory which were always in the wish-list courtesy social media dentistry and a strong urge to copy each other. We shall have to see, discuss and brainstorm amongst our staff, with a few like-minded colleagues and with suppliers about best options for purchasing, pricing and volume discounts. We have to make sure that a volume discount is always a divisible option amongst multiple colleagues and we should not indulge in panic buying and hoarding of the armamentarium and block cash.
Why do I say that?
Considering the procurement of the entire annual inventory, it is always better to procure the item in small consignments as possible, but that will mean a large number of orders & more ordering costs. Therefore, there is a particular quantity at which the sum of both the ordering & inventory costs is the least & this is called economic order quantity. The quantity at which both purchase cost and the carrying costs are minimum/optimum is known as economic order quantity. Here purchase cost is the actual cost of material whereas carrying cost is composed of cost of money, cost of storage, cost of shelf-life, cost of additional manpower, cost of obsolescence (expiry), cost of deterioration and cost of pilferage. The purchase cost and carry cost oppose each other.
(To be Continued ...in Part 4)
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.