Are you noticing a recent disturbing drop in your Production/Collections/Net? Are you in a conundrum about accepting patient insurance in general? Do you feel a need to accept other types of insurance to maintain your practice? Are you perplexed about how that may affect your practice? If so, maybe this pearl can help you make the best decisions.
The orthodontic economy, trying to recover form the 2008 depression, has shown much improvement over the last five years. Unfortunately, this past year (2018 election year) patients have been hesitant about starting treatment, as usual. Starts usually drop in the last 4-6 months of a major election year, but then go back to the usual the next year. Because of this situation, many orthodontists have been considering other sources of referral and income, namely, orthodontic insurance.
There are essentially three types of orthodontic insurance:
1) Insurance pays part of the total fee and the patient pays the balance
2) The insurance company guarantees the patient a lower fee (% wise) when you join
3) The insurance company pays you a set amount per start
Type-1 insurance pays the practice or the patient a specified amount per start (typically $1,000 to $3,000). This is by far the most prevalent insurance coverage and typically accounts for about 65% of new patient starts.
Type-2 insurance involves being a “preferred provider” who is referred patients, but who must charge them 20-25% less for treatment. Some practices add on minor treatments (lip bumper, etc.) to get a higher fee. This accounts for about 0-20% of insurance starts, but some practices accept many more of these types of starts.
Type-3 insurance companies pay you a flat $ amount per start. This amount is typically thousands lower than your usual fee; and in the case of “managed care plans” it pays you even less. Some practices only use this insurance to start 12-18 month cases since the Full Tx Fee paid is the same no matter how long it takes. This accounts for about 0-10% of insurance starts, but some practices accept many more of these types of starts.
Accepting Type-1 insurance has many benefits with little loss, but accepting Type-2 or Type-3 insurance has its losses. For example, consider a practice with an average $6,000 Comprehensive Tx Fee for about 150 Full Starts/year, gross collections of $1M/year, and a 45% net ($450,000/year). Type-1 insurance does not change these numbers.
Accepting Type-2 insurance would pay you about $1,500 less/start and thus, if you do 10 starts/year (of your 150 comprehensive starts) you reduce your collections and net by $15,000/year: this is not too bad if you are loosing patients who have this type of insurance. But if you start 30 starts/year you reduce your collections and net by $45,000/year; which may be significant. And of course, if your net is only 35% ($350,000/year) a $45,000 (13%) drop in your net is significant.
Looking at it more positively, many doctors think: “I’ll can start more than my usual 150 Comprehensive Tx patients if I accept this new insurance, increasing my gross and net”. Thus, if you accept an additional 30 starts/year at $4,500/start you will increase your gross by $135,000 (and net by $110,000) but increase your chairtime Tx by 20%, requiring 20% more staff and supplies. If you are capable of that growth with your present staffing and facility, then great: if not you may make your days more hectic possibly losing your full fee paying patients because of it. Basically you will treat 20% more chairtime for 11% more net.
Accepting Type-3 insurance would be similar to Type-2 insurance above if they pay you $4,500/start. But if they only pay $4,000/start your collections and net will suffer. For 10 starts/year (out of your 150 Comprehensive starts) you would loose $20,000, reducing your 45% net to $430,000. For 30 starts/year you would loose $60,000, reducing your 45% net to $390,000. If your net were only 35% your net would be reduced to $330,000 or $290,000 respectively; a big loss.
Of course if you take on an additional 30 comprehensive starts/year your gross will increase by $120,000 (and net by $100,000) for the extra 20% increase in staffing and supplies. Basically you will treat 20% more for 12% more gross and 10% more net. But you need to be careful.
Once you start accepting these flat fee starts you may tend to do less ads and promotion and end up with a practice that is half full fee and half flat fee. In the example above you would loose 75 x $2,000 = $150,000 reducing your $450,000 net to $300,000 or reduce your $350,000 net to $200,000.
Accepting Type-2 or Type-3 insurance gets down to three factors:
1) Is your present % NET at least 40% and will any $ drop in your net affect your lifestyle?
2) Are these lower-fee starts going to replace or enhance your present starts? Enhance is good, but replace is not.
3) If enhancing your starts, will you be able to take on the extra chairtime treatment with your present staffing?
Use the above examples and do the math for your practice to decide which direction you want to go in if you are considering taking on lower fee insurance plans. Thank you
