Strategies to control labor costs in your dental practice

Now more than ever, dentists need to take steps to reduce labor costs

How Dentists Can Reduce Costs

Reprinted with permission from The McGill Advisory

Facing slow practice growth, increased managed care penetration, and rising overhead, doctors must be more business savvy to maintain profitability. Far fewer practices are giving annual pay raises, and more are implementing our recommended collections-based bonus plans to reward staff. Here we discuss additional strategies to control doctors’ largest overhead expense — staff costs — gleaned from our recent reader survey.

How Dentists Can Reduce Costs

Our reader survey on controlling staff labor costs drew responses from more than 400 of our family of nearly 8,000 top-tier dental practices. We recently discussed how a stunning 72% of doctors had eliminated automatic across-the-board staff pay raises. Fortunately, 33% had added a bonus plan based on increased collections to reward staff.

Here are the other top strategies recommended by our readers:

1. Reduce staffing levels –
When practices experience turnover, many attempt to maintain production without replacing the employee, or by replacing a full-timer with a part-timer. Fewer practices reduced the number of employed staff during the past 12 months (22% versus 35% in 2010), and most who cut staff did so through attrition (56%), layoffs (15%), or both (29%). Are you unsure about your optimal staff size? General dental practices should maintain one full-time equivalent (FTE) staffer for every $170,000 of collections, while specialists should average one FTE for every $200,000 of collections.

2. Increase use of part-timers – Savvy practices are using part-time staff to meet times of peak production demand rather than maintaining excessive staffing levels during slow times. Part-time employees usually have higher productivity per hour since they are drawn from a higher quality labor pool, and doctors who employ them can avoid fringe benefit and retirement plan costs.

3. Pay hourly rather than salary – Federal wage and hour laws require that most employees (except those in supervisory management roles) be paid hourly. Complying with the law by switching from salary to hourly pay also means that employees are paid only for the time they actually work, which results in significant labor savings. Fortunately, a record 84% of doctors are now paying hourly, only 13% are still paying on a salary basis (down from 29% in 1998), and 3% have both salary and hourly paid employees.

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4. Reduce clinical hours based on production – More doctors than ever before are adjusting staffing levels and employee hours based on production levels. In some cases they are reducing clinical hours during periods of low demand, or maintaining the same hours but reducing clinical staffing.

5. Eliminate overtime – Doctors are working hard to eliminate overtime through improved scheduling. Staggering work schedules with some employees starting early and leaving early, and others starting later and leaving later has reduced overtime. Most practices also avoid “voluntary” overtime by requiring the doctor’s advance approval.

6. Coordinate doctor and staff vacation time – Efficient practices require staff to take vacation days when the doctor is off and not seeing patients. This allows them to maximize productivity with full staffing when the doctor is working.

7. Cross train – Doctors are eliminating temporary labor needs when employees are absent due to illness, vacation, continuing education, etc., through cross training employees for different positions.

8. Reduce staffing when office is open but not treating patients – While virtually all practices have at least one staff member working when the office is open but not treating patients, virtually all practices are reducing costs by eliminating clinical staff labor on days when patients are not being treated.

9. Improve treatment efficiency (orthodontic practices) – Most orthodontists are now completing clinical treatment over shorter time periods and with extended intervals between visits, and this has reduced the number of visits required to complete treatment by 25% or more. As a result, many orthodontists are overstaffed and just beginning to reduce clinical staff costs by scheduling clinical assistants at one assistant per 16 patients seen.

10. Outsource payroll – Many practices are cutting labor costs by using a third party payroll service, and reducing the hours of highly paid office personnel who would otherwise handle this task. 64% of doctors are now following our recommendation in this area, up from 55% in 2010 and 47% in 2003.

11. Move to a longer payroll cycle – Since no one pays the practice to run payroll, doctors can reduce costs by moving to a longer payroll cycle. While most practices still pay every two weeks (54% down from 58% in 2010), more are switching to twice per month (35% up from 32%), which eliminates two payrolls per year and avoids profit distortions in months with three payrolls. Hopefully more doctors will switch to our recommended monthly payroll cycle, with a mid-month loan available to cash-strapped staffers.

12. Monitor and record staff hours – Savvy doctors have reduced labor costs by making sure that staffers don’t come in too early or stay too late to boost their hours and pay. These practices have a policy that employees come in no sooner than 15 minutes before the first patient and leave no more than 15 minutes after the last patient to eliminate these extra costs. Furthermore, more practices now require employees to clock in and out using a time clock on their computer system, which typically cuts labor costs by more than 5%.

13. Outsource patient financing – Many practices have reduced their front desk labor costs by maximizing payment in full at the time service is rendered, by outsourcing financing through third parties, and by limiting in-office payment arrangements to automatic bank draft or automatic credit card charge to minimize billing and collection activities.

14. Reduce staff retirement plan costs – A few doctors have shut down their retirement plans to cut costs. Unfortunately, few doctors can reach their financial goals without funding retirement plans to the maximum. Accordingly, doctors should maintain plan funding but reduce staff costs through using a 401(k) profit sharing plan, where a portion of the contributions come from staff members’ pay. Doctors age 40 or older with a younger staff can also use an age-weighted/cross-tested 401(k) profit sharing plan and/or defined benefit plan in order to maximize contributions for the doctor’s family while minimizing staff funding costs.

15. Reduce staff medical insurance costs – As a result of rising premium costs and the complexities of Obamacare, some doctors have terminated staff health insurance coverage. However, the vast majority have maintained coverage but increased deductibles or the percentage of the premium paid by the employee in order to hold down costs. While in the past some practices dropped staff medical insurance entirely due to rising costs and substituted a fixed cost medical expense reimbursement plan (MERP), this option is no longer available under Obamacare.

This article was reprinted with permission from The McGill Advisory, a monthly newsletter with online resources devoted to tax, financial planning, investments, and practice management matters exclusively for the dental profession, published by John K. McGill & Company, Inc. Visit mcgillhillgroup.com, or call 888-249-7537 for further information.

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