Transitioning from Insurance Participation to More of a Fee for Service Model

With the proper dental marketing plan, this is NOT a scary transition!

Transitioning to a fee for service dental practice

From this dental marketing guide, you will learn:

  • How and when to use insurance participation to market your practice
  • How to know when it is time to transition to more of a fee for service model
  • How to transition to a fee for service practice without breaking the bank
  • How to grow your fee for service practice

Dental Marketing Guide: 8 Steps to a Fee For Service Dental Practice

Over the past 30 years, we have helped many dentists transition from insurance participation to more fee for service models. We have discovered, many dentists become quite emotional when you talk about insurance participation.

They say things like:

  • ‘They are forcing me to lower my standard of care.’
  • ‘They are dictating treatment decisions.’
  • ‘They make patients think everything is covered.’

To which, our response would be:

  • ‘No they aren’t.’
  • ‘No they aren’t.’
  • ‘No they don’t!’

Transition your dental practice a more fee for service model

They’re not forcing you at gunpoint, are they? Your participation is a choice. Just like choosing to run a television ad or spend money on a direct mail campaign, insurance participation is one of many marketing options available to you. In this particular marketing medium, you get your practice listed in a printed directory and on an insurance website. This directory is designed to attract new patients to your practice. And just like any other form of advertising, you pay to be included.

Of course, a dentist also has the ability to spend money to promote their practice to full-fee patients. And, of course, the two do not have to be mutually exclusive.

Our best, first advice to every dentist out there is to truly see insurance participation for what it is. Dental insurance participation is a very expensive referral service!

There are many of you that are wondering what we mean when we say ‘expensive.’ That would be natural. It is not like you pay money to participate. Well, on average, the cost of participating is going to be 19 to 22 percent of your normal fees.

In contrast, promoting your practice through other marketing methods should cost about five percent of your fees. So, yeah, we think insurance participation is expensive!

To be very clear, we are not for or against insurance participation as a marketing medium. In some situations, in fact, a dentist might be crazy NOT to participate— at least initially as they are trying to build a new practice. But we need to evaluate insurance participation for what it is: a potential marketing medium available to nearly every dentist nationwide.

There are certainly situations where insurance participation would be beneficial to the business. For instance, let’s say a dentist was just starting out with a brand-new start-up practice. They have zero patient records. Maybe they have no marketing budget. In this situation, insurance participation is likely the only viable marketing medium, because there are no up-front expenses required.

But why do so many dental offices continue to rely on insurance participation as their only (or primary) marketing medium long after those lean, start-up years are over? Good question.

We can only assume it’s because they don’t know there is an alternative, or, they are scared by the alternative. After all, it’s a scary prospect to be faced with the possibility of losing all of the existing patients who are covered by insurance.

Dental Office Transitions

Yeah, we know. And we know WHY.
The number-one reason insurance transitions fail is because the owner of the practice is NOT realistic about the time it will take to dig their practice out of the effects of participating.

We have heard the following story so many times, from so many dentists:

‘I went to a seminar/hired a consultant and bought into the idea of having a fee- for-service practice. So, I immediately went back to the practice and got out of every insurance contract. Now, I am broke!’

The three of us are TIRED of hearing this story. Listen, we have no problem with aspiring to own a fee-for-service practice—none at all. In fact, all three of us firmly believe that every dentist can have a fee-for-service practice.

We DO have a problem with someone telling you to go ‘cold turkey.’ Doing so is pure, avoidable insanity. You don’t HAVE to go cold turkey when you transition from insurance participation to self-promotion. So why would you? Why would you take the risk? Why would you create the concern and uncertainty if you don’t have to?

If you don’t get anything else out of this chapter, listen to this one piece of advice. Do NOT attempt to get out of all of your insurance plans at once.

So, you are ready to invest five percent of your earnings into other marketing options instead of writing off 19 to 22 percent for the referral service that insurance participation offers your practice.

How do you do it?

Well, let us take a look at the painful reality:

Here is a typical insurance transition. Our example dental practice is producing around $1 million, writing off $200,000, and collecting $800,000. As you can see, the business is already spending $200,000 (through insurance write-offs) per year to attract patients. That is painful enough. But now the owner needs to find between $40,000 to $50,000 to start effectively promoting the practice to patients who care more about their mouth than a deductible
Ultimately it will be worthwhile financially, but still, a really tough thing to do.

There are four key pieces of information dentists need to know before considering an insurance transition. They are:

  1. Total revenues for the previous 12 months
  2. Total number of active patients
  3. Total number of active patients on each plan
  4. Production by insurance plan

Figuring out the revenues from the past 12 months is easy. Just put the right date range in a production report and you are home free. You should also always know the total number of active patients in your practice. Next, line up each plan you participate with and determine the number of active patients within each plan. This will give you a ‘pecking order’ based on volume. Then, line up the production from each insurance plan. You do this just to make sure that your ‘pecking orders’ line up with each other in terms of the number of patients and each plan’s revenues. The plan with the most active patients should also be the plan with the highest production.

How to transition your dental office to a more fee for service model

We will run a few numbers to show how it works. Let us say that our hypothetical practice has $800,000 revenues and 1000 total active patients

This breaks down to:

150 active patients from Delta 125 active patients from Met Life 80 active patients from Aetna
50 active patients from Prudential

So, a total of 405 active patients are insured through participating plans, while 595 active patients have not been referred through plans.

Now let us line up the revenues:

$128,000 collected from Delta
$101,000 collected from Met Life
$74,000 collected from Aetna
$39,000 collected from Prudential

See how the revenues pretty much line up with the patient numbers? This is typical.

Now, taking these numbers into consideration, what are the prospects of making a complete insurance transition with this dental practice? As always, let us look at the numbers. Numbers never lie.

In the example practice above, we have 405 active patients to replace with indemnity or fee-for-service patients. If you tried to do all that in one year, you would likely be disappointed. You would need to be attracting about 35 additional, high-quality new patients each month. Even in a very positive market area, attempting this kind of volume would be setting yourself up for failure.
To figure out what is realistic, use this rule of thumb:

Take the number of active patients currently enrolled with insurance plans in your dental practice and divide that number by 12, much like we just did to find out how many additional new patients we need to replace the participating patients. In this case, the result was 35. All you have to do now is add the word “months” to the end.

In our example practice, it will likely take 35 months to completely, comfortably, and with limited stress wean the office from insurance participation. This means our short-term promotion goal is to attract about 10 to 14 additional high-quality new patients each month to start the replacement process. This is an attainable goal. This is a reasonable goal. This is a goal that can be exceeded, making the owner and team more and more confident as the months pass.

So, we’ve established that:

  • It’s going to take 35 months to complete the transition
  • We need to keep the active patient number at 1,000 active patients
  • We need to add about 10 to 14 new fee-for-service patients each month to begin offsetting the participating patient base
  • We need to establish an annual marketing budget of $40,000 to $50,000

We now have the ‘new patient acquisition’ part of our transition plan well in hand. So, when do we start actually dropping out of the insurance plans?

This is key.

You start dropping plans AFTER you have acquired the new fee-for-service patients!

Look back at the insurance numbers again. You will notice that there are 50 active patients with Prudential. If, after five months, you have achieved your goal of 50 new fee-for-service patients, you will be in a position to drop Prudential.

We have had client offices mark up the calendar in their business office with the designated day that they finally call the insurance company to tell them that they no longer want to participate. It can be an incredibly motivating team objective to which everyone can contribute.

Wouldn’t it be great if you and your team were able to celebrate with each plan you eliminated? We bet the person in your office that deals with insurance inquiries will be stoked!

Now you go through this process all over again for the remaining insurance plans your practice participates in. In our example, Aetna is the next target. Now you need 80 more fee-for-service patients. Every promotional activity, every new inquiry, every new patient booked becomes part of the effort, and every member of your team can be involved in the goal of attracting enough high-quality patients to be able to say goodbye to Aetna. We have seen insurance transitions bring entire dental teams together to attain a common goal. It can actually be fun!

If your hard work and careful planning have allowed you to transition completely from insurance participation to a 100 percent fee-for-service patient roster, then the first thing you and your team should do is pop a few champagne corks!

Then you can get down to the very rewarding business of using your marketing budget to grow a bigger practice and healthier revenues.

Let’s look at the numbers.

If the transition completed 12 months ago, our hypothetical practice now has:

  • $1,000,000 in revenues
  • $0 in write-offs
  • 1,000 active patients
  • 5 percent marketing budget

If you flash back to the pre-transition figures for this practice, you can immediately see the benefits. Had they not made this transition, they would have had NO marketing budget and would have written off $600,000.

Instead, our example practice ended up writing off $300,000 and had a marketing budget total of $150,000 ($50,000 per year for three years). Now, one year since completing the transition, the practice has $0 in insurance write-offs and a total marketing budget of $50,000.

Isn’t that a worthwhile transition? You bet!

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