Are You Ready to Drop Networks?
Since 2020, there have been multiple challenges and new trends that have greatly affected dental offices across the country. Trends such as rising wage demands, increasing supply costs, lack of PPO fee schedule increases, and inflation that eats into profitability have dental offices asking the question more than ever: “What if I just drop insurance?”
There are plenty of reasons an office might consider dropping participation in one or more insurance plans. However, it is important to be aware that many offices have gone under by mismanaging this change, particularly if they think that dropping all insurance plans will ensure they are more profitable. Let’s review what should be considered before dropping networks.
How busy is your schedule?
The main reason to agree to a discounted pricing model is to help fill the office schedule with more patients. This is a growth tactic for newer offices. It is important to not forget that all offices lose patients over time and need to continually attract new ones. To sustain a high level of new patient flow and retain strong profitability, we need to keep filling our office treatment schedules.
The first aspect to look at when evaluating whether to drop insurance contracts is if your schedule is booked out solidly, or if losing patients will end up hurting you more than the price discounts. The main financial concern an office must be aware of is your breakeven point, which is mostly due to fixed costs. Fixed costs are those expenses you pay even if you don’t see a single patient on your schedule: payroll, rent, equipment, utilities, etc. Fixed costs account for most of the overhead; so, if you lose patients after going out of network and you don’t compensate for the loss, your profitability will plummet.
How do you know your schedule is strong enough to overcome a potential loss of patients? It is often when you cannot get a new patient in on a timely basis, and you’re losing out of network or cash patients because your lower paying patients are taking up all the room. An average office tends to want to be fully booked out around 2-3 weeks for hygiene and 1-2 weeks on the treatment side. When an office is having a hard time getting new patients in within two weeks, and there are no major cancellation concerns, then it might be a good time to evaluate dropping an insurance network.
An alternative to this dynamic is if the office and doctor are ready to condense the schedule. If you want to work fewer hours or days, then the loss of patients that will result from dropping a network might not be noticeable.
What is your cancellation rate?
Sometimes an office considers dropping one or more insurance contracts because their schedules appear “overbooked.” Beware, many offices suffer from cancellation rates that are too high, which can mask an underlying schedule problem by filling it with patients who will not end up showing. Hygiene cancellation rates should be under 8%, which is less than one patient per column per day. Doctor cancellations should be a rarity, well under 1%.
As an example, if you have a 16% hygiene cancellation rate, bringing it down by half equates to room for eight extra new patient slots per month.
It is important to evaluate your cancellation rates so you can see if you are truly overbooked with too many patients, or you have a cancellation problem that will likely only escalate if you drop networks.
Location Plays a Role
This is the one aspect that you won’t likely be able to change, but location does play a large role in the decision making of whether you are ready to drop an insurance contract. Rural areas often have a high demand for dentists because they don’t usually have enough providers for the population. Being in high demand means that you may not need insurance discounts to attract patients to come see you.
Conversely, being in a low demand, over-saturated area such as urban centers or high population regions means that you may have to work far more diligently to attract new patients to come to you versus the other 100 dentists within a mile of you. Dropping certain insurance policies and raising your prices can drive those patients to see another dentist.
When looking to grow an office, many tend to look towards direct marketing to attract new patients. But when you stop to think about it, dental insurance is another form of marketing. It comes with no up-front costs or risks associated with external marketing. The challenge is if the cost of the discounted rates is higher than what you would spend on external marketing.
When you want to look at dropping one or more insurance contracts, it is essentially like dropping a source of marketing. A prudent decision would be to pre-empt the loss of patients who leave by increasing the number of new patients who come in before you drop networks. When you replace one source of marketing with another, you often won’t lose overall income during the process.
Whether your fees are higher or not, when you are out of network or fee for service, patients naturally assume you are higher priced. This is fine for the patients who are willing to pay more for their dental care, but it does tend to come with the expectation that you will be different or better than the dentist down the street who is in-network. When people pay more, they tend to expect more as well. If you are already providing service and quality that is above and beyond other offices nearby, or if you are prepared to improve that level of care, then dropping networks might be a good solution. Added service often comes with added time and costs, and your fees will want to reflect that.
There are certainly viable reasons why a dental office might choose to drop one or more insurance networks. Make sure you are dropping them for the right reasons. An overly full schedule, an inability to get new patients in on a timely basis, and a level of service and reputation that is above what you are currently charging are all considerations that exist in offices that successfully drop networks without feeling any financial repercussions. A warning, really make sure the desire to drop networks is not just due to frustration with dealing with dental insurance that will exist regardless of your network participation. Having patients complain about insurance coverage, challenges with denials, low treatment acceptance, etc. are a few problems that will either get worse, or at best, not improve if you drop a network. The great news is there are solutions for all those insurance challenges that are far easier to implement, with fewer risks, than major changes such as network participation.
Stay tuned for part three of this series: The Process to Drop Networks Successfully.
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