By Dr. Suzanne Ebert, vice president, dental practice and relationship management, ADA Business Innovations Group.
Everyone is happier when their pay is appropriate for their work. Yet I hear from far too many associates who don’t understand how their compensation is calculated – or how much it can vary. .
It’s relatively easy to understand a straight salary, typical for those working in public health, academia, or government agencies. It gets more complicated for those paid in whole or on some percentage of their overall productivity in the office, which is the more common scenario for dentists employed in private practice or DSOs. Pay is typically based on total production, billable production, or total collections in these cases. To understand how variable take-home pay can be, let’s start by defining a few key terms:
Total production: the amount the practice can be paid based on the practice’s fee schedule
Billable production: the amount the practice can collect (dictated by a third-party payor)
Collections: what the practice actually collects for the procedure
Collection percentage: (collections/production) x 100
You should first consider the total production versus billable production. If the total production is equal to the billable production, it can be assumed that the practice is not a participating provider with PPO or DMO plans. If these numbers are quite different, it will be important to ask a few questions:
- How will patients be distributed in the office? Will the associate see all the PPO/DMO patients while the practice owner sees fee-for-service patients primarily?
- How does each plan pay? Does the practice struggle to collect from specific plans? Do some reimburse at lower rates? Is there an opportunity to renegotiate or potentially drop the lowest paying plan(s)?
An example of associate pay
Ms. Smith comes in for a crown. The practice’s fee schedule for a crown is $1,500. This is the total production. Ms. Smith’s PPO allows a maximum of $1,000 for a crown and the practice CANNOT collect the difference from the patient. That makes the billable production $1,000. Per the plan, the payor pays $500, and Ms. Smith’s practice bills $500. She pays $450, and the practice writes off the final $50. That means the total collection for this treatment was $950 out of a possible $1,000, for a collection percentage (of billable production) of 95%.
|Practice’s fee for a crown||$1,500|
|PPO max allowable for a crown||$1,000|
|Practice collects from insurance||$500|
|Practice collects from Ms. Smith||$450|
|Practice writes off||$50|
|Collection percentage (based on billable production)||95%|
|Collection percentage (based on total production)||63%|
Associate pay is often based on some percentage of total production, billable production, or collections. Since those numbers can vary significantly, so can an associate’s take-home. Note that Medicaid-heavy practices often pay a salary and offer bonuses based on metrics other than collections or production.
Paying on collections
Many practices want to pay their associates based on the collections. After all, the practice can only pay an associate if they get paid first. That just makes good sense on the part of the practice. Paying based on collections begs some key questions:
- What is the collection percentage? If it’s greater than 98%, the practice has strong collections policies, and there is minimal difference in being paid based on production or collections. In this case, it is a much more straightforward calculation for the practice to pay the associate on output.
- Is the collection rate calculated using total production or billable production? If the practice uses billable production and the collections percentage is low (less than 94%), the practice has lots of room to improve its collections policies. In order to be competitive on salary, the practice may offer a daily guarantee, payment based on production, or a straight salary.
- Will the associate be responsible for, or have any influence over, the collections within the practice? If the associate is to be paid based on collections, the practice may allow them to participate in establishing/evaluating collections policies actively.
Let’s return to our example of Ms. Smith’s $1,500 crown to see how much an associate’s take-home pay could vary in two different practices, each with a 95% collection rate. One practice is fee for service, with billable production equal to total production. The other practice relies on 3rd-party payors and a reduced fee schedule.
|Practice A: 100% fee-for-service||Practice B: Reliant on 3rd-party payors|
|95% collection rate||$1,425.00||$950.00|
|Associate paid 35% of collections||$498.75||$332.50|
|Associate paid 33% of billable production||$470.25||$313.50|
Note how much take-home pay varies depending on the type of practice. The difference can add up quickly over the course of a month or a year.
Whether you’re negotiating compensation for yourself or preparing to make an offer to an associate, make sure you understand what’s actually on the table. Don’t overlook other elements of the compensation package, including retirement accounts, CE allowances, malpractice insurance, healthcare, time off, etc. An associate might be willing to accept less take-home pay if the benefits are generous. Also, think about less tangible benefits that are important, like a flexible work schedule.
The bottom line is anyone looking at an associate contract should take time to understand what it means to the bottom line for both the practice and the associate.
Dr. Ebert built a successful dental practice from scratch. After selling her practice, she became the Dental Director of a Federally Qualified Health Center where she provided high quality care to underserved populations. She joined ADA Business Innovations Group as the ADA Advisor to provide real and tangible benefits to dentists as well as helping to address access to care issues across the country. She is currently VP of Dental Practice & Relationship Management.