Improving margins is a critical objective for any dental support organization (DSO) aiming for long-term success. In a recent DEO presentation, Dr. Samson Liu, CEO of SohDental, shared valuable insights into how his organization successfully enhanced margins through strategic insurance negotiations, supply cost reduction, and labor cost efficiency. This blog delves into these key areas, offering actionable takeaways for other dental entrepreneurs and dental leaders.
Strategic Insurance Negotiations
Dr. Liu emphasized the importance of robust insurance negotiations as a primary driver for improving top-line revenue in a dental group. His approach revolves around detailed analytics and persistent negotiation tactics. Here’s a breakdown of his strategy:
- Analyze UCR Fees: Ensure that usual, customary, and reasonable (UCR) fees are up to market value for each location. This foundational step is crucial for negotiating higher reimbursement rates with insurance companies.
- Submit Full Fees with Claims: Always submit the full fee for services with insurance claims to make the case for higher reimbursements.
- Evaluate Network vs. Direct Fees: Compare fees from network arrangements and direct contracts with insurance companies. Larger dental support organizations might find direct contracts more beneficial.
- Identify Top Codes: Focus negotiations on the top 20 billing codes that generate the most revenue. Tailoring negotiations to these codes can yield significant financial benefits.
- Persistence in Negotiations: Dr. Liu’s team keeps negotiating until they achieve desired results. This process involves multiple rounds of negotiations, leveraging direct relationships with insurance representatives, and sometimes moving from network-based to direct contracts.
Reducing Supply Costs
Managing supply costs efficiently is another pillar of margin improvement for any dental practice. Dr. Liu outlined a methodical approach to reducing these costs while maintaining quality:
- Bulk Purchasing: Leverage bulk purchasing agreements to negotiate better prices with suppliers. This strategy is particularly effective when combined with a growth trajectory that promises increased future purchases.
- Manufacturer Direct Negotiations: Shift negotiations from distributors to manufacturers to obtain better pricing. This direct approach ensures transparency and maximizes cost savings.
- Streamline Inventory: Standardize supplies across locations to benefit from economies of scale. By reducing the variety of supplies, SohDental managed to cut supply costs significantly.
- Audit and Control: Implement stringent audit processes to ensure compliance with negotiated prices and budgets. Dr. Liu’s team sets a supply budget as a percentage of the previous month’s collections and monitors adherence to this budget closely.
Enhancing Labor Cost Efficiency
Labor costs represent a significant portion of operational expenses in a dental group. Dr. Liu shared several strategies SohDental employs to optimize labor costs without compromising service quality:
- Centralize Revenue Cycle Management: Initially, each office handled its own billing and collections. By centralizing these functions, SohDental improved efficiency and reduced labor costs.
- Leverage Technology: Utilize technology platforms like AirPay to automate insurance verification and other routine tasks. This automation reduces the need for manual labor and improves accuracy.
- Flexible Team Models: Implement flexible team models that align workforce levels with patient demand. This approach helps in avoiding overstaffing during low-demand periods.
- Continuous Training and Development: Invest in ongoing training programs to enhance team productivity. A well-trained team is more efficient and capable of handling increased workloads without additional hires.
Financial Performance Metrics
To track the success of these strategies, SohDental focuses on several key financial performance indicators:
- Net Revenue (Collections): Monitoring monthly revenue trends.
- Cost of Goods Sold (COGS): Keeping a close watch on the percentage of revenue spent on supplies.
- Gross Profit: Evaluating gross profit margins to assess overall efficiency.
- Practice Expenses: Analyzing operational costs to identify areas for savings.
- Net Operating Income: Measuring the income remaining after operational expenses.
- EBITDA: Understanding earnings before interest, taxes, depreciation, and amortization for a clearer picture of financial health.
Dr. Liu’s presentation underscored the importance of a systematic and persistent approach to improving margins. By focusing on strategic insurance negotiations, supply cost reduction, and labor cost efficiency, SohDental not only enhanced its financial performance but also set a benchmark for other DSOs to follow. These strategies, grounded in robust data analysis and relentless execution, provide a valuable roadmap for dental entrepreneurs and dental leaders aiming to optimize their operations and improve profitability within their dental practice and dental support organization.
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