“How are my expenses looking?” is one of the most common questions we hear from our clients. Many doctors review the production and collection numbers and can instantly tell you whether their goals and benchmarks for that period were reached or not. However, if a statement of expense were placed in front of them, many would have no idea if their expenses were too high or in some cases too low.
In the following series, I will be covering a couple different operating expenses and the particular questions you can be asking yourself when you review these numbers, but before we get into that, I thought I would review what operating expenses are and how they are compared.
As a general rule, operating expenses are talked about in percentages of collections. If a practice collects $1,000,000 for the year and spends $70,000 in dental supplies, the practice would have a dental supply expense of 7%. Because expenses are computed using collections, it is important to factor in any differences in your particular practice.
For example, the number of PPO’s that a practice participates with can make the operating expenses appear higher or lower. The reason for this is that the practice that doesn’t participate in any PPO’s will have very limited insurance write off adjustments. That practice can produce $1,000,000 and then collect $1,000,000. On the other end of the spectrum, a practice that participates in many lower paying PPO plans might have to produce $1,200,000 to collect $1,000,000. Even though both of these practices collected $1,000,000, the practice that accepts more PPO plans will have more patient visits, more procedures, and in turn more expenses associated with this. The PPO practice would have a higher operating expenses based on the business model for that particular practice and could be at a healthy expense level a percentage or two higher than the average.
The point is, while comparing your operating expenses to industry benchmarks, it is important to think about items in your practice that might make your expenses appears higher or lower. If the average for dental supply expense is 6.5% and you are at 6.5% but do not participate in any PPO plans, it might be that there is room to get your dental supplies down to 6%.
Stay tuned for the following entries in this series where we will take a look at how to analyze your staff, advertising, and direct costs.