Dentistry has gone through significant changes since the 2008 to 2009 recession. In addition to fewer patients and increased competition, the dental industry has been affected by widely varying levels of dental insurance coverage/reimbursements and unprecedented dental school debt. Unfortunately, it’s almost impossible to look at these overall changes in the dental profession and discern what will happen to an individual practice. The good news is that it’s certainly possible to determine the leading indicators that may affect your office. By determining and continually evaluating these leading indicators, you will have a sense of the changes in your individual practice regardless of what is taking place in the profession overall.
Looks Can Be Deceiving
Most practice owners believe that the best indicator of practice success is financial performance and often use raw financial measurements such as production, adjusted production, revenue, collections, and accounts receivable to determine the current state and direction of their practices. However, these measurements alone are not the barometer that dentists or managers should use to determine current and future practice performance. Why not? Well, while it would seem obvious that looking at these financial factors would paint a clear picture of how the practice is doing and where it’s headed, practice performance can often look positive when the practice is actually unhealthy. Consider a practice that has patient treatment heavily scheduled for the next 90 days. In that time, an insurance plan may lower reimbursements; the number of new patients could fall; case acceptance could decline, leading to a lower average production per patient; or the hygiene no-show rate could increase by 6%. All of these unhealthy factors can occur while the practice still shows strong financial performance. Evaluating current financial metrics without considering the risk factors can easily lull a practice owner into a false sense of security, causing him or her to believe that the practice is healthy when, in fact, serious headwinds could be on the horizon.
Leading Indicators
In analyzing their practices, owners need to look beyond raw financial measurements and consider leading indicators that will predict future practice performance. If they wait until financial performance plateaus or declines, addressing the issues that are really affecting the practice will be more difficult.
In developing a set of leading indicators that they can measure and understand, practice owners should consider specific areas, statistics, or metrics that help provide insight into the current health of their practice and predict future performance. Leading indicators for a practice can include:
- the number of new patients
- case acceptance rates
- average production per patient
- average production per new patient
- collections
- accounts receivable
- changes in insurance reimbursements
- supply costs.
By looking at the trends of leading indicators such as these, a savvy practice owner may be able to identify a potential 5%, 8%, or 10% drop in production or revenue 6 months into the future. If so, changes can be made that will avoid a tumble in practice performance, or at least soften the blow.
Develop Your Own List of Leading Indicators
Keeping in mind that every practice is different, practice owners should work with their financial managers or advisors to develop a list of leading indicators for their individual practices. For example, a practice that gains 18% of its revenue from one specific service may want to track that specific service revenue as a leading indicator. Another practice that provides a unique service, such as sleep apnea therapy or anesthesia, may want to track revenue from those areas as leading indicators. By regularly analyzing leading indicators, practices will begin to identify strengths, weaknesses, opportunities, and threats. When a leading indicator reveals a weakness in a specific area, it creates an opportunity for practice owners to focus on that area and improve performance. This is how excellent businesses regularly analyze current and future performance.
Closing Comments
For greater success, practices must always stay one step ahead. This often means that each practice or group of practices must identify the best business model to predict and protect its future. Rather than only looking at overall changes in the dental industry or being concerned about the bottom line, focus on the individual changes that are taking place in your practice and the corrective measures that can be put in place. Understanding the leading indicators will help practice leaders build better business models that will ensure their success now and in the future.
Dr. Levin is considered the foremost authority on dental practice success and has dedicated himself to improving the lives and practices of dentists. Dr. Levin is a third-generation general dentist and the founder and CEO of Levin Group, Inc, a dental management consulting firm that has worked with more than 26,000 dentists. He is one of the most sought-after speakers in dentistry today and frequently lectures at major dental meetings. He has authored 68 books and more than 4,300 articles, and has been interviewed by The Wall Street Journal, The New York Times, and Time magazine. He is also the executive founder of Dental Business Study Clubs—dentistry’s only all-business study clubs and the next generation of dental business education (dbsclubs.com). Dr. Levin can be reached via the website levingroup.com or via email at rlevin@levingroup.com.
Disclosure: Dr. Levin reports no disclosures.
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