Trends in Dentistry: Maintaining a Profitable Practice in Light of Low Reimbursement Rates

The proof is in the data.

At the end of 2023, the Health Policy Institute of the American Dental Association (ADA HPI) conducted an emerging issues poll. This survey confirmed comments we were hearing from practice owners and observing in their financials. Of the respondents to the HPI survey, 50.3% identified low insurance reimbursement as a top challenge for practice owners. Additionally, 42.5% of practice owners indicated plans to drop out of some insurance networks in the upcoming year. For a general dentist, collections loss can equate to up to 25% to 35% of production, making it one of the largest hidden costs in dentistry.

Low reimbursement is not a new issue.

Stagnant reimbursement rates have been analyzed for decades. A 2016 study by Dr. Vujicic on “Why are payment rates to dentists declining in most states?” found a strong correlation (0.77) between dentists’ participation in PPO networks and payment rate changes. The greater the concentration of PPOs, the larger the decrease in payment rates to dentists.

A 2017 research brief from the ADA focusing on reimbursement rates for specialists found that, when controlling for inflation, only endodontic procedures saw a slight increase in reimbursement rates for the three most common procedures. Periodontist, prosthodontic and oral surgery reimbursements were universally lower once adjusted for inflation from 2005 to 2014. Based on an 2023 HPI poll, one-third of dentists reported that insurance reimbursement rates had decreased year-over-year, and 9% of dentists indicated that reimbursement rates were down by more than 10%. With those statistics, it’s no wonder owners are considering going out of network.

What are some next steps?

If you are among the practice owners planning to drop out of an insurance network, there are a few vital questions you need to consider for continued success, including:

• Do you offer a differentiated patient experience? A fine dining experience is different from a fast-food meal, and so are the costs and consumer expectations. The same concept applies to your offerings. If you differentiate your patient experience and quality of care, you can charge differently from those who focus on volume. I had a client in California who was a fee-for-service provider, and a national DSO practice known for quick and “affordable” care opened across the street. When I asked the clinician if they saw any competitive pressure, their answer stuck with me: “Tom, I’ve never had a better referral source. No one appreciates good dentistry until they have had bad dentistry.”

• How are other practices handling the leap? With such a large percentage of practices exploring dropping out of insurance networks, there can be a benefit to understanding how other offices in your geographic region are handling the same question.

We worked with a dental office in rural Georgia who watched as their neighboring practices all dropped a prominent insurance provider with low reimbursement. They waited until they were the last ones standing in a 15-mile radius. The clinician owner had a great reputation in the community, and by the time they dropped the provider, many of the transitioning patients found a home with this practice. By understanding their market, the provider had grown a loyal and sizable following of patients, retaining a disproportionate amount of their market when they went out of network.

• Is your staff ready? Transitioning patients through a change in how they will work with their insurance companies can be complicated. But if done well, it can lead to a great patient retention rate. Your front office will likely be your patients’ guide through the journey; working on their language skills and developing processes to smooth the transition is worth the effort.

• Do you have a strategy? While I will leave it to practice management consultants to identify the best strategy for a practice, I will go on record that it is imperative to have one! To build a solid approach, here are some factors that must be addressed:
• Are you starting with the lowest utilized provider?

• What is your lowest average reimbursement rate?

• How will staff be trained?

• Will you go full fee-for-service or just trim away the unprofitable providers?

• How long will it take to implement your goals?

• And how will success be measured along the way to know if a pivot is needed?

Along with how you will manage your practice in light of stagnant or decreasing reimbursement rates by providers, we also need to be responsive as an industry. The ADA has provided model language for states to use for dental loss ratio (DLR) legislation. As of 2024, 12 states have such a law on the books.

I have also seen where practices have not increased fees because of frustration with not having a corresponding increase in reimbursement rates. I highly recommend keeping fees in line with inflation and internal costs. If the industry continues to provide accurate cost and price information, the growing dispersion of production to collections will continue to provide pressure on insurance companies.

As of June 2024, 24.8% of respondents to the quarterly ADA HPI survey shared that they had dropped out of some insurance networks, while 48.2% indicated they did not plan to exit this year, leaving approximately 27% of respondents still planning to within the year.

Conclusion:

As the data has shown, diminishing reimbursement rates are a growing problem for many practitioners. By evaluating your options, you can set your practice, yourself, employees and clients up for success. If you would like to explore strategies to reach your optimal profitability, our team would love to help! Schedule a conversation with a practice integration advisor today! 

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. Third-party information is deemed reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information. R-24-7541