Most doctors aren’t aware of the true impact that PPO write-offs can have on their profitability, since they don’t track them. Fortunately, a growing number of doctors are following our advice to track this data, analyze its impact, and take proactive steps to reduce PPO exposure, resulting in higher profits. Here’s how to make it happen in your practice.
Track the Adjustments
Do you manage your patient care without first taking records? Of course not. So neither should you manage your practice finances without taking records, in the form of your managed care exposure. This year’s readers’ survey revealed that while 34% of practices had no managed care participation, the remaining 66% did. Unfortunately, most of the practices in that 66% aren’t aware of the true impact that PPO write-offs have on their profitability, since they aren’t tracking the amount of their managed care adjustments (write-offs).
We recommend your practice charge out all production at the full (regular) fee for each procedure, regardless of the negotiated fee under the managed care (PPO) plan. Your practice management software should then be able to calculate the related production adjustment (or write-off amount) necessary to arrive at your net production based on the discounted fee allowed under the plan.
On a monthly basis, you should review the total production, write-offs, and collections by each managed care plan. This allows you to clearly see how much PPO participation is costing your practice, since in many cases it represents the largest “overhead expense” in your practice.
Analyze the Impact
The next step is to calculate the write-off percentage for each plan, by dividing the total adjustments (write-offs) by the total production for related plan. You can then rank all PPO plans by their write-off percentage, from the lowest, to the highest, as shown in the following chart. This allows you to develop a plan to reduce, or eliminate, the PPO plans with the highest write-off percentages, until you have the right balance of PPO participation. When selecting the PPOs to eliminate, you should consider not only the fee adjustments, but also the number of patients in the plan, difficulties with insurance processing, as well as the out-of-network benefits available.
| Production | Adjustment | Adj. % | Priority | |
|---|---|---|---|---|
| Delta | $400,000 | $60,000 | 15% | 3 |
| Cigna | $125,000 | $37,500 | 30% | 2 |
| Aetna | $75,000 | $30,000 | 40% | 1 |
| TOTAL | $600,000 | $127,500 | 21% |
Take Action
While this data and related analysis is helpful, it won’t add a cent to your bottom line unless you take action. Our survey revealed that 12% of your colleagues ACTED last year to reduce their PPO exposure and were rewarded with higher profits. Will you join them?
The good news is that you have more power than you think. Contrary to public opinion, some PPO fees can be negotiated. If you haven’t tried, there’s a good chance you’re leaving money on the table. It costs nothing to ask, and the extra dollars you receive are “free money,” so don’t overlook this important first step. Remember, just like asking a date to the senior prom, the worst response you’ll hear is “no.”
Most practices CAN reduce their PPO participation, but they need a well-thought-out, coordinated gameplan for doing so. First, you need to develop a plan to limit patient attrition for PPO plans that you plan to go out-of-network with. Don’t send a letter announcing your decision to the affected patients unless the PPO is sending one. Rather, discuss this with each patient at their next visit.
If your staff is properly trained, you can retain the vast majority of PPO patients, and delay the impact from those who do leave. Most insurance companies have surprisingly good out-of-network benefits, since they want to keep their employees happy and able to see the doctor of their choice.
Next, while patient attrition can be limited, and even delayed, you’ll still have some. So it’s imperative to develop a gameplan to replace the net collections lost.*
Once your plan is complete, it’s time to “pull the trigger.” Will you do it? Don’t feel bad, because most doctors won’t. If you’re not ready to go it alone, ask for professional help to get the job done.
Practice management expert Bill Rossi** has helped hundreds of dental practices across the country reduce or eliminate PPO participation in order to improve profitability. He has performed numerous PPO “exorcisms” and specializes in training staff and coaching the doctor to make sure the decisions that need to be made, are made. Since reducing PPO participation can add 4-10 percenta