How You Can Make Practice PPO Decisions Profitably

By: Bill Rossi*

Managed care (PPO) participation and related discounts are rising substantially every year. And decisions to join or drop a PPO can impact annual practice profits by $100,000 or more! So avoid acting (or reacting) too quickly based on emotions. Rather, analyze the situation based on the facts and get any help you need, before making these critical decisions.

Two successful practices in separate upper Midwest towns had similar demographics, and both faced the same dilemma. The hospital systems in their area had decided to provide their employees with dental coverage under a new PPO.

Impact of PPO Sign Up

The PPO kicked in beginning January of 2015. Before that, both practices were peppered with questions from patients about whether or not the practice would be joining. Each practice had desirable patients (physicians, nurses, other hospital employees, etc.) on the plans, and naturally were nervous about potentially losing them. However, both practices also had many patients that they were already seeing out of network on this same PPO plan. Each practice ended up making a different decision, resulting in dramatic differences in their bottom-line profitability.

The first practice immediately signed up for the new PPO and saw their write-offs dramatically increase. Their collection percentage (total dollars collected divided by total practice production) declined from 93% to 86% in 2015. So even though they produced $20,000 more per month during 2015, they actually collected $8,000 a month less! Over a year’s time, that was almost $100,000 in reduced collections. Moreover, since the cost of treating these patients remained the same, this resulted in a drop in profitability in the same amount (almost $100,000)!

The reason for the dramatic drop they experienced was the increased discounts on patients they already had! This was “collateral damage” they never anticipated. I advised them to drop the PPO, which they did by the fall of 2015. Fortunately, by 2016, their collection percentage had recovered to 91%. If they had not taken this action, and remained in the PPO collecting 86%, they would have collected $20,000 a month less beginning in 2016, with a related drop in profitability of over $240,000 annually. As you can see, the practice continued to grow, even after going out of network with the PPO.

The second practice took my advice to “wait and see.” They knew that the option to sign up with the PPO would still be there later on. They also knew that if they signed up immediately they were guaranteed to suffer huge write-offs on their existing patients already on the plan. And since they were seeing plenty of these patients out of network already, they thought the same may be true for the hospital employees.

As you can see, this practice maintained a collection percentage of over 90%. The practice continued to grow, and they probably saved over $100,000 in practice profits in 2016 and beyond by not jumping on the PPO bandwagon too quickly.

You see, insurance companies have a “chicken or egg” problem. They need providers to get businesses to sign up; yet they need businesses to sign up in order to get providers. Unfortunately, dentists are often too quick to sign up for fear of losing patients. That’s understandable, since no doctor likes to lose patients.

However, the insurance companies are taking advantage of this fear and that is why there is a race to the bottom with PPO fees actually declining. In effect, the higher-paying insurance company and noninsurance patients are subsidizing the ones that are costing you the most in write-offs.

The Moral of the Story

When it comes to making PPO decisions, it’s often better to be reactive than proactive. If a new PPO is coming to your area, or if a large employer in your area converts to a PPO, don’t immediately sign up due to the loss, (or fear of loss), of a few patient families.

Rather, take time to check things out. What are the out of network benefits of this particular employer’s plan? What percentage of patients do you already see out of network on this plan? What is the general momentum of the rest of your practice?

If you’re not sure what to do, ask for help. Investing a few thousand dollars in consulting advice may save your practice hundreds of thousands of dollars in lost profits from a poor decision.

* For more information on his firm’s managed care consulting and other practice management services, contact Rossi at 952.921.3360 or online at www.advancedpracticemanagement.com.