The Dental Practice Health Assessment: A Roadmap for Practice Care

When a dental practice needs help with a broken system or process within their dental business, they should carefully examine the whole practice – much like a person’s health, it’s all tied together.

When a dentist discovers an area of their dental business that is need of some care, they’ve clearly identified that there is a problem and they might quickly and eagerly seek a solution.  Now, before you dive in to fix it, we suggest you stop, back up, and take a 40,000-foot view to assess the entire practice. Problems in a dental business are not unlike problems in a patient’s mouth. One cause of pain could be the result of several other, tangent but related, problems that are causing it - dominos so to speak.

A dentist that completes a comprehensive oral exam with each patient is doing the same – assessing all the oral cavity in a comprehensive approach.  As a result, when faced with a practice management issue in the business of dentistry, it’s important to take a more holistic approach before you begin treating what appears to be an obvious problem. There just might be more to it. Staffing and Team/Culture, Perio and Hygiene, Cash Flow and Finance, Scheduling and Patient Service . . .  these are all areas of the dental office that can present challenges and the function like dovetails with each other. When you look at the entire picture, your treatment planning for the business because much clearer.

PPO Insurance: Dental CPA's Explore Myths and Truths

Most Dental Professionals don’t have the time to chase down insurance representatives in an effort to analyze and negotiate their reimbursements and maximize their PPO structure. 

If they found the time, would you know who to contact for help analyzing your dental insurance contracts?  What to say? What to ask for? How to follow up? What to do when things go south? 

Crossroads Tax Advisors, a dental-specific CPA firm features Veritas Dental Resources in this interview.

Veritas Dental Resources is a dental insurance expert, putting thousands of dollars back in pocket of dentists while allowing them to focus on what they love - providing dental care. The independent dentist can learn to analyze and negotiate existing contracts or go the other direction and create a plan to go out of network to build a fee for service practice.

To learn smart dental business strategies,
put your dental CPA to the test with Dental CPA Checkup ➡️ http://bit.ly/2ONLGd8

Taking Control of Dental Practice Fees...

Independent dental practices often navigate the complex world of dental insurance reimbursement on their own. Often, an independent practice is on an island alone when managing business tasks and have systems and processes that are only as good as the key Office Manager charged with the insurance responsibilities in the practice.

As laws and insurance rules change constantly, it takes quite an effort for an office to stay current and ensure they are as efficient as possible when managing insurance relationships. Understanding how to navigate practice fees and the impact of PPO’s is critically important today, choices you make now may be difficult to change down the road.

I’ve had numerous conversations with dentist owners that wring their hands over which direction they take in the road – contracting with multiple PPO’s and balancing the volume of patient treatment or remaining fee-for -service and implement correct marketing strategies to support that. It’s often said that PPO write-off’s can be viewed as marketing investment/cost, trading revenue for PPO patients selecting you.

There are a few strategies you can take now to help you make the PPO relationships you have as good as they can be and address practice fees in a predictable, routine manner. The health of the independent dentist depends on it.

            Last week I spoke on the phone with a long-time industry friend, Teresa Duncan and Odyssey Management. If you don’t know Teresa, you might recognize her since she speaks a darn near all the good dental conventions and is an expert on dental office insurance, among other things. If you research Teresa, you’ll find her current road show workshops on dental/medical billing with Christine Taxin – a symposium one-two punch! With the onset of new technology in the dental practice like CBCT and CAD/CAM, there is more attention paid to integrating new fees & procedures than ever.

            PPO dental plans come in a variety of flavors and colors.  Dental PPO (Preferred Provider Organization) plans offer a network feature and usually offer a balance between lower costs and dentist choice. PPO dentists participate in the network and agree to accept contracted fees as payment in full rather than their usual fee for patients with the PPO.

Many dentist owners’ contract with the PPO and stick it in the drawer, failing to evaluate and review it annually. Many third-party companies are popping up in the dental industry to help dentists analyze and navigate PPO’s. Integrative Dental Solutions and Shelly DeGroff and Unlock with PPO with Sandy Hudson are just a few. These companies have emerged as experts in analyzing PPO’s and communicating/negotiating contracted fees higher in many cases.

Their success lies partly in the number of additional dental offices that are contracted in your region. If it’s saturated, the PPO is less likely to want to consider a fee change. Success also lies in their relationship with the PPO people and their understanding of the insurance process. For a fee of $5,000 or less, I’ve seen fee increase return on investment 10-fold or higher. Remember additional revenue has no expense attached so it hits the bottom line instantly.

            Dental practice fee experts like Charles Blair or the (NDAS) National Dental Advisory Service offer powerful tools to analyze and balance fees. Clearing houses aggregate the collective fees in each zip code and can offer a dental office the change to compare their fees – across all codes – to the percentile in their region. Dental supply companies caught on to this as they began to offer enhanced business services to dental offices. 

I was helping docs with fees a decade ago with Henry Schein – what a powerful practice builder. If you are a fee for service practice and haven’t raised fees in 5 years or so, it’s likely out of your fear that patients will flee on sight. You might research the “Kodak Study” regarding pricing and customer retention. In the 1980’s, kodak had a monopoly on film. We all remember them as the only game in town for decades.

Japanese companies like Fuji entered the film market and began to erode Kodak margins. We dental supply reps remember moving DF-58 Kodak film by the twelve-pack. Kodak decided to evaluate what impact increasing prices would have on customer retention.

One example of the results metric is that a 5% increase in pricing could allow the company gross profit to remain the same with 83% of revenue - bear the loss of 17% of top line sales! How many patients are likely to run from your practice if prices are fair and increased accordingly to accommodate your business cost increases in supplies and support, etc.

The truth is some, but not many, if they value your treatment, trust your team and understand the nature of quality care. Please be attentive to practice fees in the dental office and review contracted PPO’s on a regular basis. Understand you are not powerless to initiate change as an independent dental practice owner; however, you don’t have to do it alone. Surround yourself with dental industry experts you trust that support the independent dentist. 

CBCT and your CPA! Cone Beam in the Dental Office - Return on your Investment

Cone Beam Computed Tomography (CBCT) is becoming a popular tool for specialists and general practitioners.  There is a massive amount of clinical data to help you decide if this is appropriate for your office. Although, we don’t comment on the clinical aspect of technology in the dental office, as a dental tax and accounting firm, we have a specific perspective on investing in technology: Return on Investment

 

We attended the Chicago Midwinter Dental meeting to learn more about technology for our clients. We met the crew from Vatech and they were awesome to help us understand the ROI.   The following images were taken using a Vatech - Pax-I Green 2 16x9.  This unit provides highly diagnostic 2D and 3D images with very little radiation to the patient. The consultants from Vatech explained both the practice and patient benefits in detail.

 

Most dentists have a specific reason for investing in a CBCT.  For instance, a general practitioner might just be starting to place implants. This GP is concerned about hitting the IAN (Inferior Ale velar Nerve), penetrating the cortical plate, or entering the sinus.  Maybe this GP is engaging a lot of anterior endodontics, wanting to work more on posterior teeth; however, they are afraid of missing MB2 (mesiobuccal canal).  For those practitioners - CBCT is an excellent tool – but how they will pay for this unit?

 

CBCT scans are generally not covered by dental insurance yet and many dentists are not billing medical insurance.  CBCT machines can run from as low as $50,000 to as high as $150,000.  In terms of monthly payments - a $50,000 machine for 3 years at 6% will have a monthly payment of about $1,525.00 per month.  A $150,000 machine for 8 years at 5% has a monthly payment of about $1,900 per month. Remember those monthly payments as we’ll come back to that.

 

Now that we’ve reviewed a few of the clinical conversations, let’s look at potential revenue with CBCT now that it’s in your chest of tools. From a tax perspective, there are depreciation benefits; however, be careful not to let the tax “tail wag the dog”. This must still make sense for your practice, your patients, & your skillset first. 

 

Let’s say you are Married Filing Jointly just inside the 35% tax bracket – so taxable income is at $415k, a number conveniently spot on the $415k QBI 20% Deduction phaseout.  If you consider a CBCT machine at $100k (middle of the range,) you could opt for Section 179 depreciation, Bonus depreciation, or depreciate it over 5 years.   Don’t automatically assume taking all the depreciation in year one is the best option.   If you opt for Section 179 or Bonus depreciation, there is about $32k tax savings right off the bat, but there is also the 20% QBI deduction you are now eligible for with the lower income. With the practice income lower, you could now deduct $63k ($315k x 20%) from your taxable income, another $20k of tax savings ($63k x 32% tax bracket). With these facts & circumstances, you have saved $52k in taxes & increased your opportunity to increase your collections with increased productivity. That is about 45% ROI (including interest expense) just off the depreciation benefits, and the final ROI will be calculated over the next few years as you use the equipment to increase your production.

 

The Journal of Endodontics recently published a study that showed that 87% of the radiology scans that they evaluated had secondary findings.  OMF Radiologists anecdotally tell us the same thing.  In scans they evaluate, there is almost always something else to treat in the scan.  So, the ROI is really based on your process for treatment and protocol.  If you scan 10 people, will may likely find 7 or 8 instances of undiagnosed pathology.  

 

This doctor was looking at the 2 maxillary edentulous sites to determine if he could place implants . . .

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He determined he could in place of #12.  He showed the patient - and the patient agreed to move forward at $1,000 for the implant and $1,500 for the restoration.

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The edentulous site at #2 would require a sinus lift ($500) and then an implant and restoration $2,500.

 

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The endo on #31 is failing (didn’t show up on 2D imaging and was asymptomatic).  A retreat is $500. 

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A quick look at the patients TMJ and Airway indicate an appliance.

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In just this one scan, there is about $14,000 of treatment indicated that may not have been easily identified otherwise. 

CBCT finds pathology that the best-intentioned dentists routinely miss.  For instance, look at the PA below.  Then, look at the cross-sectional view of #9 from a CBCT.  The images are on the same patient on the same day.  The PA shows the fracture that had been there for 12 years.  The CT shows the massive lesion at the apices of #9.

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Attending a dental convention is amazing these days. Digital technology is changing everything: CAD CAM, digital printing, laser technology, oral scanners, etc. are giving dentists the tools to provide better treatment more quickly. With any purchase for the office, calculating ROI prior to the purchase is paramount. It makes sense to get a third party – an expert in dental tax, accounting, and finance - to evaluate these decisions with you as you contemplate the best high-tech for your practice.

Your Spouse Works in the Dental Practice – Balancing Salary, Tax, and Contributions

Your spouse just might offer some great skills and motivation to help you succeed in the dental practice. If a spouse is hired for any role in the practice, there are always key considerations to make first.  Make sure the roles are clearly defined to your spouse and your staff and the spouse is respected and treated like every other employee – as a team player with key contributions. If your dental practice performance also happens to place you in the top tax bracket, it makes great financial sense to hire your spouse if you carefully analyze the opportunity and amount.

Boost Your 401K by 36%.

            Essentially, adding your spouse to the payroll gives you the opportunity to double your family’s 401K contributions, saves you a little in taxes, and distributes office for which you might otherwise have to pay another employee or outside contractor.  Every employee of your practice can contribute up to $18,000 of earnings to his or her 401K plan. The practice can match that contribution, up to 6% of the employee’s salary. But the practice can only match a 401K contribution on the first $265,000 of earnings, so your annual contribution is limited to $33,900:

Employee contribution = 18,000

Matching contribution = 265,000 x 6% = 15,900

Total = 18,000 + 15,900 = $33,900

            When you hire your spouse for $20,000 a year—assuming he or she doesn’t participate in another retirement plan—you can add another $19,200 to your family’s annual 401k contribution:

Employee contribution = 18,000

Matching contribution = 20,000 x 6% = 1,200

Total = 18,000 + 1,200 = $19,200

Congratulations! You’ve just increased your annual pre-tax 401k contribution by 36%, simply by diverting $20,000 of your practice’s earnings into a salary for your spouse. Not only do you strengthen your retirement savings—you cut your tax bill as well.

Why $20,000 is Perfect.  Two words—payroll taxes.

If your practice is an S-corporation, you can pay yourself as much as you want without payroll taxes. You do have to pay payroll taxes on every employee, even if you’re married to one of them.  Payroll taxes on $20,000 - 7.65% paid as employer with an equal amount withheld—come to just over $3,000. Meanwhile, you save nearly $7,500 in income tax on your spouse’s 401K contribution, so you come out almost $4,500 ahead.

But . . . the higher the salary is raised, the more the payroll taxes cut into your income tax savings, shown here:

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Rather than paying your spouse more than $20,000, add any additional earnings to your own salary, where they won’t be subject to payroll taxes. Additional areas of opportunity in the practice that might be addressed by an employed Spouse:

 

· Coordinate marketing efforts

· Manage social media

· Schedule patients

· Follow up with patients for billing

· Schedule repairs and maintenance

· Plan office events and parties

· Office Janitorial and Cleaning

· File patient documents

· File insurance claims

· Bookkeeping to assist your CPA.

· Enter payroll to assist your payroll provider

Make sure your spouse has a job description written in your employee manual just like everyone else. Be careful when it comes time to transition the office as your Valuation Analyst might advise an “add back” to increase the salary in the Spouse role to accommodate the higher wage replacement incurred by the new Buyer. You can learn more about adjusted expenses in your P&L and how they’ll impact your transition in our blog here

Dental Office Credit Card Transactions: Three Mistakes to Avoid

Americans paid banks $110 billion in credit card interest and fees in 2018, up 13% from the $98 billion in interest paid in 2017, and up 45% over the last five years, as Fed rate increases have been passed on to consumers. Using credit cards to cover business expenses in the dental practice is common, online purchasing is increasing with credit cards being convenient (see our Sales/Use Tax blog), and small business finds business credits cards an ally to their cash flow – when used properly.

            I’ve had dentist clients, when they first joined my firm, initially recording the dental office expense deduction on the same date that they make payment on the credit card statement - which is incorrect. Per IRS regulation, the credit card charges are deductible when incurred. It makes sense to deduct it when you pay the credit card bill, but its incorrect as a cash-basis taxpayer. Think of it as a loan. You receive the deduction for the $50,000 laser when its purchased - not when the loan is paid off.

            There are three reasons a dental practice should monitor this credit card payment “roulette”.

First, your overhead analysis will never be correct.

Second, vendor payment analysis will never be correct.

Lastly, you may not be maximizing your tax benefits.

            Your business credit card cycle likely ends mid-month, on the 10th for example.  For every credit card charge after the 10th, that will likely be paid 45 days later. That charge will appear on the credit card cycle that ends 30 days, to be due 2-4 weeks after that. If you incorrectly recorded the deductions when the statement was paid, this would render any analysis of your overhead useless – particularly if those credit charges are growing.  Each individual transaction should be recorded and deducted on the same day. Someone once reminded me that 50% overhead is achieved by 10 basis points at a time, little by little, and you got to measure it to change it.

            Most of the time, I see similar transactions simply booked to one account.  All the marketing expenses (or dental supplies or meals & entertainment) will be lumped into one amount for all transactions on a credit card statement.  For example, there could be 5 different marketing companies composing the $3,000 of charges – website, SEO, local baseball team, Demandforce, on and on. The problem with this method is you cannot readily track how much you have paid a specific vendor and renders your marketing effectiveness analysis useless. How will you decide which marketing dollars are effective – per new patient - if you cannot track where the marketing money is going?

            Maybe you stocked up on supplies at year end, on December 20th for this illustration.  If your credit card cycle ends mid-month, those year-end extra expenses will not be recorded in books until late January or early February when the credit card statement is received and paid. This means you stocked up for those extra tax deductions at year end for zero real benefit.

            As the dental industry is rapidly changing and consolidating, it’s moving towards more large organizations paying close attention to reducing operational cost and efficiency. The independent practice owner must pay attention to all the financial “little things” more than ever to maintain their own efficiency and practice success.

 

Gotcha! Sales and Use Tax in the Dental Office

It’s tax season. We are reminded of the depths to which tax permeates our lives. In addition to Federal & State income taxes, consumers pay taxes on air transportation, cigarettes, driving, hunting, fishing, food & beverage, gasoline, inheritance, libraries, liquor, marriage, real estate, passports, and utilities, and on and on.  As a business owner, there is another can of tax worms we open - corporate, personal property, payroll, and business registration taxes are a few examples.  One tax that has been the focus in the dental practice over the past few years, as internet sales have risen, is the sales & use tax

What is Sales & Use Tax?

When you purchase an item for the practice - let’s say a new pair of loupes - from your favorite local distributor, you will pay the local sales tax that is roughly 4-7%, depending on your state (you may also be required to pay city sales tax).  What if you found a great deal on the internet for those loupes from a company in Florida?  That manufacture will likely not be required to charge you the sales tax because they do not have a “physical presence” in your state.  Now the responsibility to report these non-taxed transactions lies on your shoulders as the owner of your dental practice.  This is the “Use Tax”. 

How do I comply?

Your practice is required to file monthly, quarterly, or annually the form to report your Use Tax transactions.  You will report the total of purchases which sales tax was not paid - and pay the tax.  We recommend you review all invoices/statements from vendors to determine who isn’t charging you the appropriate sales tax.  Then, call them to request they start charging you sales tax - this will shift the compliance burden to your vendors.  If they will not or are not required to, you must track the transactions & report to your state/city to pay the use taxes.

Why is this a big deal?

States are looking at all avenues to collect more money as they struggle to keep their budgets afloat.  This Sales and Use tax is “low hanging fruit” - a pretty easy target for them to pick on as internet sales have skyrocketed and most dentists aren’t aware they must pay this tax.

I understand this is an area of opportunity to save some significant cash and the financial impact to your practice depends on how much you order over the internet.  Let’s take just dental supplies for example.  For a $1mm practice with a generous 8% supply budget, that is $80,000 of dental supplies with $5,600 sales tax at a 7% sales tax rate. 

With over hundreds of thousands of practicing dental owners nationally, you can understand why each state is interested in collecting as much sales & use tax revenue as they can from the dental industry. Pay attention to this and include it in your quarterly review with your CPA. If you are not getting monthly reconciliation of your bookkeeping and proactive reporting on your dental practice performance, consider a dental specific CPA – it could make all the difference.

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For your own “accounting checkup”, visit Crossroads Tax Advisors to determine how a dental CPA might impact your dental practice. To get started with the Crossroads Tax Advisors online consultation – a custom evaluation of your own practice opportunities - click here -  How would a Dental CPA impact your practice?

The Devil is in the Details: Properly Categorize Dental Practice Expenses

Your dental office Profit and Loss should be “hyper categorized” to quickly identify and benchmark expenses and determine if they are in line with your expectations for overhead. Let’s assume that “dental supplies” are 6% of revenue on the profit/loss, for example. However, with further scrutiny, this category should not include repairs, office supplies, e-services, small equipment, etc. that could easily be purchased from the same distributor (Henry Schein for example) and lumped into “supplies”.  Managing this properly, one percentage point at a time, is how smart independent dental owners achieve efficient overhead.

            There is another reason to make sure every expense is highly detailed. As you prepare to transition your practice, this detail becomes very important. Every dentist will transition: sell to another independent dentist, sell to a DSO, close the doors, join a group, etc. In preparation for ANY of these scenarios, you will likely obtain a practice valuation. This valuation can vary greatly in its conclusion and appearance from broker to broker, CPA to CPA. All of them, however, will begin with an “adjustment profit and loss”.

            When preparing for a valuation, the expenses in the practice profit and loss will be adjusted by the banker, broker, or accountant to reflect only those expenses necessary to run the daily business and not those expenses that are an “owner benefit”. In other words, it is perfectly acceptable for a business owner to have expenses they incur as an owner that are recognized as a tax deduction: auto expense, phone expense, certain insurance, retirement plans, etc. Many of these expenses are not pertinent to the daily operation, rather they are a benefit to the owner. If you remove the owner and replace them with another that does not elect these benefits, those expenses are “added back” to the net income and increase the value as a result.

            Tax Returns will combine these categories by their nature which is why most banks will require the profit and loss for more detail. Most of the P&L that I’ve reviewed STILL don’t have enough detail:

 

Insurance:  $8, 600

 

rather than           

 

disability insurance:                                 $2,400         

workers comp insurance                        $1,600

business overhead insurance               $   800

health insurance for owner                   $3,800

 

                                  In this example, the insurance for “health insurance owner” could be adjusted out with the assumption that a new owner would not be required to obtain this as an expense to run the daily business. If the detail is not provided, these add backs are not recognized by the reviewer/preparer.

                                  If you don’t have a dynamite “chart of accounts” and your CPA is not paying attention to the devil in the details, check out a dental CPA as you prepare for your transition as it could make all the difference.

How to Manage Dental Practice Business Receipts?

Welcome to the 21st Century!

What did you do with those receipts from the Super Bowl party? How did you itemize the Sam’s Club run?  Did your staff remember to turn in the party store receipts?  Are you tossing them in a shoebox, so-to-speak, only to give them to your CPA at year end?

Maybe you are scanning them into a document folder . . . Whatever your process, try to calculate the time spent in the life and movement of that receipt. Try to recall the process that pushes that receipt forward and the time and effort that goes into managing that. Double that because your CPA has the same challenges. How many receipts are we managing? Time and effort, ugh.

Modern dental accounting tools allow for software/phone apps that dramatically reduce the time and effort involved in expense management in the dental practice. Now, for that meal receipt, take a picture at the lunch or dinner table with your smartphone and forget about it.  The photograph will be read by artificial intelligence and, over time, will be categorized appropriately with no input from you. The receipt is not only visually recorded but now searchable by all data points:  vendor, locale, amount, date, etc.  if needed later in case of an audit.  In the modern dental office, you absolutely should have a digital-document-management system in place for a couple of key reasons:

1)  eliminate time and effort = improve efficiency. Click the photo and you and your staff can move on to other things. With simultaneous dental CPA access, your accountant can review the coding of these transactions with proper support. The data is accurate, accessible, and processed completely in one step.

2) reduce your risk. By being searchable by all those data points, you can access them at any time for any reason to support an audit or review in your practice. Regardless of whether you are conservative or aggressive on your definition of “meals” with the IRS, you better have the receipts for the meal in question for the auditor. If you don’t have the receipt, the auditor will disallow the transaction, no question. 

This one example of utilizing technology in the dental practice to reduce stress and increase efficiency in process is only one of many options available to the 21st century dental accounting process. Visit Crossroads Tax Advisors to learn more about the benefits of working with a dental accounting firm.

It’s Deductible! Meals, Entertainment, and the Dental Office

I attended a Super Bowl party and was talking with a new dental practice owner.  She is about three weeks into dental practice ownership, so we were talking about business in general over a bowl of chips and buffalo chicken dip.

I looked around the room as she mentioned that there were a bunch of neighbors, existing patients, and potential patients at the party. We started talking about good dental accounting and I asked if she was deducting her meal and drinks as a business deduction.  She was hesitant, wasn’t sure how to answer, so we dug into that a bit while I informed her it was a legitimate business expense - but it’s changing.

Let’s take a look at the IRS definition of meals deducted at 50% for business purposes:  Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered “lavish or extravagant.” The buffalo chicken dip was good but certainly not lavish.  The meals may be provided to a current or potential business customer, client, consultant, or similar business contact.

Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event. Remember, for 2018 and moving forward, a dental business cannot deduct the cost to entertain business colleagues, customers, or potential customers.  Only the meals can be addressed now.

As one of her neighbors cozied up to us, complaining about the Rams offense, I told her that I definitely recommend keeping the receipts for all business expenses and I have a very cool method to capture, store, and share those instantly with modern technology. It’s the little things you improve in a practice that make all the difference in profit and efficiency over time. Take a minute to brush up on new tax laws and make sure your dental office accounting is up to speed.