Every year or so I review the practice statistics of our entire active client base. I always have a different specific theme or goal in mind but I calculate average production, income, adjustments, new patient flow, the case acceptance rate, and the Production Per Patient (PPP). The intent is simply to document changes up or down in the practice statistics that most indicate practice health.
My special interest this year was to determine the differences in performance between orthodontic practices that do a heavy percentage of Phase I’s and those that do not. I wrote about this issue in December of 2013, but what I found with this study was more comprehensive and interesting.
For this particular study I looked at the percentage of new (never been in any form of treatment before) case starts that had any form of Phase I, with Phase I being defined as placement of any orthodontic appliance (Bite Plate, Space Maintainer, or something more complex) on a patient who will have “braces” diagnosed at some point in the future. These tended to be patients in the 7-11 age group.
I compared all of the practices that had less than 25% of new starts in Phase I with the practices whose Phase I starts exceeded 25% of new starts. Just to be clear, a Phase II start is not a “new” start.
The first thing I noticed was that the average monthly production of our clients with Phase I starts above 25% of total new starts was $194,000. These practices averaged 36% of their total new starts as Phase I starts. The average monthly production of our clients with Phase I starts below 25% of total new starts was $142,000 per month, and 20% of their new starts were Phase I starts.
It is important to note that the average fee schedule of these two groups was not significantly different from each other.
I also calculated the average PPP (see above) for each of the two client groups. PPP is determined quite simply by dividing monthly production by the number of new (first time) case starts. It’s an important statistic that every orthodontist should track. Again, a “new” start includes Limited, Phase I, and Full starts, but does not include Phase II starts, because Phase II’s are not “new” starts. So PPP represents the total fee generated for each patient in treatment in the practice. The PPP for practices that did more than 25% of starts in Phase I was $6587. The PPP for practices that did less than 25% of starts in Phase I was $5450!
I looked at new patient flow statistics and found that practices doing the greater percentage of phased treatment had higher numbers of new patients referred by existing patients. I then looked at the case acceptance for the two groups and found that case acceptance for the practices that did more Phase I starts was 3% greater than it was for the practices that did less. That makes sense considering that patients referred from patients have far better case acceptance rates than patients referred by dentists.
I am not an orthodontist and have no clinical training so I am not, thankfully, a participant of the ongoing clinical debate concerning the merits of phased orthodontic treatment. However, I can and do pay attention to what contributes to the success and the profitability of an orthodontic practice. There is no question whatsoever that a practice diagnosing a heavy percentage (30%+) of new patient starts as Phase I will, in general, be substantially more profitable than a practice that is under 25%. Is there more overhead for the practice doing a lot of phased treatment? Of course there is. However the increased overhead is far, far less than the $1,100+ per patient increase in revenue!
Some may scoff at the seemingly insignificant 3% increase in case acceptance the high phased treatment practices enjoy. However, assuming 500 new exams a year, that 3% improvement in case acceptance is equal to 15 case starts and more than $90,000 a year in additional income! That $90,000 is substantially greater than the additional overhead associated with phased treatment.
There is more to this story. At the 7-11 age group, both kids and their parents are highly motivated and our studies, along with those of well respected case acceptance consultants, show that case acceptance rates on Phase I diagnoses is 85%-90%+. Almost every Treatment Coordinator in the country will verify that figure. Doctors putting these kids into recall until their permanent teeth grow in will lose 20% or more who disappear from the recall system before they ever come back for their “recall ready” appointment. Of those who do remain in your recall system the case acceptance rate is only about 80%-85%. Priorities have changed by then and parents are more used to their kid’s appearance, the patient wants a girlfriend or boyfriend, and ortho appliances are not quite as cool as they would have been at age 9.
It is probably useful to discuss case fees on these phased treatment plans. We do not believe in the old school formula of charging a low fee for Phase I and then a full fee for Phase II with a credit or discount for part or all of what was paid for Phase I. Most of our clients, about 80% of them, use a fee formula we first started recommending back in the mid to late 80’s when phased orthodontic treatment was getting going. This formula starts with the assumption that the total fee for a phased treatment plan should be roughly 125% of a regular full start adolescent case fee. The range we typically see is 110% to 150%, depending on the marketplace and/or the orthodontist’s courage. To calculate your phased treatment fees, multiply the total fee you want to collect for both phases by 55% and that will be your Phase I fee. Then multiply the total fee you want to collect for both phases by 45% and that will be your PH II fee. So, if your full start adolescent case fee is $6180 and you want to collect 125% of that for a phased treatment plan (this assumes comprehensive Phase I, not a simple Lingual Arch, Space Maintainer, etc.) the total fee will be $7725. We charge out 55% of that in Phase I for a total of $4180 (rounded down). The Phase II fee is 45% of the $7725 total which is $3480 (rounded up).
Yes, I know that $4,180 is greater than a traditional comprehensive Phase I fee and $3480 is far less than a traditional Phase II, but that’s the magic! Orthodontists have generally ignored motivation and marketing when setting their fees. They charge very little for Phase I treatment when patient and parent motivation is high and then later, when the patient is older and both he/she and the parents are significantly less motivated they charge the higher fee and lose a significant percentage of those Phase II starts. We have switched many hundreds of orthodontists to this style of fee structure in the past 25-30 years and to our knowledge none have ever switched back! Even with the greater Phase I fee, patient and parent motivation is so high that there is little fee resistance. Later, at the Phase II diagnosis, and when patient motivation is reduced and the parent is no longer sure they even like this kid any more, the lower fee results in significantly better Phase II case acceptance.
So, should you be doing more phased treatment? That’s purely a clinical decision and not a financial decision. However, for those doctors who enjoy and believe in phased treatment, they will definitely be the more profitable practice.
If you would like to explore becoming a client of Zuelke & Associates, please call our office at 503.723.0200. We will do a no-charge detailed analysis of your practice performance and provide specifics as to how our consultation will benefit your practice and your personal quality of life within the practice.
-Paul Zuelke
