Trouble Deciding Whether to Join or Drop a PPO?
Making the decision to join or drop a dental PPO can be difficult. If PPO plans continue to gain market share (as current trends indicate), an increasing number of dentists will be confronted with this difficult decision. Understandably, patients want their dentists to participate with their PPO plan(s). The fear of losing established patients and the fear of holes in the schedule are the primary reasons that most dentists make the decision to participate in the first place. The fear of losing established patients and the fear of experiencing a lack of busyness is also why some dentists continue participating in PPO networks even when it may not be profitable
To make a fully informed decision, dental teams need to analyze each PPO contract they have (or are considering) to evaluate the PPO fee schedule (as it relates to their unique historical procedure mix) to determine the potential for profitability (i.e., practice viability).
Analyze the PPO Plan
To analyze a PPO plan, start by identifying the specific procedures that are covered under the PPO plan, the services participating providers are prohibited from charging members (i.e., palliative treatment on the same day as a problem focused evaluation, a gingivectomy on the same day as a restoration, buildups on vital teeth, etc.), and the fees a provider is allowed to charge the member/patient.
— Contact the PPO plan’s professional relations representative and request a copy of the most current participating provider contract, processing policies, and in-network fee schedule.
Calculate Net Collections for Each PPO
If you currently participate in one or more PPO(s), add the total amount paid by each PPO carrier to the total amount paid by that PPO’s members/patients to determine the net revenues collected for each PPO carrier during the most recent twelve month period. What percentage of your total revenues collected does the PPO represent? (For example, in the illustration below, PPO #1 represents 15% of total practice revenues.)
Calculate the Average PPO Write-off
For the same twelve-month period, calculate the total contractual write-offs taken for each PPO network and divide by the total gross revenues generated by each PPO network. (For example, if a PPO required $20,000 in contractual write-offs over the past twelve months and gross production for the PPO totaled $100,000, the average PPO write-off was 20%.)
Calculate the Percentage of Patients Covered
Joining or dropping a PPO plan can have a significant impact on the profitability of your practice if a significant percentage of your patients are members of the plan. The more patients in your practice covered by a PPO plan, the greater impact the decision to join or drop a plan will have on your bottom line. So, the next step is to calculate the percentage of established patients that are covered by each PPO plan and the percentage of new patients coming from each PPO plan.
A. Percentage of Established Patients
Determine how many patients participate in each PPO plan. Determine the percentage of gross revenues the patients in each PPO generated during the twelve months being analyzed Estimate the percentage covered by each employer group.
B. Percentage of New Patients
Determine the percentage of your new patient flow (over the past twelve months) that came from each PPO plan.
Determine Each PPO’s Trend in Your Practice
Compare the established patients “market share” for each plan (A) to the current new patients “market share” (B). Is the new patient market share percentage higher than the established patient market share percentage? If so, the PPO new patient trend is positive and forecasts an increase in the overall percentage of your patient base that will be covered by that PPO in the future. This is a good sign if the PPO is more profitable than others you accept. It is a bad sign if the PPO is less profitable than others you accept.
For example, in the illustration on page 10, it is easy to see the impact that discounted fees have on a practice’s profitability. First and foremost, it is a quick visual reminder that what appears to be a relatively small discount has a huge impact on profitability. Note that the 15% average discount required by PPO #1 resulted in a 43% reduction in profit. The 25% average discount required by PPO #2 resulted in a whopping 71% reduction in profit. If you participate in two PPO plans and your analysis indicates that a significant number of new patients are coming from PPO #2, you can predict a significant decrease in profitability, which requires an immediate change in business strategy.
Moreover, if a major employer in your area switches from PPO #1 to PPO #2, you can readily see in the illustration above that you will need to produce twice as much to achieve the same net profit you received from those patients who were previously covered by PPO #1. This also signals the need for a change in business strategy, such as marketing more heavily to employer groups in your area that are covered by PPO #1.
Comparing Apples to Apples
In order to compare the profitability of one PPO plan to another as illustrated above, it is essential for dentists to submit their full fees on all dental claims rather than their PPO contracted fees. While contracted providers are required to accept the PPO fee and honor it when calculating the patient’s responsibility, submitting full fees is important for several reasons:
Dental carriers collect and analyze the fees submitted on claims to determine fee percentiles for specific regions and to determine future allowable fees. Submitting contracted PPO fees on dental claims negatively skews the fee data that is used to determine contracted fees for in-network claims as well as the allowable fees paid towards services for out-of-network claims. Billing PPO fees will have an even greater negative effect as PPO’s capture a greater percentage of the dental benefits market in the future. Reporting full fees on claims supports more accurate fee data, which benefits all providers and their patients.Reporting full fees on claims allows a dentist to track and compare write-offs for each plan by providing a consistent apples-to-apples reference point (i.e., the dentist’s usual and customary fee). Reporting the full fee on claims allows the practice to obtain proper (and optimum) reimbursements from patients who have two or more benefit plans.Reporting the dentist’s full fee makes the claim eligible to receive the PPO carrier’s latest reimbursement increase, which is important if the practice “missed the memo” that the PPO plan increased its fee schedule.
Additional Issues to Consider When Evaluating a PPO
Is the PPO plan an administrative headache? In other words, one plan may be more burdensome to administer than another by requiring substantial documentation for claims or having more rigorous criteria to receive benefits for crowns, buildups, scaling and root planing, etc.How does the PPO’s average writeoff percentage compare with other plans? How often does the plan update your fees? Does “update” mean “increase,” or does it just mean that the plan looks at your fees? Does the plan have a history of reducing fees? Does the PPO plan require PPO fees to be honored for services that are not covered by the plan (i.e., cosmetic services, posterior composites, etc.)? Does the PPO plan require PPO fees to be honored once the patient exhausts his/her plan’s annual maximum? Does the PPO plan require its contracted providers to honor other affiliated PPO plans? If an affiliated PPO plan has a lower fee schedule than the original PPO contract, is the participating provider required to honor the affiliate plan’s lower fee schedule? Does the PPO plan lease its network to other insurance carriers or third party plans? Will the PPO network negotiate fees with its participating providers, or are all providers locked into the fees mandated by the network? Does the PPO network also offer a “dental discount” plan that all PPO network dentists are required to honor? What is the PPO’s member profile? Do the members tend to be high-earning employees who have more discretionary income? Or are they more likely to have less discretionary income and/or less interest in ideal dentistry or elective cosmetic services? Does the plan have a network representative assigned to your office? Or do you get a different call center rep who is unfamiliar with your office every time you call?
Consider the Alternative
If you are tempted to join a PPO due to chronic holes in your schedule and have already conducted a thorough chart audit and patient reactivation campaign, consider investing in targeted advertising before making the PPO plunge. Direct your advertising toward employer groups with rich benefit plans and/or employees likely to have more discretionary income—those who are willing to pay more out-of-pocket for undivided attention and an exceptionally patient-centered atmosphere. Although the struggling economy has certainly taken its toll on discretionary spending, it only takes a few full-fee patients to make up for a schedule full of discounted fee patients.
Also remember that your established patients who are now receiving out-of-network dental care will qualify for in-network fees once you join their PPO network. This is more likely to occur if you join a large PPO network that covers many employer groups in your area. For example, if twenty percent of your practice converts to discounted PPO fees, which will result in a significant write-off, how many new patients (with discounted fees) will be needed to offset the write-off you will be taking for established out-of-network patients who will then receive the discounted fees? The key is to thoroughly analyze the effects of discounted PPO fees and provider limitations based on the demographics of your existing patient base and procedure mix. For some, a better strategy may be to spend money on advertising dollars.
Why Would a Dentist Ever Consider Dropping a PPO in This Economy?
Joining a PPO to fill holes in the schedule may be a good business decision for some offices, but not for others. While joining a PPO may drive patients to a practice, the increased busyness may not necessarily result in increased profitability.
Some practices are so entrenched in PPOs that their schedules are at full capacity (i.e., the dentist is solidly booked for more than two weeks), but the financial health of the practice is declining. They are no longer profitable enough to maintain the quality of care and service they aspire to provide nor are they able to support the dentist’s and staff ’s income needs. When this occurs,dentists need to compare each PPO plan they participate with to determine which is the most profitable and develop a strategy for dropping the least profitable PPO plans. Doing so frees up the schedule for more full-fee-for-service patients (much higher profit potential) and those with the more profitable PPO plans.
Ideally, to determine a PPO’s true potential for profitability, a dentist should also evaluate each PPO’s fee schedule as it relates to his/her unique procedure mix. This involves running additional reports and analyzing data. For additional information about analyzing PPO fees send an email to firstname.lastname@example.org with “PPO Analysis” in the subject line.
Anti-Trust Warning: This information is provided for educational purposes only. Any two or more doctors who collude to boycott or drop a given PPO plan are subject to potential anti-trust violations. The decision to retain or drop any given plan is purely an individual decision.