An Effective Fee Schedule
Most practices lose $10,000-65,000 in net income every year because they don't have properly calculated fee schedules. About half of the loss is due to mis-feeing phase I, limited, and TMJ treatment. The calculations described in this article will help minimize these losses.
The other half of the loss is due to the orthodontist quoting an incorrect fee at the initial examination or case presentation. In my experience, the doctor tends to be more lenient than a properly trained treatment coordinator would be. Instead of quoting the fee, the orthodontist should quote the treatment, and the treatment coordinator should look up the treatment on the fee schedule and present the fee to the patient. All the doctors I have worked with who quoted fees lost $5,000-30,000 per year before appointing a treatment coordinator.
The Need for Fee Increases
Fee increases are not necessarily required if a practice is still growing. But once the practice has reached its maximum potential of starts per day, it must increase fees to survive.
The amount of fee increase required to keep up with rising expenses depends not only on the rate of inflation, but also on the rate of staff salary increase. A typical practice with staff salaries equaling 23% of expenses and an annual salary increase of 3 percentage points over the inflation rate needs to increase fees by the inflation rate plus 3% of 23%, or .7%.
The actual amount of fee increase can be determined from a table such as Table 1. Fees should be raised in increments of $50, with the total amount spread throughout the year. For example, if a $100 annual increase is required, raise fees by $50 in January and July; if $150, add $50 in January, May, and September.
The Fallacy of Lowering Fees
When faced with low-fee competition, an orthodontist's first inclination is often to reduce fees to keep up. However, lowering fees is detrimental to long-term profitability, unless it results in a substantial increase in the number of patient starts.
Orthodontists should instead be looking for ways to improve service so that more patients are attracted at the current rate, or even higher fees.
Philosophy of Fee Schedules
Fees must be fair to both the patient and the practice. The patient should be charged a relatively fair fee for the services provided, and the practice should receive fair compensation for all of its services.
The orthodontist's skill and the quality of the service should determine overall practice fees, relative to the competition. But fees for individual treatment procedures should be based on the time it takes to perform them, not on the degree of skill required. If it takes the same amount of chairtime to complete both a Class I crowded case and a Class II skeletal open-bite case, they should be charged the same, even though the Class II case requires much more skill to treat. The patient is paying for chairtime, whether the case is simple or complicated.
From exam to end of retention, treatment can require as much as 1,350 minutes of chairtime or as little as 900 minutes, with the average being about 1,100 minutes. The time can be further divided into three areas:
In practices I have analyzed, 95% fell within 2 points of these percentages. The fee can be divided similarly. For instance, if the fee is $3,280 for a 24-month case, that works out to an initial payment of $920 for communication and appliance placement, $1,580 for active treatment, and $780 for appliance removal and retention. The active treatment is only 2% per month of the total fee, and thus the slight variation in chairtime between a Class I crowded case and a Class II skeletal open-bite case has a negligible effect on the fee charged.
Full Child Fee Schedule
Most full child treatment is completed in 24 months, but a significant number of cases require as little as 12 months or as much as 36 months. The basic procedures are the same for each case, but the number of appointments varies with the number of months. Therefore, the fee should be adjusted according to projected treatment time.
The key is the 24-month fee, which accounts for about 65% of gross income in the average practice. With a fee of $3,280, at 2% per month as calculated above, each month amounts to $65.60 and 12 months to about $400. An 18-month fee would therefore be $2,880 and a 30-month fee $3,680. Typically, though, the extra visits from 24 to 30 or 36 months are short checks rather than full archwire changes, and only three-fourths of the extra amount is added on.
A three-month time range should be allowed for each fee. Thus, a child treatment fee schedule might be:
A 2%-per-month fee is assessed to the patient for every month over the three-month range, or a refund is given for every month under three, unless some retention time is included in active treatment.
Full Adult Fee Schedule
Most practices have higher fees for adults, for a variety of reasons:
The customary way of determining the adult fee schedule is to put a surcharge on the child fees, perhaps $300 or $400. An adult fee schedule derived from the above child fee schedule, with a $300 surcharge, would be:
The Acceptable Numbers Principle
The reason I use a base fee of $3,280 in this article, instead of $3,200 or $3,300, is the "acceptable numbers principle". About 20 years ago, a research group conducted a survey of fees in some 30 dental practices. The group examined every fee quoted by each practice over its lifetime, and thus had thousands of fees in its sample. Only one criterion was used: whether the fee was accepted or rejected.
From that study, we can draw the following conclusions about what orthodontic fees would be acceptable to patients:
Why certain numbers are acceptable is not important; what is important is that the practice take advantage of this natural human reaction to numbers.
Another lesson of number acceptability is how to quote a fee. For a fee of $3,280, instead of saying, "The fee for your orthodontic treatment is three thousand, two hundred and eighty dollars," say, "The fee for your orthodontic treatment is thirty-two eighty." The less time it takes to state the fee, the less time they have to think about where else to spend the money. Don't forget, your major competition is not the orthodontist down the street, but the countless alternatives that patients have for spending their income.
Examination Fees
An initial exam fee should not be charged to orthodontic patients. By making the exam a courtesy, there is less hesitation on the part of the family dentist in sending a young patient to the orthodontist. Added to the current legal pressure to refer all patients with possible TMJ, periodontal, or orthodontic problems to a specialist, the courtesy exam makes referrals even more likely.
An examination fee may be justified in towns with large military bases or transient populations, where many patients transfer out every year. In such towns, the exam fee can be deducted from the initial payment when the patient starts treatment.
Records Fees
The records fee, whether you do full records in-house or use an outside lab, has a definite effect on how people accept treatment and view the practice's financial arrangements. Philosophies of charging records fees fall into three categories:
About half of my clients adhere to the separate-fee philosophy and collect the fee at the records appointment or, if that isn't possible, at the case presentation. The disadvantage of this method is that the higher the records fee, the more likely the patient is to put off the records appointment. The advantage is that the records fee makes the initial payment (normally 28%) and the overall fee seem lower.
Care must be taken when setting separate records fees so that the treatment fee number is not unacceptable. For example, if the total fee is $3,280 and the records fee $135, the treatment fee becomes $3,145, an unacceptable number. In this case, the treatment fee should be adjusted to an acceptable $3,130 or $3,180.
Another half of my clients include the records fee in the treatment fee. The disadvantage of this philosophy is that the initial payment becomes relatively higher. Also, the records fee is difficult to collect if the patient doesn't go ahead with treatment. The advantage is that there is little hesitation on the patient's part to have records taken immediately after the examination, or to schedule the records appointment at the exam.
A few of my clients charge no records fee. This philosophy is based entirely on marketing principles. If there is no fee, there is no hesitation whatsoever to proceed with records, and more than 95% of the patients who have records taken accept treatment. If the patient doesn't start treatment, the practice loses the records fee. But the amount lost is negligible compared to the higher case acceptance rate. In any event, the records fee is typically only 5% of the total fee, whereas it costs 15-20% of the fee to get the patient from the initial appointment through the case presentation.
Even if the practice customarily has no records fee, a patient who is seeking a second opinion should always be charged for records. The fee is collected at the records appointment, and the patient is told that the charge will be deducted from the initial payment when treatment is started. Patients who insist on taking the "free" records with them should be charged a duplication fee equal to the records fee; this can also be deducted from the initial payment when they start.
Pre-Orthodontic Guidance Program
The Pre-Orthodontic Guidance Program is a pre-active recall with a twist. Its main objective is to keep patients from dropping out and starting treatment in another practice. The best way to achieve this is to have the patient make an investment in the treatment.
Put the patient in the Pre-Orthodontic Guidance Program and charge a fee of $85, $115, or $135. This fee covers all visits and records during the pre-active recall period and is subtracted from the initial payment when active treatment is started.
Typically, radiographs and photographs are taken at the beginning of the Pre-Orthodontic Guidance Program. If you normally charge for records, it is easy to justify the pre-active fee. If your records are normally free, it may be difficult to sell this program.
The pre-active recall period can also be used to help patients who might find it difficult to raise a large initial payment. Just give these patients 12- or 18-month payment books and have them pay $25 or $30 per month (or whatever they like) toward their initial payment.
To absolutely tie patients into starting treatment, you can offer future treatment at today's fees. Have the patient sign a financial arrangement, and spread the current fee over the entire pre-active and active treatment period.
Phase I and Limited Treatment
To accurately calculate Phase I or limited treatment fees, you need to know how much to charge per minute for each appointment. To calculate this fee multiplier for child treatment, simply divide the 24-month fee by the average chairtime of 1,100 minutes. For example, a $3,280 child fee divided by 1,100 produces a fee multiplier of $3 per minute. If three children are being treated simultaneously by the staff, they are generating $9 per minute.
As an example, a common Phase I treatment involves rapid palatal expansion. Using the fee multiplier of $3 per minute, you can calculate the fee for a typical six-month RPE program as follows:
Exam...........................................45 minutes.....$135
Records.......................................30 minutes........90
Consultation, separation.............45 minutes......135
Fitting, impression......................45 minutes......135
RPE placement............................45 minutes......135
4 weekly visits (15 min. each).....60 minutes......180
RPE removal, impression............30 minutes........90
Palatal plate placement................15 minutes........45
4 monthly visits (15 min. each)...60 minutes......180
Lab fees for RPE and plate....................................60
TOTAL FEE..................................................$1,185
This can be rounded off to an acceptable number of $1,180. The fee may seem high to many practices, but it is what must be charged to remain financially stable. Some orthodontists undercharge for Phase I as a "loss leader" for Phase II. This is unrealistic, because patients do not always proceed with Phase II treatment.
There are ways to reduce the fee shown above if the orthodontist finds it necessary. Don't charge for the four monthly visits in Phase I retention--treating it as observation recall--and reduce the fee by $180. Don't take full records until Phase II if possible, reducing the fee by $90.
All that is needed to calculate any other Phase I or limited treatment fee is:
It takes time to figure out these fees, but a return of $5,000-35,000 per year could be realized on the investment of time and persistence in using properly calculated Phase I and limited treatment fees.
Phase II and Combination Full Treatment
Phase II fees are full treatment fees, except that Phase II may take only 12 or 18 months if Phase I was successful. Combination full treatment is similar to two-phase treatment, except that there is less than six months between the two phases and one comprehensive fee is charged.
The simplest way to calculate a combination fee is probably the best. Just take the full treatment fee for the appropriate number of months, and add the extra lab fees. For example, if you had 12 months of sagittal treatment and 24 months of full fixed appliances, you would take the 36-month full child fee of $3,880 and add the $100 sagittal lab fee, for a total of $3 ,980. The lab fee would be added to the usual 28% initial payment.
Transfer Adjustments
A transfer-out fee adjustment is required whenever a patient transfers to another practice. The amount of the adjustment should be based on the amount of treatment completed and the patient's degree of cooperation.
If the patient is in active treatment, the fee is reduced by 2% per month for any treatment time remaining, plus the 24% allotted to appliance removal and retention. Since the communications and appliance placement fee includes second molars, an adjustment should be made if second molars were not banded.
With a $3,280 fee for 24 months, 24% would be about $780, and the monthly active treatment fee $65. If a patient transfers out with eight months of treatment remaining, the transfer adjustment would be $780 plus eight times $65, or $520, for a total of $1,300. If the second molars were not banded, if it takes 45 minutes to band second molars, and if the fee multiplier is $3, then $135 would be added to the adjustment.
This adjustment can then be modified depending on patient cooperation. If the patient missed two appointments totaling 45 minutes and had two emergencies totaling 60 minutes, the adjustment would be reduced by 105 minutes times $3, or $315.
A transfer-in fee is calculated in exactly the same way, with the addition of a fee of $100 or $200 for the exam and records. For example, with a 24-month fee of $3,280, if a transfer patient has six months of treatment remaining and the second molars have been banded, the fee would be $780 (for retention) plus $65 times six, or $1,170. With $200 added for records, the total fee is $1,370.
If the previous orthodontist's fee formula was similar, there is no problem. Unfortunately, in many such cases the patient will have had only $600-700 left to pay. Some practices will accept a loss to treat a transfer patient, rather than insisting on full payment of their normal fees. My feeling is that such a patient might be worth losing, since the cost would be much more than the fee, and transfer cases always seem to take longer than expected.
TMJ Treatment
TMJ disorders are difficult to diagnose and to treat. Although TMJ treatment can be gratifying
when patients are helped, it can also be depressing for the orthodontic staff because of the stress the patients are under. Most practices don't mind accepting TMJ cases as long as they are treatable, but they don't want to become "pain clinics".
TMJ fees can be calculated after the following questions are answered:
If the patient does not need or want orthodontic treatment, then the TMJ fee is handled as a separate, limited treatment. If the patient is to have orthodontic treatment as well, and a full-fee approach is used, the fee is figured by one of three methods:
1. The TMJ treatment is handled as Phase I, with a separate fee, and the orthodontic treatment as a full Phase II. This is the safest approach, since the patient's attitude can be evaluated during the first phase to determine whether to proceed with the second phase.
For either separate or Phase I TMJ treatment, the fee is calculated in the same manner as for any Phase I or limited treatment, based on the amount of appointment time needed to treat the case. A typical breakdown for a six-month TMJ regimen, at $3 per minute, would be:
TMJ exam...........................................45 minutes...............$135
Records (full + tomograms, etc.)........75 minutes.................225
Consultation, impressions.................45 minutes..................135
Splint placement................................45 minutes..................135
8 visits (15 min. each)......................120 minutes..................360
2 splint adjustments (45 min. each)...90 minutes..................270
Lab fee for splint.....................................................................70
TOTAL FEE....................................................................$1,330
A typical financial arrangement would be a $495 payment for the exam, records, and diagnosis, payable at the records appointment; an initial payment of about 50%, or $385, due at the splint placement appointment; and six monthly payments of $75 each. If 24 months of orthodontic treatment follow the TMJ treatment, the total fee would be $1,330 plus $3,580 (adult), or $4,910.
2. The TMJ treatment is performed immediately before full orthodontic treatment, and a comprehensive fee is charged. Four to six months of TMJ splint treatment before full fixed appliances are placed require extra procedures and appointment time. The additional fee would be calculated thus:
Extra exam time......................................15 minutes............$45
Extra records (tomograms, etc.)..............45 minutes............135
Extra consult, impressions.......................0 minutes................0
Splint placement.....................................45 minutes............135
8 extra visits (15 min. each)..................120 minutes............360
2 splint adjustments (45 min. each)........90 minutes............270
Lab fee for splint.....................................................................70
TOTAL FEE....................................................................$1,015
The combined total for TMJ and 24 months of orthodontic treatment would be $1,015 plus $3,580, or $4,595, which can be changed to $4,580 to make it an acceptable number. A typical financial arrangement would involve an initial payment of $1,130, followed by $115 per month for 30 months. This assures you of full payment for the TMJ treatment and records if the patient does not proceed with the orthodontic treatment. If you want additional protection, charge $495 for the TMJ exam, records, and diagnosis, payable at the records appointment, and reduce the initial payment to $635.
3. The TMJ treatment is performed during orthodontic treatment, with a comprehensive fee. Since splint adjustments can be made at regular orthodontic appointments, the calculation of the extra TMJ fee is different:
Extra exam time.............................................15 minutes..........$45
Extra records (tomograms, etc.).....................45 minutes.........135
Extra consult, impressions...............................0 minutes.............0
Splint placement.............................................45 minutes........135
4 extra visits (15 min. each)...........................60 minutes.........180
2 extra splint adjustments (45 min. each)......90 minutes.........270
2 fewer orthodontic checks (15 min. each)....-30 minutes........-90
Lab fee for splint.........................................................................70
TOTAL FEE............................................................................$745
The fee total then becomes $745 plus $3,580, or $4,325, which should be rounded to $4,330 to make it an acceptable number. The financial arrangement typically consists of an initial payment of $1,090, followed by $135 per month for 24 months. There is no problem with the patient declining orthodontic treatment, since the TMJ treatment is begun after fixed appliances are in place. If a TMJ problem is detected during orthodontic treatment and the patient elects to have it treated, an additional fee of $750 can be assessed.
If the fee-for-service philosophy is used, then realignments and emergency appointments are treated the same, with payment made at the time of the visit. Under this method, a separate TMJ fee schedule might be:
TMJ exam 45 minutes $135...............................45 minutes.......$135
Records (full + tomograms, etc.).......................75 minutes...........225
Fee paid at records appointment...................................................360
Consultation, impressions.................................45 minutes..........135
Splint placement 2 visits (15 min. each)............45 minutes..........135
Lab fee for splint.............................................................................70
Fee paid at splint placement appointment....................................430
Splint realignment (paid at visit)........................45 minutes..........135
Splint check (paid at visit)..................................15 minutes...........45
Each splint emergency (paid at visit)..................45 minutes.........135
Some orthodontists feel that TMJ treatment requires so much extra doctor time that the fees calculated above are too low. If the level of delegation in the practice is such that the doctor is required at the chair for at least 40% of the total appointment time, then a TMJ fee of 1.25 to 1.5 times the above is justified. The separate TMJ treatment fee might then be $1,680 or even $1,980.
Retention
Retention commonly takes 24 months, with a fee charged for any visit after the prescribed period. A typical charge for "fee-for-service" retention checks is $25-65, with $45 the most common.
I do not recommend a separate retention fee. The rationale for one is to make the treatment fee look smaller, or to keep the treatment fee the same while raising the total payment. In reality, the patient doesn't notice the lower treatment fee and is merely annoyed by the retention fee at the end of active treatment. The loss in patient referrals is far greater than the gain in case starts from a lower treatment fee.
Appliance Fee Considerations
Ceramic brackets cost a practice much more than the approximately $100 extra for the brackets themselves. Treating a patient with ceramic brackets can involve extra emergency appointments, time-consuming ligation methods (sometimes requiring more frequent visits and thus more total appointments), extra time in bracket and adhesive removal, and longer treatment time due to increased archwire friction.
Calculations of actual treatment time from many practices show the added cost to be $100-800, with the average around $500. Including the cost of the brackets, this would add $600 to the 24-month treatment fee. Typically, $120 is added to the initial payment and $20 to each monthly payment.
If only upper ceramic brackets are used, the extra cost is usually about $400. This would require $40 to be added to the initial payment and $15 to each of the 24 monthly payments.
SPEED System brackets also cost about $100 more than ordinary metal brackets, but the treatment generally goes faster and appointments are shorter. This more than compensates for the extra bracket expense, and therefore I don't recommend any additional fee.
The fee for lingual appliances is more a matter of personal treatment philosophy than of extra chairtime. Some orthodontists feel comfortable in using lingual appliances for the entire treatment. Some use lingual appliances for 18 months, then place labial appliances for the final six months.
Like TMJ treatment, lingual treatment does require more chairtime in the average practice--about one extra unit per adjustment appointment and a number of extra units for bonding and debonding. If it takes an extra 60 minutes to bond, an extra 30 minutes to debond, and an extra 15 minutes per visit for 20 appointments, the added time would be 390 minutes, or $1,170 if the fee multiplier is $3. This amount can be adjusted if the appliances are replaced with labial brackets after 18 months.
Orthodontists who do full lingual treatment generally charge either twice their usual fee or $2,000 extra ($1,500 extra for upper lingual appliances only). Since this is much more than the amount calculated above, it appears that orthodontists believe a premium is justified for lingual treatment.
Surgical-Orthodontic Fee Considerations
Surgical-orthodontic treatment not only requires additional service, but carries with it additional liability. Leaving aside the liability question, there are three possible sources of added costs:
The average added time is about 150 minutes, which would amount to $450 if the fee multiplier is $3. I have seen as little as $100 and as much as $1,000 added to the fee for a surgical-orthodontic case. Most of my clients charge $400-500.
Philosophies of Fee Courtesies
Siblings of patients are usually given fee discounts, perhaps $100 for the second child and $100 or $200 for additional children, deducted from the initial payment. This assumes that the first child was cooperative and the family paid on time.
Similar discounts of $100-200 are sometimes given for Phase II treatment, again assuming cooperation and prompt payment in Phase I. The maximum should be $400. Giving the patient back the entire Phase I fee as a courtesy is financially disastrous.
Courtesies for referring dentists and their families are typically 100%. A staff member of a referring dentist usually receives 25% off the initial payment and 25% off each monthly payment, as long as the person continues to work for that dentist.
Referring non-dentists, whether professionals or not, should receive a 25-50% courtesy if they consistently refer patients, year after year.
No courtesy should be given to non-referring dentists and their families. If they send their children to you but their patients elsewhere, they may respect your treatment, but you will never get their referrals whether you charge for their children's treatment or not. They would probably only feel guilty if you didn't charge them.
Your own staff members should receive discounts of 25-100%. Anything over 30% is taxable to the staff member, but the tax can be avoided if the person is not treated during normal patient hours. The adjustment should be made to the initial payment and each monthly payment, as long as the person continues to work for you.
Some practices give a discount of up to 10% of the total fee as a "bookkeeping discount" if the entire fee is paid up front, believing that the extra cash flow makes it worthwhile. Unfortunately, their logic is faulty.
It costs $60-90 per start (if computerized) for financial services--about 2% of the total fee . If a 10% courtesy were given on every case start, however, it would not only reduce gross income by 10%, but would reduce net income by 20-25%, depending on overhead.
The rationale that money paid up front will be invested and produce interest is a fantasy. On the contrary, the money is usually spent immediately, and then when it is needed during future hard times, it is unavailable. A 50% drop in starts can produce an immediate 25-50% drop in income, and of course expenses don't drop simultaneously.
If people want to pay up front, fine, but don't give them a discount. If you feel the need for a courtesy is overwhelming, make it 5% rather than 10%.
Conclusion
A fee schedule not only ensures that patients are being charged fairly, but also allows the practice to be compensated fairly for the services provided. A properly calculated fee schedule can give you peace of mind about your fees--plus an extra $10,000-65,000 a year in net income.
