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While working with his endodontist father, Chris Tayler became all too familiar with the inequities imposed by insurance companies on dentists. Seeing an opportunity to help other practice owners, Chris put his MBA and finance background to work and started a company called Cobalt Analytics, which specializes in optimizing insurance plans for dentists. In this episode of Dentist Money™, Chris explains the right way to factor insurance write-offs into profitability and how to make sure you’re getting the best rates.
Speaker: This is Dentist Money. Now, here is your host, Reese Harper.
Reese Harper: Welcome to the Dentist Money show. I am your host, Reese Harper, here with Chris Taylor of Cobalt Analytics. Chris has an interesting background, a finance background, and an MBA. He has family in dentistry. He has been in the dental space for a long time and he specializes in helping dentists make sense of their insurance plans and analyzing their insurance plans. He does some consulting in that area. He understands the struggles dentists face when they are trying to make their collections the best they can be in the market the live in. Chris, I would just like to welcome you to the show and say thanks for coming by!
ChrisTayler: Thanks for having me.
Reese Harper: From your perspective, why don’t you give us a little introduction to Cobalt and how that came to be. Also, your experience in the industry.
ChrisTayler: Sure, my dad has been an Endodontist forever, and so every now and then I would go up and either bug him or try to help him. I was looking at all of these insurance plans he had, he was on about 25 that he directly contracted with. Which means you know, he has got to accept whatever payment they tell him they will pay. It seemed completely backwards to me because it would be like going into Macy’s or something and Macy’s basically says you have a contract with us to purchase an item of clothing for this amount. You could basically walk into Macy’s and say, “ok,well, I noticed the price tag on that shirt is 100$, but I’m going to pay 50$ because of that contract.” That’s what you had to do with all of these insurance companies. There are literally a thousand, approximately, procedures that a dentist can do. Most of them will do about forty of those procedures and trying to keep track of each insurance and they all pay a different amount. Which is crazy. So basically I asked if he knew which ones were profitable and he wasn’t quite sure. I just thought well maybe I can put together some sort of a program or algorithm that could give him the actual number as far as his profitability with each insurance goes. So I went ahead and kind of developed something that would help him with that.
Reese Harper: So you based that on his UCR or on what he would get a fee for service? Then look at how much he is actually getting from each insurance plan and then determining which one was actually helping him out the most right?
ChrisTayler: That’s right. The biggest driver on that was he would look at the right off percentage. Basically all that does is say, you should be paid this, you are worth this, but the insurance are going to not pay it. So it is basically just sort of a frustration. Rather than telling the dentist whether they are profitable on that procedure it just says you are giving a 50% sale. What you need to know is whether you are making money on that 50%.
Reese Harper: That’s a good point of clarification.
ChrisTayler: If I have a procedure that I would get paid $100 for, but one insurance plan reimburses $70, and one plan reimburses me $60, most people first off they don’t really know those dollar amounts that they are actually getting paid. They just know that there is a write off percentage. I hear that more common than not. I’ll hear, “I write off like 30% to insurance,” but they don’t really know the dollar amount that they get reimbursed for each procedure very often.
They will look at like an overall daily, they will say I wrote off 30% today. That is just a huge, understandably, frustration point.
Reese Harper: Oh ya, no question.
ChrisTayler: What they don’t know and it is extremely difficult to know whether they are actually making money on that $70 or $60. What is the profit?
Reese Harper: How do you start knowing what profit is in your mind.
ChrisTayler: What you would need to know, let’s say the number that you are being paid, that’s what actually matters. Throw everything else out, and say I am actually paid $70. What is my actual profit? If it costs you to do that procedure say $30 you are making a $40 profit. You are ok there. It is not what you deserve or what you should be paid, but you have got to play the game because this is not going away.
Reese Harper: How do you determine what someone’s costs are then? How does a dentist know what his costs are for each procedure? At some level, he has got his salary. He has got the office overhead, you have got marketing expenses, front desk, some hygiene time. I mean it is probably difficult to pinpoint exactly how much each procedure actually costs to produce.
ChrisTayler: It is. Good point. What we do is take the top 30-40 procedures that they do. That makes up about 95% of their production. We say based on your profit and loss and some other factors, here is a fixed ratio of your costs. So your expense percentage is 30% fixed. For your entire practice. We don’t worry about the number of sponges we are using. That is not helpful.
Reese Harper: You are taking the building and their profit, loss? The fixed costs? Which are front desk, rent, building, utilities. Marketing you wouldn’t consider a fixed cost? That is optional right?
ChrisTayler: That is variable, but that is an operational costs. We basically say what are your operational costs and we want to line those up. Everything that it takes to run your business. So your loan is not necessarily an operational cost it is more a discretionary cost. We pull that out.
Reese Harper: Because different people use different levels of quality.
ChrisTayler: And you could pay back 100% of that this year and next year you have 0% or 1% of that loan left and now you have got a weird profit and loss. It looks like you have all of a sudden done extremely well.
Reese Harper: What if somebody has really, really high marketing expenses one year? You might have to adjust for that if that is not an ongoing thing that they are going to be doing.
ChrisTayler: Ya, I would see that in the next profit loss. You definitely want to benchmark as soon as you run an analysis of some kind. Then compare it to the next year and so on. Then you can see what is happening. I just look at it as a fixed cost over one year because even though it is a cyclical business cost, you might actually have more people coming in over Christmas and slower over the summer, but overall. Over the year, it basically averages out and that gives them a better idea without going to crazy costs for filling, it is not helpful. You can still break it down and say it costs you for two surface filling posterior, $72 to do that. That is absolutely doable. In fact, we do that. They need to know that because if it costs 72$ then you need to make that to break even. So then look at the insurance and see what they pay you for that procedure.
Reese Harper: So you are arriving at that number based on taking the fixed cost percentage and then just multiplying it against the reimbursement from the insurance company? So if I get $70 back, I take my percentage and I times it against that and say well, it costs me about this percentage?
ChrisTayler: Yes, and time is in there. So we will say your expense per hour is $300, overall. If it takes you 5 minutes to do that, and it costs you 20$ to do that, so now we have got a couple different factors.
Reese Harper: That’s more logical. So you aren’t just taking the reimbursement and multiplying the expense percentage to it. You are saying ok this is the percentage of costs across your whole practice. This is the total dollar amount then divide that by the number of hours worked and we kind of know the cost per hour of running a practice.
ChrisTayler: Right, so you can look at it and say here’s the cost per hour. I want to get the fixed cost per hour for sure. Yes. So here is something that the dentist can implement from. That is the key. We can go variable if you want but the fixed cost is what is going to help them to look at something that they can see and get a handle on and do something with.
Reese Harper: So what does that usually look like for people? Is that look like 30%, what is it?
ChrisTayler: The crazy thing is that it is all over the map. I have literally seen -8%, all the way up to 50%. That is a huge variable. But in Utah specifically, and probably the nation, but if you think about every dental practice is its own little business and you get everyone of those are going to have different factors that are going to contribute to what the overhead is. The operational costs, you may even…you have to factor in the hours that the dentist is working and a whole bunch of different factors in order to figure out what is happening within the office specific to insurances.
Reese Harper: If you saw a million dollars of collections where would you hope that those percentages would be if it was managed effectively?
ChrisTayler: That also depends on the percentage of insurances that they take. Some of the dentists are up around, I’ve seen as high as 97% of their production comes from insurances. Whereas others may be down around 50%. That is trending upward.
Reese Harper: Those practices tend to be more profitable for that reason.
ChrisTayler: Although you can see really profitable practices if they have got the right mix of insurances for their office. That variation is all over the board. It doesn’t seem to matter if the dentist next door is taking these set 12 insurances, they may not work out for your practice if everyone is so different.
Reese Harper: Ya, you might see a range though. Like is 20-40% a general range? That most people might fall within?
ChrisTayler: Ya, I think so.
Reese Harper: Let’s say I’ve got this analysis done now, which is a really important thing to do, I think it is very uncommon for most businesses to know their fixed hourly cost of operation. That is something you really have to think about.
ChrisTayler: You have got to get the right numbers in there and it’s not really fun.
Reese Harper: And is definitely not easy to do on your own because taking across your own P & L and then deciding which ones to use, or if it’s clean enough, or if you have even…
ChrisTayler: It takes a long time to clean that out. We know what we want to look for so we can look at it and say based on what we are seeing here, this is what we need to get information on. Then you want to line up your operation costs with your income. So that everything is lined up. If you do that you can say here is my income per hour, here is my expense per hour, here is my net profit per hour. But if have the incorrect operational costs you are going to throw everything off and that will throw off your entire analysis of which insurances are profitable.
Reese Harper: So you have to get the initial analysis to get these benchmark numbers so you know which carriers you want to keep, which ones you don’t. Who I need to go and have a phone call with to start negotiating right?
ChrisTayler: Ya, that’s a factor.
Reese Harper: So let’s say that we get this analysis done and now we have been able to peg where the problem areas are in our practice. We know that carrier A in these three procedures are really problematic. What can I do before I just kick them out? What do I do to potentially get that reimbursement rate changed? How do I go about doing that in a pragmatic way?
ChrisTayler: That is really important. Once you get some numbers the key is to figure out what to implement. What do you do after that right? I mean, we produce a fifty page report with a whole bunch of suggestions.
Reese Harper: That is a lot of pages!
ChrisTayler: And findings.
Reese Harper: I bet most people do not read that all.
ChrisTayler: Some do, it’s amazing, but most want the high points.
Reese Harper: It’s good for you to read it though, right Chris?
ChrisTayler: Ya, I need to know it so that I can come in and say here are the seven things that we recommend that you do and within those seven things here is the order that you can do them.
You want to give them something that they can work with obviously, but that is the beauty of some sort of analysis like this, because then you can actually put real numbers to the profitability of each in each insurance. So if we evaluate thirty insurances…
Reese Harper: This tends to be a pretty regional niche market right?
ChrisTayler: Ya, its always that way.
Reese Harper: It is difficult for a consultant in the East Coast to provide advice to someone in Seattle.
ChrisTayler: Ya, I would say that is very correct and so you are going to have a different game plan, but you can play the game. You can get this information and it’s not going to go down.
Reese Harper: Yes, it is interesting, Chris, just from my point of view. I hear that frequently. Whether it’s in Phoenix, parts of Utah, some parts of other states here in the mountain state region that reimbursement rates are really low. But the thing that I’ve seen, because we have dentists all over the country. And we have got income and net worth and saving rates that we measured from people all over the place. And just because the reimbursement rate might be lower in your market, you might be in a city or state, which can be very frustrating. It doesn’t feel fair. But on the same token, in those markets generally, the cost of labor is a lot lower. And sometimes the operational costs, these fixed costs, are also a lot lower. In our experience we don’t see incomes correlating with the highest reimbursement rates. If you are in Seattle, the Seattle market has got some of the best reimbursement rates in the country. Your rent, lease, and staff wages/benefits you need to provide in order to be competitive they are very different then some of the other markets. I think what you said is really good, I think you need to play the game in the market that you live in and understand the insurance mechanics that are going on in your market.
ChrisTayler: That is a really good point because even the huge variation of profitability between areas of the nation, what I have found is that we have got enough numbers we have been able to find that the variance in profitability is up around 50%. That means one dentist is literally losing 10% on insurance acts and another dentist is making 40% on the same insurance and the same fee schedule. So that shows you that it is so different per actual office. That each dentist has to have this information doesn’t matter whether I do it or somebody else, but someone has got to say here is the profitability of each of your potential payers especially the ones you are actually on. And hey by the way here is the profitability of insurances that you don’t carry right now that maybe are great to add in there, not because you want to add an insurance, but because you want to play the game and find the best mix of insurances. That’s the key. The best mix of insurances for your practice and I guarantee you that I have never seen the same as far as which insurances are the most profitable for each office.
Reese Harper: So let’s say that we do this analysis and that’s true that these insurances are not consistent. How do I go back to my c…like what do I do? Do you guys provide my office with scripts, emails? Does my front desk call every year? Do they call every six months? I mean, what’s the process generally to make sure that I am being reimbursed effectively and that I can prove my case essentially for why an adjustment might need to be made.
ChrisTayler: Well, you can certainly negotiate with the insurances and it is kind of like a credit card. I mean, you might be able to get a lower interest rate on a credit card but they aren’t necessarily gonna say give us a call and we will lower your rate. I think it is very similar and I don’t know what process they go through, but I am guessing that they run some sort of algorithm of their own. In fact, I’m pretty sure that Metlife is a multi billion dollar company. They have a lot of information. I think they may simply say this dentist is making this much for me, for us, so we are willing to give a little more. But for whatever reason it can be contacted and they may raise the fees. I mean, to them, it may be an advantage. You don’t have to go to war with them. It’s let’s find out which insurances are the most profitable and if they have profitable patients. Rather than looking at the write off percentage, let’s look at what we are making with each insurance and with each procedure with each insurance which we also figure out, and that’s important to do. As a general dentist you may just want to refer out root canals or whatever with insurance X. At least you have that information. But ya, so you can certainly contact the insurances and see what they will do for you. Again, it can be a win-win. If you are getting more patients that are profitable then that’s the key. I talk to a lot of dentists who are totally, again understandably, saying, “I just need more patients. I need more patients.” And one of the things that we are saying and I’m working with a really bright guy named Chris Coldruff and he kind of stresses this but you don’t just want to get in new patients. You want to get in patients that are still profitable. If you are bringing in patients with insurance X and you are at -20%, you are literally pulling money out of your bank account to pay for those patients. There are no amount of new patients that would make you money with that. But if you can find an insurance that works the opposite way, that is profitable. Then you can pull in new patients profitably.
Reese Harper: So how do I go about it? Let’s say we have identified a few carriers and procedures that are not profitable, but if I get rid of those procedure or I stop accepting that insurance, then I have big gaps in my schedule?
ChrisTayler: Right, what do we do? You have got to be really careful and if you have got a lot of production with insurance X and it is at -10% profit, but it doesn’t necessarily make sense to just drop it. One of the things you can do is you can set up your own in house office plan, that is not an insurance. It is not an insurance you need to stress that. Legally it cannot be an insurance. The fun part about that is that you don’t want it to be an insurance you want to differentiate that. As long as you price it correctly, and if you have all of your costs, you know how much it costs to set up say a yearly fee for an exam, a cleaning, fluoride, and x-rays. And you can say for that we are going to charge you a yearly fee for x amounts and that is what an insurance charges for premium. What is there premium for a year? Here is our yearly cost, or fee, and just match it up, apples to apples. If your cost to do those procedures is 195$, and you can price around that depending on what you want to price it at as your practice. If you want to price it at 205$, thats great. You are gonna make 10$ per patient as they come in and then you can say what we are going to do is do a discount off of everything else we do. We are also going to make sure that is profitable and then we can set up this plan that is now profitable for new patients. Or we can target those insurances and say to those patients, “look, we are not going to drop your insurance. However, what is your premium vs. our yearly fee. Can we save you money here, looks like we probably can.”
Reese Harper: Doesn’t my profitable number, isn’t that a little bit of a moving target depending on how much money I want to make? Right? At some point, I say, “well, it was profitable when I was collecting 600,000, but if I want to collect 1.4 or 1.5 million then it’s not profitable any more.” I mean this isn’t just a one and done type of a thing right?
ChrisTayler: Yes, totally true.
Reese Harper: So let’s say I’m wanting to take steps towards kind of moving in this direction. How much of this should be you know, I hire Chris to actually train and consult my team so that I have a competent office manager that can actually execute on this on a regular basis vs. an outsourced task? At some level, higher a competent office manager and have you on retainer to actually make sure that you hold my office manager accountable to getting this stuff done correctly. Versus, outsourcing this to somebody entirely. It really is something I have got to be doing weekly, monthly, quarterly.
ChrisTayler: Right, you have got to stay on it. There are changes happening all the time in the industry. Some insurances are looking at purchasing other insurances and if that happens all of the fee schedules are going to change. Which means you are going to be getting paid a different amount which means you are definitely going to need to know your profitability. All of this stuff you have got to stay on top of. Insurances will send you a new fee schedule every year. I think it is important to adjust your fees according to what your findings are. Some insurances may pay little bit more per procedure than your even charging. That means you’re leaving money on the table because they will not pay that fee unless you charge that amount. We run a calculation that does 500 calculations per insurance in order to get it accurate. But once you have those numbers and you’ve benchmarked it then you can stay on top of it. Now addressing your question directly, a lot of office managers are overwhelmed or the dentists are tasking something out to an office manager and they just don’t know what to do. Ya, they are totally understandably overwhelmed.
Reese Harper: Ya
ChrisTayler: So I think one of the keys there and what we are trying to do. We are saying a lot of this we will take right off of your hands. We have a little bit of experience, actually we are starting to have a lot of experience, six years worth, and we can do a lot of these things that we have recommended and take off of your hands and just do it. We can be the insurance experts. Hopefully that we can either guide you or we can do some of it for you, but your office, it doesn’t have to be us, but your office has to know a lot of this stuff to know what to do.
Reese Harper: Is it cost effective to just outsource this completely?
ChrisTayler: Yes, absolutely, no brainer.
Reese Harper: It seems like if I could have my office manager focus on marketing related initiatives and running the office…
ChrisTayler: It is so complex that it takes, and you have to stay on top of things, because they are constantly changing. Lots of stuff can and will happen if you don’t stay up with it. This information isn’t exactly floating around out there either. If you are to hire a business manager to take care of this it will be $50,000 probably. But I do think outsourcing if you can get someone confident that stays on top of it and communicates with your office. Communication is huge. Here is what was just done, here is what we are doing for you, here’s when it’s going to be done! That could be really useful and cost effective.
Reese Harper: How many hours would you say a week, or a month, really need to be dedicated to this in order to manage this effectively?
ChrisTayler: I think initially there is a decent amount of upfront time. Once you have some good findings then you have some things that you can really do to kind of play the game. It does take time to do some credentialing once you bring on a new insurance. I don’t know hourly, but maybe…
Reese Harper: Number of hours, to implement…
ChrisTayler: To implement everything and make sure it’s right and dot your I’s and cross your T’s is probably 10,15, 20 maybe up to 25-30.
Reese Harper: I would have said like a week of time, which would be more like 40 hours.
ChrisTayler: If you are credentialing then that is a lot of time. Some of it is just busy work. Then you have to go through steps if you are going to adjust your fee schedule you really want to walk through four or five steps.
Reese Harper: How do I maintain that? What’s the ongoing maintenance time that would need to be allocated? You know, do I spend another five hours?
ChrisTayler: Honestly, this is your actual income. So I would spend or I would want somebody spending a day a month.
Reese Harper: Ya.
ChrisTayler: Or more!
Reese Harper: So one or two days a month, a week might be too much?
ChrisTayler: Ya, that’s not doable. One or two days a month.
Reese Harper: You probably wouldn’t get bang for your buck much past that?
ChrisTayler: Right, right.
Reese Harper: How does your firm work with people? Do I pay for an initial analysis and then a monthly service or what does it look like?
ChrisTayler: Exactly. We run the initial analysis, get everything, it’s about fifty pages. It’s a financial document. Then once you have got that we can make some real categorical and financial decisions based on true financial information. Once you have that, then it is about doing some numeration and that’s part of the money service that we would do.
Reese Harper: Then once a year I have to relook at my financials and relook at it and say do we need to take any new decisions based upon the financials?
ChrisTayler: Yes, so we would run the initial analysis and then look at what needs to be done, which we help with as a monthly service. The office managers, if they want to do more, then we would charge less. Then at the end of the year depending whats happening. An associate may be coming in. We may want to run that again and do a projection and say if you are going to bring in an associateship instead of having them pick up all thirty of your insurances let’s do a projection and find out which ones are good because a lot of times out we will be losing money if they are just trying to do them all.
Reese Harper: I think that’s really good advice. Chris, you are a wealth of knowledge and you’ve definitely got a lot of insight into this area and you can tell that you care a lot about it and that comes across in the clients you work with. So tell our listeners a little bit more how they could get in touch with you guys if they wanted to reach out and learn more.
ChrisTayler: Ya, go to our website. It is www.cobaltanalytics.net. Or you can certainly contact me at 801-953-9777 at any time.
Reese Harper: Chris we really appreciate you coming in and we look forward to catching up with you soon!
ChrisTayler: Thank you, thanks for having me.Insurance