How to Know Exactly Which Appointments lose you Money
By identifying the major activities and processes involved in providing dental services and assigning costs to each activity, a dental practice can identify opportunities for cost savings and improved profitability.
Dental practices, like any small business, rely on profitability to stay open and continue providing quality care to patients. However, it can be difficult to know which appointments are costing the practice money and which are generating a profit. This is where activity-based costing comes in.
Activity-based costing is a method of accounting that allocates costs to specific activities or processes within a business. In the context of a dental practice, this means identifying and assigning costs to specific types of appointments, such as cleanings, fillings, or crowns. By doing this, a practice can see which appointments are costing them money and which are generating a profit.
To apply activity-based costing to a dental practice, the first step is to identify the major activities or processes that are involved in providing dental services. These may include things like patient intake, exam and diagnosis, treatment planning, and the actual procedures themselves. Each of these activities will have different costs associated with them, such as staff time, materials, and equipment.
Once the activities have been identified, the next step is to assign costs to each activity. This can be done by tracking the time and resources used for each activity and then assigning costs based on those inputs. For example, if a particular procedure takes 30 minutes to perform and uses $50 worth of materials, the cost of that procedure would be $50 + (30 minutes x the hourly rate of the staff performing the procedure).
It's also important to take into account variations in appointments due to different payor fee schedules. This means that different insurance plans or government programs may reimburse the practice at different rates for the same procedure. By understanding the costs associated with each procedure and how reimbursement vary based on the payor, the practice can make more informed decisions about which procedures are most profitable and not just on which ones have the highest reimbursement.
Once the costs have been assigned to each activity, the next step is to analyze the data to identify opportunities for cost savings and improved profitability. For example, if a particular procedure is consistently costing more than similar procedures, it may be worth looking into ways to reduce the costs associated with that procedure. This could include things like finding more cost-effective materials or streamlining the process to reduce staff time.
In conclusion, activity-based costing is a powerful tool for dental practices looking to improve their profitability. By identifying the major activities and processes involved in providing dental services and assigning costs to each appointment, practices can see which appointments are costing them money and which are generating a profit. By focusing on the appointments that are not currently generating a profit, practices can take steps to improve their profitability and ensure their long-term success.