Paying the Employee Doctor and Partner
I will admit I will get a little long winded in this portion of the journey, but I would have to say that over 80% of the offices that start down the road to associates and partners are ill prepared and usually end up regretting their transition. That said, associates and partnerships, when done correctly, will multiply the profitability, expand the range of services you can offer, increase consumer hours, and grow the range of ages your team can treat.
Back at the beginning of our journey down highway 180, we looked at how to make an honest appraisal of where you are on the map, your strengths, and current challenges. This would be a great time to get out your numbers and review your benchmarks and overhead. When we discuss how to pay an employee doctor, there is not fixed dollar amount that you can bring up. Certainly, I would recommend that you give them a daily minimum, but that should go away after a fixed period of time: Perhaps 90 days, or 120 days, no longer than 6 months. While the exact time is less important, it is more important that any “producer” in your office should end up eating what they kill and clean. This is the reality of a business and a learning opportunity for the doctor joining your practice. While discussing hygiene pay, we noted the positives of commission pay, so go back and review this. Ultimately you are going to have to arrive at some pay formula and what follows is my strongest recommendation for you.
There is a myth that exists about employee doctor pay. It seems to fluctuate but depending on the poor advice you received from your institution of higher learning or some seminar or expert, most of us have heard that you should pay 30% to 35% of their net adjusted collections. While there is some truth to this, it is far from the actual compensation number you should consider.
All and any pay to any employee must first drive an increase of profits. The pay formula must consider your existing overhead and net profit. No one, at any time, should hire producers and have the result of actually increasing overhead and decreasing income to the office. Lastly, we must compensate for your current collection ratios and historical results. Ultimately, this could mean that you are not ready for an associate without improving these numbers.
NOTE: If you are considering an associate or moving towards a partnership, you can find an in-depth detailed strategy for both situations in my book, The Road Map to Wealth and Security: Your Complete Guide to Dental Transitions available online at www.summitpracticesolutions.com/products.
For our purposes today, let’s assume you already have an associate, or you are moving towards hiring and looking for a benchmark for pay. There are a few things that each of you should keep in mind when it comes to pay. Most employee dentists are expecting some type of guaranteed salary or per diem pay structure. This can vary by region and state but probably falls in the $600 to $700/day area. If you look at Facebook and various groups with young doctors, there is an overwhelming opinion that they should have this guarantee forever. My advice is to limit it to 3-6 months and pay the base or the arranged commission basis for which ever is larger on a monthly basis. It is my opinion that making this offer of a few months of per diem pay helps the young doctor get started, but most of all it points out the fact that you, the owner, who thought you needed an associate, are fully engaged in doing your part to get them to a commission-based pay. This daily guarantee creates a liability for you unless they are given enough work to satisfy hitting that percentage rather than the guarantee. The logical thread here is that you have at least two rooms for them to work out of, additional staff members to make that possible, the ability to at least double your new patients, and that the new employee has the necessary skill set to perform at that level to make it profitable. Every associate I have had was sat down and explained that I had to make at least 5% to 10% profit on their labor. No profit means no job. A failed associateship means a poor selection process or an office that was ill prepared to create the circumstances for an employee doctor to thrive. It goes both ways so that when or if it fails, it was at least 50% your fault.
One of the things to consider before a discussion of commission pay is your historical collection rate. Ideal would be well over 100% per month. If it is lower than that, we need to adjust what we would offer in a commission. For example, if you only collected an average of 94% a year, we would need to consider that no matter what our new doctor’s net adjusted production is, we will never collect 6% of it. This in turn means that you would need to either adjust your pay offer, or actually collect what you produce.
A common sense but often overlooked prerequisite for hiring an employee doctor is having an existing overhead of not more than about 63% (and lower is better). Without this level of profitability, you will not have the latitude of offering competitive wages and benefit packages. It also means that your overhead will climb and you will ultimately be paying the young doctor out of your own pocket, because what they produce and your overhead do not allow a “profit first” approach. Let’s consider that anything you pay as a commission would also need to reflect your historical overhead percentage. Remembering that you should never hire an associate if you cannot make a profit from their labor, let’s look at an example of actually paying him/her 30% of their net adjusted production or collections. With the plan that you make at least 5% to 10% minimally from the work of an employee dentist and your overhead being about 70%, then the most you could pay is 20% to 25% and that is not including the additional costs added to your overhead of staffing and facility improvements which should also be added. In other words, if you paid 30% you would be losing money every month and this can get worse. So, run the numbers and see what your business will allow you to pay and still make a profit. If the numbers don’t work, neither will the associate strategy. You must become the practice where the results make it possible to expand to the second doctor.
What about those additional costs? Factor in the new assistant, expanded hours, and fixing that crappy op that no one wants to use, etc. Whatever your overhead is now will increase and make the percentage you can afford to pay lower.
In a competitive job market, the base pay, per diem, or commission must be competitive but you must also have some benefits. In a world where McDonalds pays $19.00 per hour and has a $600 signing bonus, an associate would surely expect some level of benefits. These too must fit your overhead model and still allow you to create profit from their labor. Benefits that I often see are continuing education dollars ($1,000 to $2,000 per year), medical insurance ($250.00 or more per month), ramped performance bonuses, malpractice insurance, 401K or some form of Pension and Profit-Sharing program, paid sick days, relocation expenses to get them moved, and unpaid vacation and seasonal holidays. These are just some of the benefits given to employee doctors to find them and keep them in well-run practices.
Make sure you dot the “I”s and cross the “t”s in the form of a comprehensive contract that spells out all the details as well as all the consequences and non-compete provisions. My suggestion is that you should consider paying this commission on a “ramped” basis. In other words, the more they increase their net adjusted production per month, the greater the percentage they will be paid. The idea here is that the first $20,000 or so a month they produce is almost completely eaten up from overhead. As this number increases, they should also increase their pay. An example might be that they are paid 25% for the first $0-$20,000, $21,000-$35,000 would be about 27%, $28,000-$40,000 would be 29%, $41,000-$60,000 might be 30%, $61,000-$80,000 could be 31%, $81,000 and up could be 33% or so. You get the idea. If they work smarter, faster, more efficiently, with higher case acceptance and maybe some higher end dentistry they make more. The percentages were just examples, but the idea will work with any office, overhead, or production level as long as you remember that you need to profit at least 5% to 10% or more on their work.
I want to add one more doctor pay area when you have partners in your practice rather than just associates. Got an email recently from a doctor in a four-doctor office.
“I’m in a 3 doctor group practice (2 partner owners and 1 associate). We have an “eat what you kill” arrangement that has generally worked well over the years but we have been discussing modifying that recently and I was wondering if you might have input or access to compensation models other than our current one that practices use successfully that you could share?”
This is a common problem that seems to pop up after a few years of partnership with any type of pay strategy. It’s not this strategy that causes problems, it is any strategy to the point that one doctor feels that the grass looks greener on the other side of the fence. I have not spoken with the doctor that emailed me, but I am willing to bet that this situation is no different from a two-doctor office where one doctor out produces the other. While I hear various reasons for wanting to change a pay strategy, they all seem to begin with an inequity in production resulting in un-equal division of profits. While human nature, I only see this problem arise when one doctor is either more productive or wants to work more and the other isn’t or doesn’t. Bottom line is that one doctor takes home more than the other and the lesser of the two feels like something is not fair.
Before I get into the causes behind this common question, I will say that in one form or another it is never fair to divide the profits equally regardless of how much each doctor produces. That is called socialism, and there are many fatal flaws using that as a business strategy. I am more of a “you eat what you kill and clean” advocate. Regardless of how you color this strategy, it is still the fairest distribution of profits. It rewards the worker who is efficient, who takes care of their patients, and provides a service or product the public wants. There are certainly a variety of ways to structure this, but overall it is the best way to insure a productive office and outstanding service from doctor and staff.
Generally, the pay inequity begins when one doctor seems to get more new patients than the others and that in turn ends up with more referrals and repeat business for that doctor if he inspires the people he sees. Bottom line here is that any patient that calls or comes in should be afforded the privilege of choosing any doctor in the office. NOTE: Trying to equally split the new patients regardless of their wishes is a fundamental break in logic and consumerism. Patients get to decide where and from whom they buy any products and services. It will never work to just take and give one new patient to each doctor so that they are distributed equally among the office. Doctors who don’t embrace their responsibility to inspire patients to refer and come back, don’t deserve to be given patients. It will ultimately reflect on the reviews that you get and the patient satisfaction that you seek.
We will assume that there are differences in the doctors and staff that service patients and that most of the patients come to the office requesting a particular doctor, service, or scheduled appointment. Following are the reasons one doctor will always outperform another in a partnership or associateship, and the “trait” that you need to develop to do each one well. On any journey, there will be traffic laws you must follow and there are consequences for violating them. This is especially true in the 180 Degree Dental Journey. Please, please read this with intention and challenge yourself to improve.
- One doctor will have better reviews: Certainly, this will be the result of satisfaction by previous patients. Nothing says you are great better than a lot of 5-star reviews. If you get them, then you deserve the patients who flock to see you. Trait = Consumerism (giving the patients what they want, when they want it, at a price they can afford)
- Patients like one doctor more than another: In a way, that is why they left their previous dentist and came to your office. Isn’t it logical that they would also have a preference of one doctor over another in a multi-doctor office? Trait = People skills
- The staff like one doctor more than the other: Respect, clinical excellence, bed side manner, etc. You name it. Staff are just like patients. They will gravitate to the best doctor in the office. Like it or not, they will also steer uncommitted new patients to their choice of the better doctor. If you are a doctor in a multi-doctor office, you have to understand the inner workings of the social order in your office culture. How staff view you is as important if not more so than what patients think of you. Trait = Leadership and social skills.
- Doctors with great communications skills will always win out: Regardless of where you are, life will reward those who communicate with those around them. Once again, this applies to your staff as well as with your patients. Trait = Making sure that staff and patients hear what you thought you said. Don’t overwhelm them. Speak to them using non-clinical terms that are easily understood.
- Those doctors who listen well tend to be the favorite of staff and patients: The longer we work in this small consumer driven business, the more I see doctors turn their back on actively listening to patients and staff. Everyone can tell if you care, and caring comes with actively listening and then responding to the needs of your patients and staff. It is not enough to just have good clinical skills. People skills encompass communication and listening. Trait = Co-diagnosing while involving the patient in case acceptance.
- Doctors who get more new patients might be working more hours: More hours mean more chances at interfacing with more patients. Trait = Horsepower. You have the energy and drive to do whatever it takes.
- Works better hours: If you are the doctor that works 7AM to 9AM, 3PM to 6PM, Monday through Friday, plus Saturday, you will end up with the highest number of new patients because these are “peak demand times” (the hours patients want to come in). Trait = Consumerism.
- Staff match-up: You will always find that if you can check the 1-7 boxes from above, you will be the doctor that great staff will want to work with. When great staff gravitate towards one doctor, so will the patients. Staff will steer them toward the doctor that they know will provide the best result and most satisfaction for the patient. Trait = While not really a single trait, this staff match-up is the result of many traits. Communication, leadership, people skills, listening, etc.
- Clinical skills: Yes, I did intend to list this last. It is the last in importance to becoming the doctor you always thought you would be. While not surprising, if you can check 1-8 above, you also tend to be a very competent clinician. It tends to go hand in hand. On the other side of the coin, I see great clinicians (they place this trait as number one or the only number) that struggle to attract any patients or secure good long-term staff because they lack all of the traits that really are how you are judged by your staff and patients. Anti-Trait = You have a great self-image for no apparent reason. You are a legend in your own mind but a failure in every other sense of the word. Generally, these doctors are in denial and fail to see the simplest truth: You are judged and rewarded for your leadership, communications skills, culture you create, ability to listen, horsepower, work ethic, people skills and understanding of consumerism. Great dentistry is relegated to the most basic entry level trait of having a practice that others would want to go to.
The saving grace and silver lining is that all of these traits except people skills can be learned. If you are like me and struggle with people skills, all you have to do is hire people that compensate for areas where you fall short while complementing what you do well. This is the formula for success in a Super General Dental Practice and a winning strategy on the 180 Degree Dental Journey. Being the one that can check all the boxes means that your practice will be the one everyone will flock to. This is how you Summit. One last thought: We are talking here about doctors, but not surprisingly everything from 1-8 applies to great team members. Remember, no trip is fun if you don’t like your traveling mates.
Michael Abernathy, DDS