I will be very clear: if you are a dentist (or dental student) considering an associate position or hiring for one, it’s critical to understand how compensation will be structured. My practice owners typically understand how associate earnings can fluctuate, but I feel responsible for ensuring that young dentists also have a good understanding. This lowers the risk of costly back-and-forth banter between attorneys, and I love saving my clients their hard-earned cash. Let’s get into it!
A straight salary is easy to grasp and is common in public health, academia, or government settings. However, in private practice—whether in an independently owned office or a DSO—compensation is often tied to production or collections, making things more complex.
Understanding Key Compensation Terms
To break it down, let’s define a few key terms:
- Total production – The practice’s full fee for a procedure is based on its standard fee schedule.
- Billable production – The amount the practice is allowed to collect, as determined by PPO or other third-party payors.
- Collections – What the practice ultimately receives for the procedure.
- Collection percentage – (Collections ÷ Production) x 100
The Impact PPOs Have on Pay
Consider the difference between total and billable production. If these numbers are equal, the practice isn’t participating with PPOs or DMOs. However, if they’re significantly different, associates should ask:
- How are patients assigned? Will I see primarily PPO/DMO patients while the owner or experienced associate focuses on fee-for-service cases?
- How do the accepted insurance plans reimburse? Are there plans with particularly low payouts? Can the worst-paying plans be renegotiated or dropped?
Real-World Example: A Crown Procedure
Let’s say Mr. Smith needs a crown, and his practice charges $1,500 for them. That’s the total production. However, Mr. Smith’s PPO plan only allows a maximum of $1,000 for a crown, and, per the PPO’s contract, the practice does not allow him to be billed for the difference. Thus, the billable production is $1,000. However, the insurance plan’s payor only pays $500, so the practice bills Mr. Smith for the other $500.
To make matters worse, Mr. Smith only pays $450, so the practice has to write off the other $50. Thus, the total collection for this treatment comes to $950 out of a possible $1,000. This brings the collection percentage (of billable production) to 95%.
Here’s how collections might break down in this particular scenario:
| Practice’s Crown Fee | $1,500 |
|---|---|
| PPO Max Allowable | $1,000 |
| Collected from Insurance | $500 |
| Collected from Patient | $450 |
| Write-Off | $50 |
| Total Production | $1,500 |
| Billable Production | $1,000 |
| Total Collected | $950 |
| Collection % (Billable Production) | 95% |
| Collection % (Total Production) | 63% |
As you can see, the collections between billable production and total production vary significantly in this case. Understanding the percentage of total production, billable production, or collections you will be paid for is essential before signing an associate agreement.
Note that Medicaid-heavy practices often pay base salaries and offer bonuses based on metrics separate from collections or production.
The Effect on Associate Compensation
For example, let’s compare two Wisconsin practices, both with a 95% collection rate:
| Practice A (Fee-for-Service) | Practice B (Insurance-Based) | |
| Billable Production | $1,500 | $1,000 |
| 95% Collection Rate | $1,425 | $950 |
| Associate Paid 35% of Collections | $498.75 | $332.50 |
| Associate Paid 33% of Billable Production | $470.25 | $313.50 |
As you can see, an associate’s earnings can differ significantly depending on insurance participation, and those differences can add up quickly! It’s fair for associates to ask specific questions like the below when it comes to a collections-based payment structure:
- Is pay based on total production, billable production, or collections? Suppose the practice compensates associates based on billable production and has a low collection rate (less than 94%), offering an associate a daily guarantee. In that case, payment based on production or a straight salary is wise.
- What is the practice’s collection rate? If it’s over 98%, the practice has a firm collections policy, and their staff deserves a pat on the back. To keep things straightforward, the practice may choose to pay the associate based on production.
- Do associates have any control over collections? If pay is tied to collections, will the associate have a say in establishing and/or evaluating the practice’s collections policies?
- What other benefits are included with the associate position? Retirement plans, CE allowances, malpractice insurance, health benefits, WDA membership dues, and paid time off can offset a lower base pay.
It’s essential to understand how compensation translates to actual take-home pay. Whether you’re looking for a new position or hiring an associate, consider all the factors—not just the percentage on paper. A fairly compensated associate is a happy associate. A happy associate is often a successful and long-term associate. And you know what that means, right? Happy, loyal, returning patients with healthy mouths!