A dental practice's income statement shows gross production rising every year and margin going the other way, and the owner cannot say why, because the number that explains it — the contractual write-off by insurance plan — is buried in a single "adjustments" line that nobody reads. Preferred-provider-organization participation trades volume for discounts of 25 to 45 percent off the practice's fee schedule, and the groups that measure net production by plan discover that several of their plans are below the cost of the chair time they consume.
What is net production by plan, and why does gross production mislead?
Gross production is the practice's fee schedule applied to every procedure. It is the number the practice management system reports, the number doctors are often paid on, and the number that rises as volume rises regardless of whether the volume pays. A crown at a US$1,400 fee is US$1,400 of gross production under every plan.
Net production is what the practice is entitled to collect after the plan's contracted fee. The same crown under a plan that allows US$820 is US$820 of net production with a US$580 write-off; under a plan that allows US$1,050 it is US$1,050; for a fee-for-service patient it is US$1,400. A practice with 60 percent of patients on plans averaging a 35 percent adjustment has a gross-to-net gap of about 21 percent of all production — the gap that explains the margin.
Net production by plan is the report. For each plan, over a trailing twelve months: gross production, contractual write-off, net production, the write-off percentage, collection rate on the net, and the share of practice production the plan represents — because a plan's write-off percentage varies with the procedure mix it brings, and a plan that discounts hygiene lightly and restorative heavily can look acceptable on average and lose money on every crown.
How do chair time and lab cost turn net production into contribution?
Every procedure consumes chair time, and the chair has a cost. The practice's fully loaded cost per operatory hour — doctor compensation, assistant and hygienist wages, front desk and billing allocated, occupancy, supplies, equipment — divided by productive hours; in a mid-sized group it runs US$350 to US$550 per doctor-chair-hour and US$120 to US$180 per hygiene-chair-hour. A procedure's contribution is its net production less the chair-hours it consumes at those rates, less lab cost for crowns, dentures, and aligners, less implant and specialty supply cost.
Contribution by plan is contribution by procedure, weighted by the plan's mix. A plan whose allowed fee on a crown is US$820, where the crown takes 1.5 doctor-chair-hours at US$420 and carries US$180 of lab cost, leaves US$10 of contribution on the practice's most important restorative procedure; the same crown fee-for-service leaves US$590. Groups that run this analysis typically find two to four plans whose contribution is negative on restorative work and marginal overall, held in place by their hygiene volume.
The hygiene subsidy. Most plans discount preventive procedures less than restorative, so a plan's hygiene visits can look profitable while its restorative work loses money — and the hygiene visits generate the restorative diagnoses the practice then performs at a loss. The analysis has to follow the plan's patients through to the restorative work they bring.
How is the drop-a-plan decision modeled?
Patient retention after exit is the central assumption. When a practice leaves a plan, patients on that plan face out-of-network benefits or a new provider; retention runs 50 to 70 percent in most markets for established patients with good relationships, lower for recent patients and in markets with many in-network alternatives. The practice's own data on patients who stayed after a prior plan exit, or on out-of-network patients it already serves, is the basis; absent that, the model runs at 50, 60, and 70 percent.
The freed chair time only pays if it is refilled. Dropping a plan that is 18 percent of production frees roughly 18 percent of chair capacity; the question is whether the practice's new-patient flow — from other plans, fee-for-service marketing, and its own membership plan — can refill it, and at what net production; a practice at 85 percent chair utilization with a two-week new-patient wait refills quickly; a practice at 65 percent with open hygiene slots does not.
The model, by month over eighteen months. Production lost from the exited plan's patients who leave; production retained from those who stay at out-of-network or fee-for-service rates (often higher net per patient but at a lower volume and a different collection pattern); new-patient production refilling freed capacity on the practice's observed flow; the marketing and membership-plan cost of refilling; and the net effect on contribution — which is usually negative for three to six months and positive thereafter if retention and refill assumptions hold, and which should be run at the downside case before anyone sends a termination letter.
How does fee-for-service compare, and is a membership plan the bridge?
Fee-for-service means the practice sets its fees and patients pay them. Net production per procedure rises to the fee schedule; patient volume falls to those willing to pay it; the practice's marketing, reputation, and case-acceptance skills become the growth engine; and the administrative burden of claims, authorizations, and write-offs drops. It works in markets with the demand to support it and fails in markets where insurance participation is how patients find a dentist.
An in-house membership plan replaces the insurance relationship for uninsured and exiting patients. An annual fee covering preventive visits with a discount on other procedures, priced so the preventive cost is covered and the discount leaves contribution above the exited plans' net; the plan's economics — fee, utilization, discount, retention — are modeled before launch, and the deferred revenue on annual fees is recognized over the membership year.
Most groups run a hybrid. Fee-for-service and membership for the patient base that supports it, participation in the two or three plans whose net contribution is positive and whose volume the practice needs, and exit from the plans below cost — a mix chosen plan by plan from the contribution analysis rather than inherited from the practice's founding.
What does the group-level view add?
A dental service organization or multi-location group has plan participation by location. Net production by plan by location, because a plan can be profitable at a suburban location with a favorable mix and unprofitable at an urban one; contracts may be held at the entity level with location-level credentialing; and the exit decision at one location can be made without affecting another.
Negotiation before exit. Plans will negotiate fee schedules for groups with volume and access value, particularly for specialty and restorative codes; the net-production analysis is the case, the exit model is the alternative, and the structural asks — faster payment, fewer pre-determinations, favorable specialty fees — move margin without moving the headline schedule.
Why is this CFO work?
Net production by plan requires the practice management system's procedure-level data joined to the plan's fee schedule and the ledger's write-offs; chair-hour cost requires payroll and occupancy allocated to productive hours; the exit model requires retention and refill assumptions drawn from the practice's own history; and the decision is a margin, volume, and cash question the owners should make with the numbers in front of them. The dentists own the clinical mix and case acceptance; the CFO owns the economics of every plan.
Worked example
A six-location dental group, 11 doctors, US$12.8 million in collections, participating in eight plans. The net-production analysis, consolidated:
| Plan | Share of gross production | Write-off | Net production | Contribution per doctor-chair-hour | Verdict |
|---|---|---|---|---|---|
| Fee-for-service and membership | 24% | 0% | US$3,570,000 | US$290 | Grow |
| Plan A | 19% | 22% | US$2,180,000 | US$165 | Keep; negotiate specialty fees |
| Plan B | 17% | 31% | US$1,730,000 | US$95 | Keep; restorative fees below target |
| Plan C | 12% | 38% | US$1,100,000 | US$40 | Negotiate; exit at two locations if unmoved |
| Plan D | 11% | 44% | US$910,000 | −US$25 | Exit |
| Plan E | 8% | 41% | US$700,000 | −US$10 | Exit |
| Plans F–H | 9% | 29–35% | US$880,000 | US$60–110 | Keep |
Illustrative figures for a hypothetical organization; not a client's data.
Plans D and E together were 19 percent of gross production and lost money on every restorative hour; their hygiene volume fed restorative work performed at a loss. The exit model at 60 percent retention and a twelve-month refill from the group's new-patient flow (chair utilization was 81 percent with a nine-day wait): contribution down about US$140,000 over the first five months, then up US$390,000 a year by month twelve as freed chairs filled with Plan A, fee-for-service, and membership patients. Plan C was renegotiated at two locations and exited at two others. A membership plan launched at the same time converted 31 percent of the exiting plans' patients who stayed. Doctor compensation was moved from gross to net production in the same quarter, which removed the incentive to fill chairs with the lowest-paying plans.