Capitation schemes can be valuable profit centres for your business if managed correctly. There are however risks associated with this type of scheme which can be costly in terms of profit and patient care.
Where it all starts to go wrong…….
There are a number of areas which present risk:
- The correct distribution of patients throughout the bands within a capitation scheme is very important. One of the major causes of lost profit within a practice is when patients are placed in the incorrect band and this can occur when the dentist capitulates and places the patient in a lower band because of the cost.
- A further cost can manifest itself in the fee charged for the banding itself. If this fee is fixed too low it will not provide sufficient income to the practice to compensate the business for the amount of clinical time spent with patients.
- Another issue arises when patients receive too many hygiene treatments compared to the number allowed within their band. This can be particularly damaging when the hygienist is paid a fixed hourly rate – in other words the Principal dentist is paying his hygienist to carry out treatment for which there is no income – a double hit on profit margins.
- The ongoing management and re-banding of patients is also important, so as a patient’s dental needs change and the level of maintenance required is likely to increase the dentist should re-assess the patient to establish whether they need to move into the next band.
- Occasionally some dentists under-prescribe treatment to patients belonging to capitation schemes to minimise the amount of clinical time they have to spend with them. This can lead to supervised neglect. Often this situation is only brought to light when a dentist retires or leaves the practice and the new dentist discovers significant amounts of treatment are required. The results can be damaging to the reputation of the practice and can lead to litigation.
Unfortunately, I find many of these areas are not being monitored or controlled in practices identified when we carry out our Capitation Scheme Audit.
When did you last audit your capitation plan?
Regular audits of capitation schemes will reveal what issues, if any, there are within the scheme and how much these issues are costing in terms of lost profit or supervised neglect.
One of the leading providers of capitation schemes support supply a break down of the ideal distribution of patients throughout a capitation scheme. Each monthly statement provides a summary of the distribution for each practice. The first area to check before conducting an audit is to compare the distribution percentages for each practice against the model distribution provided below.
12% in band A
29% in band B
39% in band C
16% in band D
4% in band E
Typically, you may find too large a proportion of patients in bands A and B and too few in bands C, D and E. This often occurs as a result of the dentist placing the patient in a band lower than they should generally be in through embarrassment over the fees charged to patients.
Another quick check is to establish the hourly rate your practice should be generating on private treatment and compare this with the hourly rate being generated by your capitation scheme. You can quickly work out the hourly rate being generated from plan patients by taking the total amount of time allocated to plan patients on the appointment book and dividing that by the total monthly income generated from plan.
If the results of these diagnostic tests give cause for concern you should consider a full “health check” of your capitation scheme.
We visited a practice in the Midlands and having completed a full audit on the patients on the practice capitation scheme we were able to report lost income of over £30k to the business in one year.
The Principal dentist was concerned about how to address the problem in a way which would be tolerated by patients and we advised him not to write to patients who had been identified as being in the wrong band. These patients required re-banding, sometimes as much as two bands and we felt this was a negative message to convey to a valued patient by letter.
We recommended a rolling re-banding exercise, meaning patients who required re-banding were highlighted in advance of their next routine visit. This meant the Principal dentist and his team could allocate extra time for their examination appointment to spend time explaining the reasons why the patient had to move to another band.
Additionally we suggested the introduction of an affordable maintenance scheme so patients who would not tolerate the re-banding could be offered an affordable alternative.
Although it took longer to achieve the re-banding exercise, the method used was risk free to the business. The Principal dentist was pleasantly surprised at the general acceptance of the need to re-band.
Of course once your capitation scheme is ship shape you need to invest time and effort to monitor and manage it going forward so the same situation doesn’t recur.
And a final point to take note of – if you are looking to acquire a practice with a large capitation income you will find lenders are currently keen to support purchases of this nature because of the significant amount of predicable income coming into the business. However, you should undertake an audit to ensure you are not inheriting the types of issues discussed in this article.