This is a question we hear a lot from practices who are struggling to create a fee structure that is attractive to an associate, but also makes sound financial sense for the business. It is an important question as getting your associate’s remuneration right can have a big impact on your practice’s profitability and sustainability.
But there are a lot of factors to consider, such as should they have their own list that they receive a percentage of or should they work on a pay-as-you-go basis, who pays the hygienist, how willing are they to build patient loyalty. These are just a few of the facets that need to be taken into account, and which can make the whole process feel like an over-complicated calculation.
To look at this issue in more depth and provide clarity around how dentists can best approach paying associates, I asked Andy McDougall, a management accountant specialising in working with the dental profession, to answer the question: What’s the best way to pay associates?
Andy: “The associate model is fundamental to how dental provision is dispensed in the UK but how that model is deployed in practices can be quite different. And so it should be.
The basic premise of associate pay is a gross element that has an adjustment for labs from which a remuneration rate is applied, usually in the form of a fixed percentage or sliding scale. Just as no business strategy is the same, there is no ‘off the shelf’ default for the best or right associate model – it’s like corporate fingerprints, the ideal model for practice A may bear no relation to the perfect model for practice B.
When we begin working with a new practice we invariably find that associate remuneration bears no correlation to the cost structure of the practice, or to the specific financial goals as determined through the business planning process. Where sliding scales have been applied they are frequently set wrong or are not revisited to ensure they are and remain fit for purpose.
There are many variables to consider when determining a sliding scale and some of the most pertinent are discussed here.
Linking to the fixed costs
A common mistake when determining a sliding scale is not relating it to the fixed cost structure of the business. As a result, most frequently the amount of money left from what the associate has grossed, after paying for labs, materials and the associate, makes a contribution to but does not fully cover their allocation of indirect costs of the business.
Should everything go through the sliding scale?
The point of a sliding scale is to achieve a win-win for the associate and the business. The question is, if the associate has different income streams, e.g. NHS, dental plan and fee-per-item; should all or some of these go through the sliding scale?
Variations in application are broad. Some practices pay NHS revenue at their going UDA or UOA rate. Others include the dental plan as a monthly net amount. In some cases everything is put through a generic scale with the agreed percentage appearing before or after labs.
None are intrinsically wrong but they may not be the ideal model to optimise results for both the associate and the practice and as highlighted earlier, to ensure that the business costs are covered.
Dental plans in relation to associate pay
Increasingly we see in practices that if a patient has not been in for 12 months or more, the dental plan fee remains as practice income. If and when the patient returns regularly to the practice, then the associate once again receives the benefit of the plan income.
One particular interesting point, an area that is generally handled incorrectly, is how to remunerate the associate for the hygiene element of a dental plan. So if you are paying a hygienist and then the gross fee is included in the associate’s gross, to which a rate of remuneration is applied, you are paying the cost of hygiene labour twice. Some practices make a charge to the associate pay calculation to overcome this but invariably this recharge is seriously miscalculated resulting in under recovery.
50% of what?
Associates can be passionate about what percentage they are paid but when a sliding scale is structured correctly and communicated appropriately, a win-win can be achieved resulting in profitable associates for the business who also maximise their earnings.
An associate may appear to be unprofitable at net profit level for a multitude of reasons: utilisation of the diary, mix of services, skill set, one’s ability to communicate effectively, the opportunities presented, working slowly, discounting, not having the correct allocation of new patients, etc. Very often an associate will be better off with a rate lower than 50% and a full book, than being paid 50% of a book with huge gaps.
The whole point of a sliding scale is to enable an associate to achieve a win/win by earning at the higher bands in the scale whilst protecting the business when operating at the lower levels of the scale.
Within the business planning process a lot of modelling is undertaken to achieve the optimum associate remuneration. This type of modelling will factor in the specific income and cost structure of each business to ensure the result is a high-earning associate who is also profitable. When associates are presented with the results of the modelling, the consultation becomes based on fact, not emotion, and therefore tends to be more conciliatory, which is a much more positive outcome.
Getting your associate remuneration right is no easy feat and is best achieved as part of a broader business planning approach.”
Thanks to Andy for sharing his expertise on how to create a sound model for the payment of associates and its importance in contributing to the practice’s financial health. Spending time examining all the variables is worthwhile to create a fee structure you are confident is the right one for you and your practice.
Ensuring this structure forms part of a wider business plan, as Andy suggests, also makes complete sense, and creating a robust plan is something many practices will have heard me advocate over the years. Having clear sight of the numbers behind your business is crucial to ensuring its longevity and that you are well informed when making key decisions to drive it forward.