Hygienist Re-charge
When valuing a dental practice one of the biggest elements that could impact a practice valuation is often the way in which the fee income of hygienists is generated or the way in which charges are made to associates for the use of hygienists. As valuations of dental practices are based on a multiple of EBITDA, with an associate led model potentially being around a 7 multiple, a difference in EBITDA of £50,000 could mean a difference in value of around £350,000.
Generally the use of the hygienist and re-charge may vary dependant on the income types, and as such I have looked into each type separately.
Private Fee Per Item
Private fee per item is an easier concept for most when considering hygienist re-charge.
PFPI is paid direct to the practice – where all hygiene income is paid direct to the practice, and not to the associate, this method works so nothing to change.
However we are primarily focused on where the income is paid to the associate, i.e where an associate refers the patient to the hygienist and benefits from the income. There are often a number of scenarios that then exist:
- No hygiene re-charge -Whilst this is now becoming less frequent we are still visiting practices that do not make any charge for the use of the hygienist (i.e. pay the referring dentists the income, but do not make a charge). Whilst it could be suggested that the practice is getting a 50% cut of the income this does not cover the cost of the hygienist. If we use an example where the associate generates £200,000 of gross fees themselves, (ignoring lab and materials for the ease of the calculations) we would expect to pay the associate £100,000 and the practice retains £100,000 to cover the overheads such as nurses, fixed overheads etc. However, in an exaggerated scenario if we assumed that this same associate now refers all of their work to the hygienist, by not building in a recharge, the associate would still receive their £100,000 but there would now be a cost of say £50,000 for the hygienist of which the practice is covering, which means that the practice would then only have a £50,000 contribution to cover the practice overheads.
Whilst it could be argued that the above example allows the associates time to be freed up, thus generating more income, this could be also done by bringing in a second associate and keeping the cost to only 50% and not 50% plus the cost of a hygienist.
Therefore, it is always suggested that a re-charge is made to the associate, still generally giving them a level of the fee income generated by the hygienist.
Re-charge of hourly rate – The most common method for building a re-charge is to build a cost in for the work undertaken. For example, if the hygienist costs say £30 per hour and each hygiene appointment is 30 minutes then the simple calculation is charging back the associate £15 (30/2) for each hygiene appointment made, ideally fully utilising the hygienist so that each hour paid is then re-charged. Obviously if the principal is working in the practice then in practice you would not be re-charging yourself.
The next thought is then whether to pay this gross or net, i.e. before or after the 50% split. If the charge was made before the 50% split then the principal would be covering half and the associate would be covering half. As such, the hourly rate of the hygienist could be coming off the net payment.
If we consider a patient paying a hygiene cost of say £60 then the associate in this example would receive 50% of £60, less the £15 re-charge – so would still benefit from £15. The practice would pay the £15 to the hygienist, and would be left with £30 (50% of the fee as if an associate were generating it themselves).
There are some practices that will also build further costs in, such as the nurse that works with the hygienist, as again this is a surplus cost, or the NI and pensions cost assuming that the hygienist is employed. Someone may also wish to factor in that the hygienist would be taking holidays, thus the £30 per hour may end up being £35 per hour as otherwise the holidays will not be re-chargeable.
Plan Income
Re-charge of hourly rate – The same calculations can be made, so that the referring dentist receives a re-charge for the numbers of hours used.
Re – charge based on patient numbers – In some practices, especially where the patients may be moved from one registered dentist to another, but following a similar line to the re-charge for the amount of use, the practice can charge based on the number of patients that the associate has.
If for example a practice has 200 patients and each patient is expecting to see the hygienist twice per annum this is 400 hygiene appointments per annum. Assuming that they are 30 minute appointments this would give 200 hours of chargeable time over the year, but would then be split monthly to 16.6 hours. The beauty of this method above the ‘re-charge by the hour’ is that there is less admin time required to calculate who has used the hygienist that month, and that the charge is built on how many patients that associate is being paid for each month, which could increase or decrease.
- Adjusted Percentage – Some practices will instead of paying the typical, say, 50% will pay the associates 40% of the gross fees which then takes into account the associate using the hygienists time. Dependant on the charges to the patient and the hourly rate of the hygienists, and length of the hygiene appointments the figures may or may not work. There is no specific correlation of the hygienist cost and the amount re-charged/amended but this is a very simple method for admin purposes.
- Charge on PFPI basis – There are some practices, that typically receive all of the PFPI hygiene income direct to the practice, that charge the patient PFPI amount to the associate. For example if a patient sees a PFPI patient for a 30 minute appointment which costs the patient £60 then by having the associate refer a plan patient this is blocking some of the hygienists time. As such they will charge the £60 to the referring dentist.
Net vs gross charge
Whilst you will always wish to attract an associate by putting together an attractive associate package, it must be a model that works financially. In my personal view, the practice/owner should not be any worse off by having a hygienist in the practice over having the associates undertake the work. As such the starting point should be a net pay deduction with the minimum starting point being the hourly rate of the hygienist.
