Of course you love doing dentistry. And everyone is even happier when the pay is appropriate for the work that is done!

Yet I hear from far too many associates who don’t really understand how their pay is calculated — and owners who haven’t fully thought through how much their associates’ pay can vary.

It’s pretty easy to understand a straight salary, which is common for those working in public health, academia, or government agencies.

It gets more complicated for those paid in whole or in part based on some percentage of their overall productivity in the office — which is the more common scenario for dentists employed in private practice or DSOs. In these cases, pay is typically based on total production, billable production, or total collections.

In order to understand how variable take-home pay can be, let’s start by defining a few key terms:

Total production: amount the practice can be paid based on the practice’s fee schedule

Billable production: amount the practice can collect (dictated by a third-party payor)

Collections: what the practice actually collects for the procedure

Collection percentage: (collections/production) x 100

First, consider the total production versus billable production. If the total production is equal to the billable production, it can be assumed that the practice is not a participating provider with PPO or DMO plans. If these numbers are quite different, it will be important to ask a few questions:

• How will patients be distributed in the office? Will the associate see all the PPO/DMO patients while the practice owner sees primarily fee-for-service patients?
• How does each plan pay? Does the practice struggle to collect from certain plans? Do some reimburse at lower rates? Is there an opportunity to renegotiate or potentially drop the lowest paying plan(s)?

How the numbers play out: a crown

Let’s look at a scenario to see how these numbers affect the associate’s bottom line:

Mrs. Jones comes in for a crown. The practice’s fee schedule for a crown is $1,500. This is the total production. Mrs. Jones’ PPO allows a maximum of $1,000 for a crown and the practice CANNOT collect the difference from the patient. That makes the billable production $1,000. Per the plan, the payor pays $500 and the practice bills Mrs. Jones $500. She pays $450 and the practice writes off the final $50. That means that the total collection for this treatment was $950 out of a possible $1,000, for a collection percentage (of billable production) of 95%.

Associate pay is often based on some percentage of total production, billable production, or collections — and as you can see, those can vary significantly!

Note that Medicaid-heavy practices often pay a salary and offer bonuses based on metrics other than collections or production.

If you’re paid on collections

Many practices want to pay an associate based on the collections. After all, the practice can only pay an associate if they get paid first. That just makes good sense on the part of the practice. Paying based on collections begs some key questions:

• What is the collection percentage? If it’s greater than 98%, the practice has strong collections policies and there is minimal difference in being paid based on production or collections. In this case, it is a much simpler calculation for the practice to pay the associate on production.
• Is the collection rate calculated using total production or billable production? If the practice uses billable production AND the collections percentage is low (less than 94%), the practice has lots of room to improve its collections policies. In order to be competitive, the practice may offer a daily guarantee, payment based on production, or a straight salary.
• Will the associate be responsible for, or have any influence over, the collections within the practice? If the associate is to be paid based on collections, the practice may allow them to be an active participant in establishing/evaluating collections policies.

Let’s return to our example of Mrs. Jones’ $1,500 crown to see how much an associate’s take-home pay could vary in two different practices, each with a 95% collection rate. One practice is fee for service, with billable production equal to total production. The other practice relies on 3rd-party payors and a reduced fee schedule.

Note how much take-home pay varies depending on the type of practice. The difference can add up quickly over the course of a month or a year!

Whether you’re negotiating compensation for yourself or preparing to make an offer to an associate, make sure you understand what’s actually on the table. And don’t overlook other elements of the compensation package — retirement accounts, CE allowances, malpractice insurance, healthcare, time off, etc. An associate might be willing to accept less take-home pay if the benefits are generous. Also think about less tangible benefits that are important to many doctors, like a flexible schedule.

The bottom line: anyone looking at an associate contract should take some time to understand what it means to the bottom line for both the practice and the associate.

And if you're ready to find your next associateship or hire someone, create your free ADA Practice Transitions profile now to get started.

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