Understanding the Business of Dentistry: Negotiating Employment Contracts for Personal & Professional Success
Publisher’s Note: This is the second of a two-part examination of employment issues concerning associates/employees and employer/owner dentists. Read Part 1, “You’re Hired: Strategies for Navigating the Employment Process” in the WSDA News Winter 2022 issue.
WORKFORCE DATA
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Negotiating a new employment contract is inherently stressful, no matter if it’s your first opportunity out of dental school or your fifth as a seasoned professional. Understanding standard contract components can help alleviate some of that uncertainty and better position you to achieve your personal and professional goals.
Workforce data from the ADA indicate an evolving workplace landscape for dentistry, with a sharp generational divide between younger and retirement-age dentists. Data also suggest the COVID-19 pandemic may have expedited some retirements. As more established dentists look to exit the profession, this creates additional employment and long-term ownership opportunities for new dentists entering the field.
To help associate dentists better navigate the world of employment contracts, WSDA News reached out to four dental practice consultants for their insights and answers to questions submitted by WSDA members through a recent online survey.
THE BUSINESS OF DENTISTRY
Starting down the road of securing a new associateship is as exciting as it is daunting. With school and residencies completed, finding the right employment fit can take some time.
And once a good opportunity presents itself, it’s important to be prepared with questions — and knowledge — heading into your contract negotiations.
Before diving into the fine print of a contract, dental practice consultants strongly encourage associate doctors to take a step back and consider some of the bigger-picture issues regarding their employment and, most importantly, their long-term happiness and success.
In addition to overseeing patient care at Uptown Dental, her Gig Harbor practice, Dr. Rhonda Savage works with associates and owner dentists as a dental practice consultant. As CEO of Savage Success, she frequently counsels new associate doctors on employment opportunities and always begins her conversations with a discussion of dentistry as a business.
“We all want to get paid more, do more, buy cars and homes and pay off loans, but we also have to realize a practice is a business,” said Savage, who is also a WSDA past president. “I really want associate doctors to understand the business of dentistry. Unfortunately, many associate dentists do not have a sense of the business and the practice,” she said.
“One of the first things I like to do with them is to underline how a practice works so they have a basic understanding of overhead. I often talk about the BAM — what’s the Bare Amount of Money (BAM) they need to produce on a daily basis to meet the overhead of that practice? If they’re responsible for one chair out of six operatories — they’re responsible for one-sixth of the practice.”
That means having conversations with prospective employers early and upfront to explore all of the issues associated with being an associate dentist — from finances, to staffing, to the values of the office. This is important whether the associate is looking at a short-term position, buying in as a partner, or eventually purchasing the practice.
“Associate doctors need to understand their role as a leader in the practice — and they need to know the expectations of owner doctors with respect to leadership,” said Savage. “You need to know what the expectations are for that practice. What are the expectations for use of cell phones? Being on the computer? Leadership with the dental assistant working with me? Dress code? They need to understand these expectations so that there is no misunderstanding. There needs to be a communication of values and standards the owner doctor wants upheld in the practice.”
COMPATABILITY, CAPACITY, AND COMPENSATION
Scott Henderson, a Seattle business attorney focusing on dental practice transitions, says there are usually three big issues that impact the length of time a dentist chooses to stay at one particular practice: compatibility, capacity, and compensation or covenant conflicts.
One of the most important first steps employees should take is to make time to visit with that employer. “One of the biggest issues is really not super technical — it’s actually meeting the employer,” said Henderson. “Typically, associateships don’t last that long — two years or less on average. When I first talk with a client, I tell them to meet [the employer] in person. A lot of things end because of personality issues,” he said.
The second issue is capacity/workload — or the lack thereof. “Dentists have very portable skill sets that are not unique to a practice and some people enjoy that. I do a lot of one-day-a-week or one-day-every-other-week agreements. Sometimes the associate finds an office that needs a full-time associate, so the associate quits other jobs for a full-time gig,” said Henderson. “Dentistry is unique. It’s hard to patchwork schedules. Not everyone has a full-time job to offer.”
And that leads to the third component — compensation and covenants. “When I read an employment agreement on behalf of an associate, I go to the covenants,” said Henderson, noting that under Washington law, employers may not impose non-compete covenants on employees making less than $107,301 (indexed to inflation). Non-compete covenants are also generally limited to 18 months, he said.
Many associateships do not lead to owning a practice, said Henderson. So if you’re from Tacoma, and want to own your own practice in Tacoma, you may not want to associate in Tacoma because the covenant may exclude you from working there, he said.
Compensation is another big concern for many new dentists or dentists looking to make a change.
“There is an art to approaching compensation rates — nobody knows exactly what the perfect number is,” said Henderson. “A well-run dental practice will have run numbers based on adding a new person. What’s the increase in malpractice insurance? Increase in hours of dental insurance? What is the benefit? There is no one magic number — almost all practices use a percentage of collections or production,” he said.
Sam Martin, a CPA and certified financial planner with The Dental Group, encourages conversations about short- and long-term financial goals before the start of every contract conversation.
“Let’s talk about how to manage compensation and upcoming goals like buying a house or saving for retirement,” he said. “If we’re talking about potentially buying a practice, we also do that additional financial planning around where an associate is with buying a home or student loans.”
AN EYE TOWARD OWNERSHIP
For those interested in pursuing partnership options, Rod Johnston of OMNI Practice Group encourages all parties to come together early and play out all of the possible scenarios that could happen. He recalls one instance where two friends had come up through school together — first as college roommates and then as dental school classmates — and had the idea of going into business together.
After speaking about all of the “what ifs,” they decided not to do that, said Johnston, saving them the heartache and hassle of dissolving a future partnership. Working through all possible scenarios ahead of time is a valuable investment.
“If you can get that far, you can be a partner because it’s like a marriage, and you have to get along with your partner through the good and the bad.”
As with any major life decision, getting the advice or counsel of an industry expert — be it an accountant or attorney — is money well spent.
“It’s always good for an associate doctor to have an accountant and an attorney to run things past so they know what they are signing. That’s even more important when purchasing in,” said Savage.
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Additional Resource ADA: Negotiating Your Salary, Benefits and Contract |
CONTRACT Q&A
The following employment contract questions were submitted by WSDA member dentists.
What are typical dental codes that are included in production in most associate contracts?
Dental codes are rarely included in associate contracts, but dental consultants do recommend that associates take the time to become familiar with the codes so they can be sure the correct codes are posted to day sheets. Reference books such as Dr. Charles Blair’s “Coding with Confidence” are available on the ADA website or through other booksellers — and can help associates become familiar with popular codes for crowns, bridges, and other standard procedures.
What does a typical/reasonable/average associate-to-ownership contract talk look like?
Experts agree this can vary depending on the practice and the doctor. Ideally, it should include discussions about different forms of compensation (percentage of production, responsibility for labs); expected hours per week; expectations for if/when work needs to be performed again; how to compensate doctors if there are plans to purchase the practice.
Rhonda Savage recalls a recent consult with a doctor and her associate. The doctor invited the associate to understand the write-offs associated with insurance, which is a cost of doing business.
“When looking at a contact — anything is negotiable. Will they help cover malpractice insurance? Disability insurance? Cost of uniforms? Pay benefits?” said Savage. “Sick leave? Vacation? All are negotiable items.”
What is a typical percentage of compensation based on collection in the Seattle Metropolitan Area?
The answer depends on how the percentage is calculated. Rod Johnston of OMNI Practice Group says this could be a flat 30 percent of collections; another way is to give the employee a slightly higher amount of the collections (say, 35 percent) but require them to pay lab fees.
The percentage could also vary by specialty, according to Henderson. Endodontists and periodontists have lower overhead, so they can afford to pay higher rates. Conversely, general dentistry has more overhead. So that might be 30% plus-or-minus for someone in general dentistry as compared with 40 percent of production for endos.
One exception to that rule might be orthodontists, where associates may be paid on a daily rate, said Henderson. “They charge patients a flat fee up front or each month over the next two years. Because of that ortho tends to go by day. You may have a full schedule hopping from chair to chair and they may pay you $1K a day. Could be less, not much more. $700-$1,500,” he said. “Pediatric dentists may do the same thing because there is less restorative work (e.g., crowns, bridges) so you may see fixed daily rates even though they can capture a percentage of production more accurately.”
Many new dentists need to do hygiene. Do you see a higher percentage allocated due to the less production associated with hygiene procedures?
The shortage of dental assistants and hygienists is having a very real impact on dental offices and on the kind of work expected from new dental associates. The best thing for new associates to do: be clear up-front about expectations.
“The shortage of hygienists has changed the role of what associates are doing,” said Rod Johnston. “Try to identify the type of procedures you’re doing — fillings and crowns or do you get to expand your skills and do some implants or bigger cases? And the same on the lower end: Will you be asked to do hygiene checks and split those with the employer?”
Some owner dentists are less inclined to compensate for hygiene checks because that’s where restorative dentistry comes into play, said Sam Martin. Others may include a small stipend (say $15 per check). “That’s where you build relationships,” said Martin.
Rhonda Savage agrees: “Many dentists look at hygiene as a nuisance, but I consider it to be an opportunity to connect with the patient.”
Is it common for practices to exclude radiograph fees in the compensation for the associates?
Again, industry experts say this can be situational. If the associate is doing hygiene, then it may be included. A dentist who does exams with the appropriate hygiene talent in the office is not normally credited for radiograph fees, said Savage. The associate may get credit for the exam but the hygiene production goes to the owner doctor. “This all goes back to understanding the business of dentistry,” she said.
If the associate is working as a hygienist — that’s an alternative pay category. Their normal job is to produce dentistry as a doctor — it is good filler work until they can be producing more dentistry.
“I have done hygiene and used dental assistants to help while I did cleanings. It gave me time to spend with the patients, but it’s not best use of talent. I should be treating patients with dentistry,” said Savage.
Is it fair to have an employer charge the employee/associate dentist for lab fees and if so how much/should the associate be allowed to pick their lab?
Lab fees can be a factor in a contract, said Henderson, and much of it is dependent on the nature of the practice and its overhead. At a prosthodontic practice focused on restorative work, an associate may get a higher percent because it’s more profitable work (cosmetic dentistry is not tied to insurance).
Sam Martin says some offices pay the lower amount and don’t adjust for labs. “The only equitable way to do it is to include lab as the same percentage as being paid,” he noted. “And I think that an associate’s ability to pick the lab would vary based on the owner’s biases. If someone comes in without experience, the owner doctor may very likely pick for the associate. If it’s an associate with more years of experience, they might be allowed to choose their preferred lab.”
What is the industry standard for an associate being paid on a percentage of adjusted production?
Experts interviewed for this story indicate there is more of a range than a standard. Corporate dentistry can be as low as 25 percent, but typically for private practice, it can be 28-30 percent without lab adjustment or 30-33 percent with a lab adjustment.
It can also vary based on the economics of the area where the practice is located. In a more urban area like Seattle or Bellevue it may be 33-35 percent; in rural areas, it could look more like 27-29 percent, according to industry consultants.
Can the associate/employee dentist defer some of their compensation to equity in the practice?
In a word, yes, according to Sam Martin of The Dental Group. “There would have to be an agreement made — there is no standard mechanism for that,” he added. “I have seen a few contracts where you take less than you earn and put the remainder toward a down payment, but if you leave, you would forfeit it,” he said. “If there is a chance the associateship is leading to buy-in, there needs to be some sort of language in the contract that reflects that.”
The example Martin offers is an owner doctor may not be ready to have someone buy in right away — they want to get to know the associate better first. In this instance, there could be contract language that sets out a date two years from the start date when the owner doctor is required to talk about the sale of the practice with the associate. “That’s not a guarantee,” said Martin, “but it puts a timeline in.”
This article originally appeared in the Spring 2022 Issue of WSDA News.
