Has your supply bill been steadily increasing over the past few years? Do you find yourself researching less expensive models or brands for your most commonly used supplies? Have you changed suppliers in the past few years certain that you were overpaying?
The evaluation of overhead is much more complex than just assessing the dollar amount you are spending with your supplier. It is actually an evaluation of investment and return, an evaluation of resource maximization, and an evaluation of value delivered versus value gained.
In order to properly assess your overhead, you must make certain that purchases are being classified properly. Remember “Garbage In, Garbage Out”? If we are not coding or classifying properly, then how can we truly be certain we are over spending or under spending?
Below are the Most Common Coding/Classifying Mistakes:
1. CEREC BLOCKS: Of those practices leveraging the power of Cerec Technology in their practice, I find that many list Cerec blocks with their supplies. The truth is that, the blocks should actually be coded under lab expenses. Why? Because theoretically, the block is a foundation for a “finished product” we would have to order from the lab without this technology in place. Additionally, the savings would show up in your overall lab expense. Listing it with supplies gives the false illusion that your supply bill is out of control.
2. PATIENT COMMUNICATION SYSTEMS: Another item that creates some confusion is patient communication systems such as DemandForce, Solution Reach, Patient Activator, or Revenue Well. If the system was purchased from the supplier and the bill comes on the same bill with other clinical supplies, it will usually get lumped in with clinical supplies on the profit and loss statement instead of under “office supplies” or “advertising and promotions”. Patient communication systems are used to keep your message/brand/education in front of your patients. From that viewpoint, it would most accurately be allocated under “advertising and promotions” and not under clinical supplies.
3. IMPLANT SUPPLIES: Implants are becoming more and more common in general practices and many are noticing their supply bill sky rocket as a result. If you are providing implants in your practice, consider creating a line item on your profit and loss statement for “Cost of Goods Sold” or “Implant Supplies”, and create a new revenue column for “Implant Revenue”. Implant supplies are much more expensive than the usual and customary dental supplies and the service comes with a higher fee per unit as well. To be able to effectively determine the value of implant services and the cost, a separate allocation is really needed for each.
Proper classification of expenses allows the practice owner to be better informed when making spending and investment decisions for his/her patients and practice. Many times if overhead is higher than industry standards, there is a challenge in your practice with the maximization of resources (patients, team, time). If specific line items seem higher than industry norms, it could simply be due to improper classification, and a closer analysis may be needed.