Practice Management in Oral and Maxillofacial Surgery

Practice Management in

Oral and Maxillofacial

Surgery

James Baker, DDS

, Austin Leavitt, MS, CFPÒ

, Jonathon S. Jundt, DDS, MD

INTRODUCTION

Managing an oral and maxillofacial surgery (OMS)

practice has undergone dramatic changes. Elec-

tronic health records, privacy laws, revenue

cycle management, online marketing, and the

rise of dental service organizations (DSOs) present

increased daily complexity for oral and maxillofa-

cial surgeons in private practice, hospital-based

employees, and academic surgeons. This article

is structured to discuss the role of DSOs, private

equity in OMS, online practice marketing, ac-

counting and tax considerations, and modern es-

sentials of practice management.

DENTAL SERVICE ORGANIZATIONS

DSOs, also referred to as dental support organiza-

tions, represent the fastest growing segment in

oral health care.

Strategies for network growth

vary from a de novo practice development model

to acquisition-based growth or a combination

thereof. Services provided often include revenue

cycle management, information technology, mar-

keting, human resources, and financial reporting.

Services are provided on an a la carte or compre-

hensive basis. DSO funding may be through pri-

vate equity or venture capital or evolve from a

group of one large or multiple existing practices.

The objectives of a DSO are to standardize the

provision of health care to patients through

reducing nonclinical burdens on the providers.

Student loan burdens on new providers reduce

the likelihood of purchasing a practice or starting

a de novo solo practice on the completion of

training. A general trend in health care toward

increased consolidation and decreased private

Disclosure: The authors have nothing to disclose.

OMS Partners, 5599 San Felipe Street, Suite 900-B, Houston, TX 77056, USA;

The Financial Advisory Group,

5599 San Felipe, Suite 900, Houston, TX 77056, USA;

Department of Oral and Maxillofacial Surgery, The Uni-

versity of Texas Health Science Center at Houston, 7500 Cambridge Street, Suite 6100, Houston, TX 77054, USA

* Corresponding author.

E-mail address: [email protected]

KEYWORDS



Practice management



Marketing



Electronic medical records



Revenue cycle management



Coding



Benefits

KEY POINTS

 This article reviews the rise and role of dental service organizations, management service organi-

zations, private equity, and trends in practice transitions.

 This article reviews marketing oral and maxillofacial surgery services, including search engine opti-

mization and reputation management.

 This article reviews practice revenue cycle management, including changes in the insurance indus-

try, coding, billing, and the role of the electronic health records and real-time insurance

authorization.

 This article reviews essential terms and past and current trends in the management of oral and

maxillofacial surgery practices to discuss the current state of practice and to develop predictions

about the future of the specialty.

Oral Maxillofacial Surg Clin N Am - (2019) -–-

https://doi.org/10.1016/j.coms.2019.07.004

oralmaxsurgery.theclinics.com

ownership continues.

This trend is partly fueled

by the challenges of maximizing insurance reim-

bursement, variations in scope of practice,

increasing population, limited negotiating power

of individual practices, complexity of staff man-

agement and benefits, and generational psychol-

ogy. DSOs provide the organizational capacity to

facilitate increased practice revenue through

economies of scale and represent a growing and

substantial component of delivering OMS services

in the future.

The authors’ experience has determined a cost of

approximately 9.5% of practice revenue to deliver

services in this type model. Services provided un-

der this structure vary by the DSO but should

include revenue cycle management, credentialing,

annual fee analysis, human resources, payroll, pay-

ment of practice bills, employee and doctor benefit

management, information technology support, ac-

counting—monthly profit and loss or financials

through corporate tax returns, regulatory compli-

ance, and cash flow management. Services pro-

vided and fees charged vary by the DSO involved.

New versions of DSOs are now entering the mar-

ket and provide services in addition to the afore-

mentioned list, which now include direct-to-

consumer marketing, group purchasing organiza-

tions, quality-of-life products, regional surgery cen-

ters, call coverage, insurance negotiation, and the

facilitation of practice transitions. Fees currently

marketed are in the 15–18% of total practice

revenue. One theory supporting this growth is that

the excess revenue to the DSO creates a large

enough profit that can be sold at a multiple large

enough to provide more to the OMS selling their

practice in the marketplace as well as a return to

the DSO. Several examples of this DSO model are

funded by outside investors, such as private equity.

Some models involve a sale of the practice assets

that may involve a funding mechanism through a

hedge fund or other entity. Other similar models

exist that do not require a practice asset sale but

do involve a larger fee, with the same goal of gaining

a return on the excess revenue greater than the

OMS has relinquished for the service.

Complexities facing private practice oral and

maxillofacial surgeons and new graduates alike

are resulting in a shift toward the DSO model.

The type of practice model that will be common-

place in the future is to be determined and histor-

ically has been subject to political and regulatory

changes.

PRIVATE EQUITY

Private equity investors seek to generate a return

on high-growth investments for pension funds,

high net worth individuals, institutional investors,

and sovereign wealth funds. Although private eq-

uity and venture capital are sometimes discussed

in the same context, they are very different funding

mechanisms. Private equity rarely invests in start-

ups, focusing on mature companies, whereas ven-

ture capital commonly invests in start-ups. Private

equity typically acquires the majority of a com-

pany, whereas venture capital typically owns a

small percentage of a company. Dermatology

and ophthalmology underwent extensive private

equity acquisitions in the late 1990s and early

2000s. The model for investment was an upfront

payment to the practice as a multiple of collec-

tions, followed by a reinvestment in the group by

acquired practice owners and a contract to

continue to work for the new group at a reduced

income to improve earnings before interest,

depreciation, taxes, and amortization (EBIDTA).

Once the practice financials demonstrated growth

and profitability, a second sale is undertaken to a

third party at a larger multiple than the initial

buyout, thus financially rewarding the private eq-

uity investors and those practitioners who rein-

vested and participated in the second sale.

MARKETING

Google was founded 20 years ago. Since that

time, OMS practice marketing changed dramati-

cally. Health care consumers began the transition

from trusting their provider recommendation to

shopping for health care. A simple search query

now yields millions of results in milliseconds, pro-

cessing 40,000 searches per second, 3.5 billion

per day, and 1.2 trillion searches per year. Patients

discover practices in a geographic designation

based on the parameters set by their ad

campaign. This trend does not show signs of slow-

ing, with older computer-illiterate generations

leaving the marketplace and younger computer-

savvy generations fully embracing technology.

Search engine optimization marries the informa-

tion displayed by a practice Web site with those

search queries initiated by the individual. Further-

more, targeted advertisements may appear as

banners on social media because of recent

queries, GPS tracking, or passive smartphone

listening capabilities.

2,3

Optimization requires

active participation in Web site design and format-

ting as well as communication and marketing

through major search engines. Reputation man-

agement has also evolved as dissatisfied patients

are able to use the Internet as a platform to discuss

their particular complaints in an open forum, often

resulting in a star rating for the practitioner. Several

companies now provide reputation management

Baker et al

and offer strategies to avoid or eliminate negative

reviews. One mechanism for reputation manage-

ment involves contacting patients via text or email

after services are rendered, requesting a review.

The screen is often a simple thumbs-up or

thumbs-down icon or a recommended or not rec-

ommended icon. Patients select the icon that best

fits their experience. If patients selects a negative

review, the service redirects their review to an in-

ternal quality-control response that requests addi-

tional information about their experience,

forwarding the results to the practitioner. Should

patients report a positive review, they are redir-

ected to a public external domain with a request

to elaborate on their positive experience.

This mechanism improves practice reviews by

redirecting those with negative experiences to a

site isolated from the public domain.

Search engine optimization works through a

combination of outbidding competitors within a

marketplace, insight into the timing and nature of

client searches, demographics, keywords, type

of device accessed, and Web site design. Cost

per click, impressions, and click-through rates

are tabulated to assess advertising effectiveness

(Fig. 1). The click-through rate measures how

often people click an ad on viewing. Impressions

are recorded each time the advertisement is pre-

sented online to an individual browsing the

Internet. Cost per click is the amount paid to the

advertising agency after an individual clicks

the link to access the advertisement. This amount

Fig. 1. Google ads dashboard.

Practice Management in OMS

is stipulated in advance with limits. Competitors

are limited through intelligent algorithms that

detect repeated clicking to exhaust a budget

with the intent of removing the ad. In the continu-

ally expanding era of “Internet of things,” patients

likely will own their chart information on their per-

sonal devices and schedule appointments,

follow-ups, procedures, medications, and compli-

cations on their personal devices.

PRACTICE FINANCE

Countless developments in research through

regenerative medicine, 3-D printing, real-time ro-

botic surgical adjuncts, and advanced imaging

portend a bright future replete with enhanced sur-

gical ability and improved patient outcomes. Soci-

etal needs for specialist services constitute a

pinnacle in the hierarchy of patient care, which re-

mains relevant. Providing those services to the

public requires functional and effective business

models to implement care efficiently, safely, and

in a manner that sustains the practitioners and at-

tracts new talent to the field. Without an under-

standing of accounting, taxes, profit and loss,

and revenue cycle management, the financial

health of a practice could be in jeopardy.

ACCOUNTING AND TAX

Recent tax changes arose from the Tax Cuts and

Jobs Act of 2017.

Pertinent aspects of this legis-

lation to the practitioner include

 Increased standard deduction

 Elimination of personal exemption

 Reducing alternative minimum tax and elimi-

nating it for corporations

 Increased state tax exemption for individuals

and couples

 General decreases in ordinary income tax

 Decrease in C-corporation tax from 35% to

21%.

 Introduction of a 20% pass-through deduc-

tion for qualifying businesses

 Limiting the state tax deduction against fed-

eral tax to $10,000

One change that is frequently asked by practi-

tioners, or S-corporations, that own member

interests in a partnership is in regard to the 20%

pass-through deduction or section 199A. Despite

initial enthusiasm over potential benefits this could

provide to surgeons, the final bill primarily

benefitted manufacturers and other businesses

not classified as “service” companies.

If taxable income married filing jointly (MFJ) is

below $415,000, a phased-out deduction may be

qualified for. For a majority of practitioners, how-

ever, the 20% pass-through deduction yields little

to no additional tax benefit (Fig. 2). Regardless of

the potential for decreased tax savings according

to the aforementioned chart (Fig. 2), there may be

benefits to maintaining an entity tax status as an S

corporation. These benefits may include

1. Avoidance of double taxation associated with C

corporations

2. The tax reductions from proactive tax planning

and classification of form W-2 and schedule

K-1 income from the entity. Table 1 compares

types of income and the applicable tax.

Income classified as form W-2 is subject to fed-

eral income tax, state income tax, social security

tax, Medicare tax, and Medicare surtax. Schedule

2019 Pass-Through Income Decision Tree

Is taxable income

(MFJ) below $315k?

Is taxable income

(MFJ) between $315K

- $415K

Are you a “service”

company?

(OMS = Yes)

Receive 20% pass-

through deducon

Yes

Phaseout of 20% pass-

through deducon

No Deducon

Pass-through deducon limited to higher of

50% of form W-2 Wages, or 25% of form W-2 Wages and

2.5% of “qualiﬁed property” investment

Fig. 2. Pass-through income decision

tree.

Baker et al

K-1 income is subject only to federal income tax

and state tax where applicable. The temptation is

to classify little to nothing as form W-2 income

and classify everything as schedule K-1. This

generally is not recommended. Although the Inter-

nal Revenue Service has not traditionally offered

exact guidance on this issue, the idea is that sur-

geon owners should pay themselves a “reason-

able salary” classified as form W-2 income,

which fulfills the intended tax revenue goals of

the treasury. Also, form W-2 income is considered

earned income whereas schedule K-1 income is

not. Earned income is necessary for the deferment

and utilization of multiple and complex retirement

vehicles. Without earned income, surgeon cannot

defer. Because tax scenarios can vary widely,

counsel of a certified public accontant (CPA) or

trusted advisors should be sought on this issue.

TRANSITIONS

Surgeons at each phase of their career enjoy multi-

ple opportunities and challenges. Whether retiring

from practice, graduating from residency, or

transitioning from associateship to ownership, it is

important to meticulously analyze the opportunity

prior to entering into a contract. Fig. 3 compares 3

practice settings available to new graduates.

Separate from determining what kind of work a

surgeon wants to pursue, there is also the question

of association with third-party firms for fulfilling

business processes. As evidenced in other spe-

cialties, an ever-increasing compliance burden

and decreasing insurance reimbursement environ-

ment is leading many surgeons to engage in larger

practice partnerships, DSO groups, or manage-

ment service organizations (MSO). Each of these

come with risks and benefits that should be

contemplated prior to entering into a new engage-

ment. Fig. 4 compares traditional partnerships

with the DSO and MSO models of practice.

For an acquisition and depending on the entity

type acquired, there may be more than 1 option

for completing the transaction. Although beyond

the scope of this article, certain transactions may

yield higher post-tax benefit through capital gains

treatment as opposed to ordinary income. Any

contemplated transaction should also be reviewed

Table 1

Tax comparison

Tax Form W-2 Schedule K-1

Federal income tax Taxable at ordinary income tax rate Taxable at ordinary income tax rate

State income tax Taxable at ordinary income tax rate Taxable at ordinary income tax rate

Social Security tax 6.2%–12.4% taxable up to $132,900

(2019)

Medicare tax 1.45%–2.9% taxable

Medicare surtax 0.9% above $250,000 (MFJ, 2019)

Fig. 3. Transition comparison.

Practice Management in OMS

thoroughly by legal counsel, CPAs, certified finan-

cial planners, and trusted advisors with knowledge

on the subject.

MODERN ESSENTIALS OF PRIVATE PRACTICE

Following the 3 As of new practice development

was a private practice adage for many years.

Availability, affability, and ability were the key ele-

ments of a successful medical practice. Account-

ing and advertising are becoming increasingly

important in the modern practice and may expand

the 3 As to 5 As. This list contains some basic

terms essential to understanding the financial

health of a practice (Table 2). These terms provide

information on practice metrics like profitability

and earnings for a practitioner. These include

 Base salary

 Taxes

 Travel and lodging

 Continuing education

 Auto

 401(k)/profit sharing

 Defined benefit or cash balance plan

 Insurance

 Marketing

A plan should be in place to legally minimize the

tax burden by maximizing all the other items listed.

Direct operating costs deserve analysis.

Approximately 80% of direct operating costs are

fixed costs, such as rent, that do not vary based

on how many patients are seen or procedures per-

formed. Only approximately 20% of these costs

vary based on the volume of patients seen or pro-

cedures performed. A simple way to illustrate this

helps understand its importance.

In an average OMS practice, collecting

$100,000 per month with a 50% overhead,

$40,000 is spent because the practice exists.

Another $10,000 is spent on available direct cost,

leaving approximately $50,000 for the OMS to uti-

lize. Indirect costs amount to another $5000 to

$10,000 per month, reducing available compensa-

tion to approximately $40,000 to $45,000. This

example illustrates the power of marginal revenue.

Once the fixed costs are covered, additional

Table 2

Financial terms

Term Definition

Gross revenue Total receipts

Net revenue Total receipts minus patient

and insurance refunds

Adjustments The difference in the fee

schedule and what the

third-party payer

contracted with allow or

pays for a code

Production Total charges based on fees

Collections Total amount of money

received

Direct operating

cost

Actual expenses to have a

practice open

Indirect

operating cost

Interest, depreciation,

taxes, amortization

EBIDTA Earnings before interest,

depreciation, taxes, and

amortization

Accounts

receivable

Fees billed but not yet

collected

Fig. 4. Partnership, DSO, and MSO

comparison. FMV, Fair Market Value.

Baker et al

revenue has only a 20% overhead. If an additional

$20,000 per month is collected, approximately

$16,000 goes to OMS compensation, with only

$4000 of additional overhead. Table 3 demon-

strates the relationship and power of marginal

revenue.

In a group of more than 50 oral and maxillofacial

surgeons whose practice data are available to the

authors, the average net collection per OMS is

approximately $1,360,000. After direct and indi-

rect expenses, the available money to use for the

OMS is approximately 45%, or $612,000.

Retirement plans, including 401(k) and pension

funding, although included in overhead, do pro-

vide additional benefit to the business owner and

should be considered when calculating an owner’s

total financial benefit. Derived from the sample

group of practices, the average percentage of

operating cost allocations as a percentage of col-

lections is illustrated in the Fig. 5.

Profit and loss statements, balance s heet anal-

ysis, and entity tax returns comprise a standard

practice financial analysis. A profit and loss

statement is what most practitioners utilize to

demonstrate overall profitability of t he practice.

After the available operating income (net from

direct operating cost) has been determined, a

few noncash adjustments for depreciation and

amortization. With the remainder amount, form

W-2 or schedule K-1 income can be classified

with the help of a CPA.

REVENUE CYCLE MANAGEMENT

Revenue cycle management is the process of

billing and collecting revenue. It has expanded to

include credentialing. Credentialing has become

a complex undertaking. This is how a doctor be-

comes a provider for third-party payers, obtains

hospital staff privileges, obtains all licenses and

permits at the state and federal levels, and joins

various state and national organizations.

The revenue cycle begins with the patient

encounter. The encounter is recorded with a diag-

nosis code, and any interventions performed,

including an examination, imaging, or surgical

intervention, require procedure code. Only 1 fee

goes with each code with few exceptions. These

exceptions are documented with a modifier, indi-

cating a more simple or more complex procedure,

and the fee can be higher or lower. A flow diagram

may be beneficial to visualize the process, allow-

ing for objective evaluation of the billing lifecycle,

and provides an avenue to alter processes to

maximize outcomes for the practice. A basic

diagram (Fig. 6) should be followed to insure a

proper workflow from consult to compensation.

Correct coding takes place both after the initial

consult and is again verified after the treatment is

completed.

The codes are used to generate a bill to a patient

who pays a portion and a third-party payer pays a

portion. If the OMS is a contracted provider with a

third-party payer, it is likely that the accepted fee

will be lower than the standard fees. This differ-

ence is called an adjustment or write-off. Inherent

in this process is an occasional overpayment by a

patient or a third-party payer. This amount must

then be refunded to the patient or insurance

plan. At the end of each month, there is a cycle

of production, adjustments, collections, and

refunds, which results in net collections. Net

Table 3

Marginal revenue comparison

Revenue $100,000 $120,000

Direct operating $50,000 $52,400

Indirect operating $10,000 $10,000

Available $40,000 $57,600

Fig. 5. Operating cost.

Practice Management in OMS

collections then pay direct and indirect operating

expenses.

A practice generally is owed money by

patients and insurance pla ns. The amounts

are known as accounts rece ivable and a practice

management system pro duces a monthly

production/collection report that includes an

aged accounts receivable report to those over

120 days. Amounts aged beyond 120 days

are unlikely to be collected in a significant

amount. Table 4 lists examples of aged ac-

counts receivable reports for a practice p erform-

ing dentoalveolar only and 1 performing a mix

of dentoalveolar and medically coded

procedures. The percentage in the table repr e-

sents an ideal or expected distribution of ac-

counts receivable by age. The larger percent

greater than 120 days with medical procedures

is due to the large number of uninsured patients

requiring treatment of facial trauma and infec-

tions through emergency treatment in this

example.

Revenue to the OMS consist of accounts paid

by patients in the office, known as time of service,

and revenue paid from accounts receivable. An

average practice receives 35% from time of ser-

vice and 65% from accounts receivable. These

percentages vary based on the variety of proced-

ures performed and the amount of managed care

plans accepted.

In the past, medical or dental services were pro-

vided and the patients paid the bills. As insurance

matured and expanded, patients continued to pay

the bills and received reimbursement by their

insurance plan. These are precontract delivery

models. Below is a list of common practice

models:

1. Precontract models, now called out of network

2. In-network provider

3. Corporate employee

4. Hospital or large medical group provider/

employee

There also are at least 3 locations as potential

practice patterns:

1. Office only

2. Hospital and office

3. Hospital only

Due to the large variety of procedures under the

scope of OMS, all models have the ability to pro-

vide a profitable and gratifying career. In general,

the greater the prevalence of dental procedures

and codes, the simpler and faster the revenue cy-

cle. As procedures commonly performed in a

hospital or an outpatient surgical center increase,

the revenue cycle slows. This is not a negative.

With either situation, once the cycle has been

running for 6 months or more, the revenue flow

stabilizes, with the practice in solid financial

shape. Revenue cycle management affords

insight into the cyclical timing of cash flows.

Fig. 7 lists is the average cyclical cash flow timing

for single provider with single-location

engagements.

Because of the delay in the timing of insurance

receivables, the cyclical nature of procedures per-

formed follows a similar pattern to average net col-

lections illustrated in Fig. 7. The cyclical delay will

be impacted by the percentage of insurance pro-

cedures performed (as opposed to the percentage

of self-pay patients), the insurance companies a

practice is contracted with, and the billing & cod-

ing processes & procedures utilized. Summer is

often the most productive period for an OMS and

the winter season less productive. As a practical

business application, high collections in August

may be used to complete any unfunded 401(k) or

pension liabilities accrued from prior tax year

because these need to be fully funded by

September after the given tax year.

Now emerging is the OMS version of a con-

cierge medical practice. The OMS is contracted

to a hospital or large medical entity with the major-

ity of the compensation delivered as a salary. At

Table 4

Aged accounts receivable expected values

Current 31–60 d 61–90 d 91–120 d Greater than 120 d

Dentoalveolar 58% 18% 6% 4% 14%

Dentoalveolar/medical 60% 10% 5% 5% 20%

Fig. 6. Insurance cycle.

Baker et al

this time there remains additional compensation

per procedure performed, but most of the revenue

comes as salary. The authors have observed this

to be a growing niche, and it may develop into a

major part of the intersection of the OMS specialty

with the medical model.

SUMMARY

The practice of OMS continues to evolve.

Private practice delivery of c are is intrinsically

dependent on sound financial processes and a

robust understanding of the revenue cycle, mar-

keting, purchasing, staff management, insurance

nuances, and credentialing. Consolidation in

medicine and dentistry by large corpora tions

continues to gain market share at a time when

student loan d ebts have reached historically

high levels, leading to an incr easing percentage

of graduates seeking emplo yment supplemented

by independent c ontractor work at the offices of

nonspecialists. If OMS as a specialty mirrors

those of other surgi cal specialties, the increased

complexity of delive ring health care could result

in a sustained decrease in private practice

ownership.

REFERENCES

1. Vujicic M. Practice ownership is declining. J Am Dent

Assoc 2017;148(9):690–2.

2. Available at: https://www.vice.com/en_uk/article/

wjbzzy/your-phone-is-listening-and-its-not-paranoi a.

Accessed August 5, 2019.

3. Available at: https://www.cbsnews.com/news/phone-

listening-facebook-google-ads/. Accessed August 5,

2019.

4. Available at: https://www.irs.gov/newsroom/tax-cuts-

and-jobs-act-provision-11011-section-199a-qualified-

business-income-deduction-faqs. Accessed August

5, 2019.

5. Jundt J. Dictations and coding in oral and maxillofa-

cial surgery. Houston (TX): MD2B; 2018.

Fig. 7. Average cyclical collections, single practice.

Practice Management in OMS