How to Model the Financial Impact of Going Fee-for-Service

The model that answers this question is small. It is four inputs, one line of arithmetic and one honest scenario table, and it takes an afternoon if your books already separate write-offs by carrier. What makes it useful is not its size, it is that every number in it comes from your practice instead of from an article.

What the model produces is a single figure: the share of a carrier's patients you have to keep for collections to hold. That is the threshold the decision turns on, and it is the computable half of a question whose most-quoted number has no source behind it. It will not tell you how many patients you will actually keep, because nothing can, but it tells you exactly what you are betting on and how much room you have.

Step 1: pull four numbers, one carrier at a time

Trailing 12 months, for the carrier you are considering, not for your whole book of business:

A and B come out of your practice management system if it reports adjustments by carrier, and out of your books if write-offs are carried as their own line rather than netted into revenue before they ever reach the ledger. If your production is already broken out by payer mix, this is a report. If it is not, this step is the work, and it is worth doing whether or not you drop anything.

C should land in the high nineties. A healthy collection ratio runs 98% to 100% against net production, a range consistent with the practice benchmarks published by the National Society of Certified Healthcare Business Consultants, and if yours is materially below that on an in-network carrier you have a collections problem to fix before you have a contract decision to make. If you want to see where your practice sits on that ratio and the others this model leans on, our free Dental Practice Benchmark Scorecard checks them against healthy dental ranges in about two minutes.

D is the input everyone guesses at, and almost nobody has to

If your practice is heavily in network, your first reaction to D is probably that you have no out-of-network patients to learn from. You have thousands of them, and you have been billing them for years.

Every PPO patient you treat already owes you a patient portion. The deductible, the coinsurance, the work the plan does not cover. That balance is collected from a household on the same terms a full fee would be, and it is the largest sample of household payment behavior in your practice. Pull what you billed to patient responsibility over the trailing 12 months and what you collected against it. That ratio is measured, it is yours, and it is the honest starting point for D.

Two smaller populations sharpen it. Any plan you are already out of network with shows you how patients behave when the entire fee sits with them, which is the closest match to what you are modeling. Your self-pay and uninsured patients show you the same thing with no carrier in the picture at all.

Then adjust it downward, and be explicit that you are doing it. Three reasons, all of which push the same direction:

• Balance size changes behavior. A $200 coinsurance balance and a $1,400 crown do not collect at the same rate, so a figure measured mostly on small patient portions reads optimistically against full fees.
• Your self-pay patients chose to be self-pay. They are the most willing payers you have, which makes them a poor proxy for a patient who did not choose this and is annoyed about it.
• Balances need time to age. Measure on charges that are at least a few months old, or you will book a rate before the slow payers have finished being slow.

What comes out is a measured number with a stated haircut, which is a different animal from a number you picked because it sounded reasonable. Write down both halves. When you run the model across a range in Step 3, you are testing how big the haircut needs to be, not guessing at the whole input.

Step 2: compute break-even retention

The write-off rate is B divided by A. Then:

Break-even retention = (1 minus the write-off rate) x in-network collection rate, divided by out-of-network collection rate

The logic underneath it is short. In network you collect a discounted fee from everybody. Out of network you collect a whole fee from whoever stays. Break-even is the retention rate where those two totals are the same.

Worked, with a carrier that is real in shape if not in name:

Check it the long way. Keep 67.7% of $260,000, which is $176,116 carrying the unrounded rate through, and you produce that at full fee with no contractual adjustment. Collect 95% of that and you have $167,310, which is the same money you collected in network. The same money, from about a third fewer patients.

So this practice can lose up to roughly 32% of that carrier's production and be even on collections.

Step 3: run the table, not the number

A single break-even figure invites false confidence. Run it across the write-off rates you might actually be looking at, holding the collection assumptions steady:

Then flex D across the haircut you applied to it. At a 35% write-off, moving the out-of-network collection rate from 98% to 90% moves break-even retention from 65.7% to 71.5%. An 8 point swing in D moves the threshold almost 6 points, which tells you where to spend your attention. Tightening your patient financial policy before the transition does more for this decision than refining any other line in the model.

Step 4: add the cost layer, because break-even understates it

Collections break-even is not the finish line, and the direction it misses is the favorable one.

At break-even you are producing less dentistry for the same money, so the clinical cost of that work comes off with it. Supplies and lab together run 10% to 14% of production, and they follow the chair. Using 12% on the worked example:

About $10,000 better on the same collections, plus the chair time that came back. That is the real shape of break-even, and any model that stops at collections will understate the case.

Everything else stays put. Rent, your team, the equipment note and the rest of total overhead do not move with a decision this size, which is also why falling short of break-even hurts more than clearing it helps. There is no cost cushion on the downside.

Step 5: put the ramp on a calendar, not in a percentage

Attrition does not arrive on the effective date. Patients leave when they next need an appointment, so the loss shows up over a recall cycle rather than in a month, and the practices that panic are usually the ones reading month two as if it were the final answer.

Model it as a schedule. Effective date, then a full recall cycle, then a second one. Your own reappointment interval sets the length. Two things move underneath it in the meantime: collections slow down while patients learn a new payment pattern, and receivables age differently because the balance now sits with a household rather than an insurer. Neither is attrition, and both will look like it on a monthly report if you are not expecting them.

Your contract sets the calendar's start. Notice periods, termination windows and any duty to finish treatment already underway are contractual and vary by carrier, so read the agreement before you pick a date.

What the model cannot see

Say these out loud rather than burying them in an assumption cell.

Whether the plan has out-of-network benefits at all. A plan with no out-of-network coverage is a different decision from one that reimburses at 50%, because the patient's cost of staying with you is different by an order of magnitude. This is the first thing to check and the model has no way to infer it.

How your new patients find you. If a meaningful share arrive through a network directory, dropping the contract removes a referral channel as well as a discount, and that cost shows up months later in new patient count rather than immediately in collections.

What your remaining plans do. Carriers are not independent of each other in a local employer market, and one plan's departure can change the mix of what walks in the door.

Whether you can fill the chair. The freed capacity is worth what you put in it. Model it at zero and treat anything you fill as upside, rather than building the case on production you have not yet won.

What to track after you decide

The point of the model is to give you something to check yourself against later, so set the measurement up before the effective date, not after.

Track retained production from that carrier's patients against your break-even line, monthly, on an accrual basis. Track your production and collections separately, because they will diverge during the transition and the gap is information. And flag the comparison that quietly breaks: your net production steps up for these patients the moment contractual write-offs stop, so year-over-year percentages measured against net production are comparing two different denominators. Note it in your reporting or you will spend a quarter explaining a number that only moved because the definition did.

P.S. Reciprocity Accounting keeps production, write-offs and collections split by carrier every month, which is what turns a decision like this from a debate into a calculation. See how we can help your practice.

Frequently Asked Questions

What is a break-even retention rate?

It is the share of a carrier's patients you have to keep, after leaving the network, for your collections from that group to stay level. It is set by your write-off rate and your two collection rates, and nothing else. A deeper discount means a lower break-even, which is why the same decision is comfortable in one practice and reckless in another with the same number of patients.

What out-of-network collection rate should I use?

Do not borrow a published figure and do not invent one, because you can measure this. Take what you billed to patient responsibility over the trailing 12 months against what you collected on it, which is household payment behavior on your own patients. Then adjust it down, since a full fee is a much larger balance than a coinsurance portion and collects less reliably, and run the model across that adjusted range. If the decision flips between a 90% and a 98% input, the decision is not ready yet, whatever number you end up writing in the cell.

Should I model all my plans at once?

Model them separately, because each has its own write-off rate and its own share of production. Sequence matters too. Working one carrier first gives you an observed attrition rate from your own patients before you commit the rest, and that observation is worth more than any assumption you could have refined instead.

Does the model tell me whether to go fee-for-service?

No, and it is not supposed to. It tells you the threshold and how much room you have around it. Whether you clear that threshold depends on your market, your patients and how they feel about your practice, and none of that is in your general ledger. What the model does is stop the conversation from being run on somebody else's assumption.

How long before I know if it worked?

Not before a full recall cycle, and preferably two. Patients leave at their next appointment, not at the effective date, so early months carry almost no signal. Reading month two as the verdict is the most common way practices talk themselves out of a decision that was working.