Dental associate compensation models explained

This post is general education from Copeland Consulting Services. It is not legal, tax or financial advice. Ask an attorney and a CPA to review any offer.

What are the common compensation models for dental associates?

The ADA lists four: straight salary, salary-plus, straight commission, and net profit. In its words, dental models “can be surprisingly complex, since dentists do not always receive a straight annual salary or an hourly amount.” The table summarizes each model as the ADA describes it.

The ADA contract guide calls straight salary “the least complicated compensation model.” Every other model needs a clear formula in the agreement.

What is the difference between production, adjusted production and collections?

Production is what the office bills. Adjusted production is what it may collect. Collections is what it actually collects. These three numbers can differ a great deal, so a commission formula must name one.

The ADA defines the terms this way:

• Total production: the amount the office bills for a procedure under its fee schedule. See gross production.
• Adjusted (billable) production: the amount the office is contractually allowed to collect, typically set by third-party payors.
• Collections: the net amount the office actually collects. See collections.
• Collection percentage: collections divided by production, times 100.

Plain terms for each pay base appear in the glossary as production-based pay and collections-based pay.

How can the same crown produce different pay?

The ADA gives a worked example, and its numbers show the gap. A practice’s fee schedule for a crown is $1,500. The patient’s PPO allows $1,000 for a crown, so the office cannot collect the difference. The PPO pays $500. The patient owes $500 and pays $450. The office writes off $50. The ADA’s figures:

The ADA contract guide says its own “sample numbers and scenarios do not express industry standards or expectations.” Treat the crown figures the same way: an illustration, not a norm. The point is that a percentage applied to $1,500, $1,000 or $950 gives three different paychecks. Say a formula pays 30 percent. That figure is an example for arithmetic only. It would be $450, $300 or $285 on the ADA’s crown.

What does the ADA suggest asking about insurance mix?

If a practice accepts many discounted plans, total production will probably differ from billable production. The ADA suggests asking questions such as:

1. Will newer associates see all PPO or DMO patients, while the owner sees mainly fee-for-service patients?
2. What are the reimbursement rates for the different plans?
3. Does the practice have trouble collecting from any of these plans?
4. Is there a chance to renegotiate reimbursement rates?
5. Is the practice open to dropping any lower-paying plans?

These questions matter more than the headline percentage. For more on plan choices, see the PPO participation guide.

How does net profit pay work?

It pays on billings for your services, less expenses named in the contract. The ADA says expenses may be direct, such as lab fees and provider discounts, or indirect, such as overhead. Its example: $10,000 in production less $1,000 in expenses leaves $9,000 as the pay base.

Ask which expense lines are allowed, who sets them, and whether you can see the figures. A vague term like “overhead” can hide a lot. See overhead for the usual meaning.

Why does the pay base matter so much to a new associate?

Because the base sets the size of every paycheck. A higher percentage on a smaller base can pay less than a lower percentage on a larger base. The ADA says its commission examples can be “complicated” and that “any change in the variables shown will affect your income.” For that reason, it advises knowing the overall level of production needed to reach target earnings when you evaluate a job offer.

Run the math on three scenarios before you sign: a busy month, an average month and a slow month. Ask the employer to confirm each result in writing.

What belongs in the written agreement?

A clear formula, with sample math. The ADA contract guide strongly recommends that employer and employee “each run at least a few sample numbers through the compensation model.” It also says a salary-plus model “should always clearly set numbers for each compensation element.” Where a commission comes with an advance, the guide says the contract should state whether the dentist receives a guarantee or an advance, and whether repayment carries interest.

Check these items:

• The base for any percentage, named exactly.
• How associate compensation is paid and how often.
• Deductions, lab fees and discounts.
• Any advance or guarantee, and how it is repaid.
• What happens to unpaid collections after you leave.

Is pay the whole offer?

No. The ADA notes that an offer may have lower total pay “but overall compensation that is more generous, based on valuable benefits such as health insurance, retirement plans and other features.” It also lists lifestyle terms such as more vacation time and flexible work hours. Compare the full package, in writing, the same way for each offer.

For the rest of the contract, see employment agreement provisions.

Next step

The dental associate contracts guide shows where pay fits among the other terms. To discuss a related project, contact Dr. Copeland about consulting.