A cost analysis of orthodontic in-office and commercial laboratory output

A cost analysis of orthodontic in-ofice and commercial laboratory output Robert tl. Biggerstaff, and Darryl J. Mitry,

Lexington,

D.D.S., Ph.D.***

Ph.D.,*

V. Ray

Smith,

DAD.,

M.S.D.,**

Ky.

L

aboratory expenses are a significant component of the cost of operaing an orthodontic practice. Yet the paucity of published data on the economics of orthodontic laboratory procedures implies that important production decisions are made on the basis of limited information. Each practitioner must decide between three laboratory production methods: (1) commercial laboratory; (2) office laboratory; and (3) a combination of commercial and office laboratory. The Dental Corporation of America (D.C.A.)l estimated the cost of some expense items related to producing study models and retainers in the orthodontic office versus their commercial laboratory charges. The study assumes that treatment of 150 new patients is started each year, requiring 190 sets of models and 160 removable appliances. At this production level, D.C.A. suggests that an orthodontist could save over $3,000.00 annually by using commercial laboratory services. Cost of equipment, repairs, and cleaning of the office laboratory were not included as expenses for the orthodontist. These omissions imply an even greater savings when commercial laboratories are used. While the D.C.A. study gives the orthodontist one viewpoint on cost comparison, it does not provide a continuous scale for comparing office laboratory costs with commercial laboratory costs. The purpose of this article is to present new data on laboratory costs. Our study seeks to resolve the question of whether it is more economical to utilize From the Departments of Orthodontics Kentucky College of Dentistry. *Associate Professor of Orthodontics dontics, College of Dentistry, University **Present

address:

***Assistant Professor and Development.

206 5. Main and

and

and Acting of Kentucky.

St., Corbin,

Director

Community

of

Icy. the

Dentistry,

Chairman,

University

Department

of

of Ortho-

40701. Division

of

Health

Systems

Research

179

the services of a commercial laboratory. Methods

and

laborator;~

or to tlevc~lop and maintain

:jn of%*

materials

A questionnaire was developed to determine the annual total cost of fabricating orthodontic models and retainers in Kentucky orthodontic office labora.tories. The production-cost variables included technicians’ salaries, number of technicians employed, laboratory size, rent, supplies used, orthodontist’s time spent in the laboratory fabricating appliances or supervising technicians, the costs of equipment items used in model produc%ion, retainer fabrication, and other laboratory procedures. The questionnaire included nineteen items and was sent to the thirty-eight Kentucky orthodontic practices listed in the 1972 Orthodmtic. Directory of th'e World. Eighteen questionnaires (17 per ent) were returned. Twelve (67 per cent) of the returned questionnaires represented solo practices, and six (33 per cent) were from partnership practices. Total caostswere computed for the two groups independently. The production capacity of a technician was determined from the questionnaire showing the largest number of models and retainers per year ( 1,100). With the use of this number, the “apparent efficiency” of a technician for other offices was computed. For example, if a technician produced an output of ,550 units per year, the apparent efficiency is 50 per cent. The cost of laboratory equipment was computed from the c*atalogue price lists of Moss Corporation, 1)ental C’orporation of America, IJnitek Corporation, Ormco Corporation, Rocky Mountain, and American Orthodont,ics. The lowest list price for each item was used. The average cost of equipment was depreciated over 10 years by t,he straight-line method, since the questionnaires revealed this to be the most widely used method. The costs of supplies were obtained from Dental Corporation of America study.’ Accordingly, the supplies for 350 output units cost $155.00. Proportionate parts of this cost were utilized in the present study; for example, if an office has 700 output units, the cost of supplies is $310.00. “Opportunity cost“ is a eonccpt of economics.” Opportunity costs represent the amount of income the orthodontist could otherwise earn by placing the expenditures for equipment and supplies into a sound investment. Average commercial laboratory charges were computed using price lists of (1) D.C.A., (2) Barnct Jaffe, (3) TP Tla.boratories, and (4) Professional Positioners, Inc. These laboratories were selected because they advertise nationally in orthodontic journals. The “1971 Survey of Dental Practice”’ provided information on technicians’ salaries and other related laboratory costs. The total laboratory costs were c*omputed three wags. First, the technician was paid a full salary irrespective of his level of production (T,) A technician’s production capacity is far above 350 units per year; it is unrealistic and inflates office laboratory costs t,o assume full-time pay for only part-time service. Nonetheless, this method of calculation was employed by the 1j.C.A. study. Sccontl,

Cost a?lalysis of orthododic

labomtory

output

181

a more realistic situation was assumed where the technician was employed as a part-time assistant while not doing laboratory procedures and he/she was paid a technician’s rate of pay (T2). The cost to the orthodontist of a technician in this situation is the technician’s wage times his/her hours of operating as a technician and the difference between the technician’s pay and the assistant’s pay for that portion of time the technician is used as an assistant. Third, the technician is compensated on a part-time basis according to his/her “apparent efficiency” (T,) . If the technician produces 550 units of output in a year, he/she is paid 50 per cent of the full-time equivalent salary. This method of computing the cost of a part-time technician is also more realistic than T1. The total laboratory costs for commercial laboratories (T4) are also computed with total cost equations.3v 4 An example of the computation follows : output 400 units 500 units Let : XI = 400, X2 = 500, Then : Y-Y, Y, - Y,

Y, = Y, =

= =

$10,836.00 $10,884.00

cost cost

to make to make

400 units) 500 units)

x-x, x,-x,

Therefore : Y - 10,836 10,884 - 10,836

=

Y - 10,836 48

=

X - 400 100

Y. =

=

$10,644.00.

0.48X

(the (the

x -400 500 - 400

These total cost equations are plotted on a graph to represent the office laboratory cost functions T,, T,, and T, for a solo practice (Fig. 1). These total cost curves allow for a continuous scale of cost related to levels of output from 320 to 1,340 units. The same methods are utilized to compute the office laboratory costs in partnership practices (Fig. 2). Total production costs for 320, 800, and 1,100 output units are also computed and presented in tabular form. Results

The results of the questionnaire survey are presented in Table I. This table shows the averaged responses for Kentucky solo and partnership practices. The partnership office laboratory (POL) averages 207 square feet ; this may be compared with the average of 122 square feet for the solo office laboratory (SOL). The solo practice has, on the average, about $200.00 more invested in laboratory equipment in its laboratory than does the partnership practice. Two thirds of the partnership practices and one sixth of the solo practices have full-time technicians. Both solo and partnership orthodont,ists average 1.3 hours per week in the laboratory supervising procedures. This suggests that, individually, the orthodontists in a partnership spend less time supervising in the laboratory than the solo practitioners.

T

1 = Y = 9320

+ .45.<

T2 = 1 = 4558

+ 4.811

1‘3 = Y =

1724 t

.x4 = Y = 281

OUTPUT

Fig. 1. Total laboratory

OF MODELS AND RETAINERS

cost functions for office laboratory cost function (T4) as output varies

models in a solo

+ 9.4s

IK !iI'SDREDS

(T,, T,, practice.

5.5X

PFR YFAR

TJ compared

to commercial

The average POL produces 1,098 models and retainers (Table II) per year; the average SOL produces 555 models and retainers. Dividing the mean total costs by mean output, the average POL cost per item is $11.17. This may be compared with $17.26, $12.97, and $12.25 utilizing production assumptions T,, T, and Ta, respectively, for the average SOL. The average cost per unit to fabricate models and retainers (excluding positioners) in a commercial laboratory is about $9.25 (Table III). The average solo practice saves $8.01 (T,), $3.72 (T,), and $300.00 (T3) per unit of output by utilizing the commercial laboratory. These values multiplied by 555 units per year equal $4,445.55 (T,), $2,054.60 (T,), and $1,665.00 (T,), a saving of between 2 and 5 per cent of average gross income. The partnership practice sa,ves $1.92 per output unit by utilizing the commercial laboratory. This multiplied by 1,098 units per year equals a saving of $2,108.1.6, or about 1.25 per cent of the orthodontist’s average gross income. Ta.ble IV shows the total commercial laboratory costs for solo and partnership practices to produce an average of 555 and 1,098 output units, respectively. The comparison of the totals in Table II indicates a relative saving in all office production methods; however, it is likely that there is a production level at which partnership office laboratory production costs equal those of the commercial laboratory. The total costs to produce 320 output units are shown in Tables V and VI for the office laboratory and the commercial laboratory. Table V shows the office laboratory production methods for solo and partnership practices. Again,

vozume Number

68 2

Table

I.

averaged

Cost malysis Total from

office the

laboratory

questionnaire

Questionnh-c

cost

of orthodmtic

components

la&omtory

for

solo

Solo

(N=ld)

and

output

183

partnership

practices

( Partnership

(N=(T)

returns

items

1. Office size 2. Laboratory size 3. l
1

1,040 sq. ft. 122 sq. it. $4 .dd ‘9‘1 $514.88 $877.00 $440.00 $1,317.00 $243.35 $431 .oo 16.770 1.3

2,132 sq. ft. 207 sq. ft. $4.83 $977.74 $767.00 $310.00 $1,077.00 $486.70 $321.00 66.7% 1.3

154

344

136 141 124 14

246 245 263 35

4.5 555

4 1,098

$9.89

$9.87

$8.14

$8.03

$17.26

$11.17

these itata demonstrate the economy of the commercial laboratory. Table VII reveals the relationship of increased production using the variables of Tables V and VI. Only the total costs are tabulated because of space restrictions. The data in Table VII were plotted with total cost equations. The results are graphed in Figs. 1 and 2 for the various production assumptions. These plots clearly show that office and commercial laboratory costs are even at about 1,100 output units in a solo practirc and at about 1,300 units in a partnership practice. Discussion

In spite of the limitations of the questionnaire as a research tool, and the limited sample size (less than 50 per cent of Kentucky orthodontists responding), the results presented may be useful in resolving the question related to the most economical method of producing orthodontic models and retainers. It

Table and

Total

cost

an average

II.

of

for

an

1,098

average output

of 555 units

office

laboratory

in a partnership

output

units

in a solo

practice

practice

Expwaditrcws Technician’s salary S.S57G of salary for Social Kent Equipment ;\lodrlr I~ctaincrs Opportunity cost Supplies Models I
Table such

III. Average as D.C.A.,

costs

Barnet

Security

87.70 44.00 92.19 15T.00 X6.35

:~14.00

li”.70d 2,9!15.20 .$12,23X1”

2,99X20 $9,566.16

for

Jaffe,

fabricating TP, and

models

Professional

$7, I7853

$1 -,-t 0 ‘I’+‘{, I II”

$6,790.47

$12,233.12

and

retainers

Positioners’

in commercial laboratories cost

Item

One set of models Hawley retainers Lower 3 to 3 retainer Positioner

Table

IV. Total

a partnership

costs practice

of 555*

$9.75 IO.00 7.00 35.00

output

fabricated

units

in a solo

in a commercial

practice

Total

laboratory

1,098*

units

of output

in

Partnership

$43.10

$32.10

21l.Of.l 30.17

‘41 .oo 22.47

1,501.50

3,354.oo

1,326.OO

2,398.50

q395.00 1,009.00

2,113.oo

$5,515.77 of questionnaire

and

laboratory 8010

Expenditures Equipment cost if sent to commercial Rent Opportunity cost Begin models cost Finish models cost Cost of maxillary retainers Cost of mandibular retainers

*Average

laboratories

q417.00

$10378.07

items.

seems pertinent, therefore, to analyze the variables which contribute to the total costs of office laboratory production. The technician’s salary is a primary consideration in the total cost analysis. The difference between solo and partnership technician salaries is directly related to the practice environment. The mean technician training period in the solo practice is 14 weeks, whereas the 36week mean technician-training period for partnership practices is significantly greater. Moreover, the mean partner-

Cost analysis of orthodontic Table

V. Total

including 80 lower retainers

costs beginning

to produce

320

output

model

sets,

80

units

Cast variables Technician’s salary (T,) 5.85% of salary for Social Rent Equipment Models Retainers Opportunity cost Supplies Models Retainers Orthodontist time cost Total T, Total T, Total T,

Table

VI. Total

laboratories, and

80 lower

costs

including

and

model

to produce 80 beginning

320

output model

units sets,

80

offke

upper

Solo

I Security

partnership

sets,

output

185

laboratories,

retainers,

and

Partnership

I

$5,280.00 308.88 514.84

$7,152.00 418.39 997.74

87.70 44.00 92.19

76.70 31.00 75.39

91.00 50.05 2,995.20 $9,463.86 $6.081.42 $5,495.76

91.00 50.05 2,995.20 $11,887.47 $8,505.03 $6,512.49

in solo

and

80 finished

partnership model

sets,

80

using 80

commercial

upper

retainers,

retainers Cost

Solo

variables

Equipment cost if sent to commercial Rent Opportunity cost Begin models cost Finish models cost Cost of maxillary retainers Cost of mandibular retainers Total

in solo

finished

laboratory

laboratory

$43.10 211.00 30.17 780.00 780.00 791.20 651.20 $3,286.67

Partnership $32.10 241.00 22.47 780.00 780.00 789.60 642.40 $3,287.57

ship technicians’ salaries closely approximate the median national survey salary. These data suggest that the solo practitioner probably utilizes dental assistants to produce models and retainers and, therefore, pays smaller salaries. In addition, it seems likely that the less well-trained dental assistant technician is less efficient and increases unit production costs. Rent is another cost factor which must be considered. The partnership practices report a mean laboratory space (207 square feet) nearly 70 per cent larger than the solo practice (122 square feet). Since each laboratory employs a single technician, the partnership practitioners could probably reduce the laboratory space allocation, thereby reducing the total cost of office laboratory production, An efficient laboratory space of 100 to 120 square feet may be adequate. The discrepancy between equipment costs suggests that the partnerships use fewer and less costly equipment items, which reduces the cost of office laboratory production. A likely explanation is that the reporting partnerships

186

Biggerstaff,

Table

VII. The

laboratory

and

Smith, total in the

cost

ad of

Mitry

producing

commercial

320,

500,

800,

and

1,100

output

units

in the

office

laboratory --

lhits of output cznd production method

Total Solo

ofice

laboratory

cost --___-__--__~

Partnership

Told

c~ommercial

Solo

laboratory

cost

Partnership

320 units* $13,887.47 $9,463.86 Tl 6,081.42 8,505.03 TX 6,5X49 5,495.76 T3 T $3,286.67 $3,287.57 500 niitst 9p544.46 l&968.07 Tl 6,948.08 9,371.69 T2 6,498.52 7,842.21 T8 4,975.52 4,970.5’7 T4 800 unitst: 9,677.76 12,101.37 T, 8,377.19 10,800.80 T* 8J52.00 10,034.65 T, 7,790.27 7,775.57 T4 1,100 unit@ 9,809.51 12,233.E T, 9,809.51 9,809.51 T* 9,809.51 9,809.51 T, 10,605.02 IO,30457 T4 The office laboratory utilizes three (3) production methods T,, T,, and T,. T, is the commercial laboratory (see text for further definitions). *Includes 80 beginning model sets, 80 finished model sets, 80 upper retainers, and 80 lower retainers. tIneludes 125 beginning model sets, 125 finished model sets, 125 upper retainers, and 125 lower retainers. SIneludes 200 beginning model sets, 200 finished model sets, 200 upper retainers, and 200 lower retainers. §Includes 275 beginning model sets, 275 finished model sets, 275 upper retainers, and 275 lower retainers.

are between older and economically wiser practitioners. This suggests that the younger practitioners desire the latest and the best (most expensive) in laboratory equipment items. It is possible to make adjustments in the real costs for office and commercial laboratory production. Assume that a full-time (TB) technician’s salary is $600.00 monthly, the laboratory space allocation is 100 square feet, and the equipment expense is the average of the partnership practice. These adjustments make total office laboratory costs relatively equal for the solo and partnership practices. Comparisons between office laboratory and commercial costs are possible. Using the cost equation again, the office laboratory is T, = 320 + 9.3X;

the commercial laboratory, T, = 6,487 + 4.7X.

Volume Nunaber

Cost analysis of orthodontic

6X 2

laboratory

T1 = Y = 11744

+ 4.8x

T 3 = Y = 5957

+ 7.3x

Fig. 2. Total cost functions for office laboratory cost function (T,) as output

+ 9.3X

I”

5

OF RETAINERS

187

.45X

TV = Y = 6977

T,, = Y = 320

OUTPUT

+

output

AND MODELS

IN HUNDREDS

laboratory models (T,, varies in a partnership

PER YEAR

T,, T,) compared practice.

to commercial

To predict the number of retainers and models where T, = T,, 9.3x 4.6X There

+ 320 = = 6,167. X =

4.7 + 6,487

1,340.

Thus, at output levels less than 1,340, commercial laboratories arc less expensive. The average Kentucky partnership has an output level of 1,098. This means that the difference between office and commercial costs is $0.90 per output unit or $988.20 per year. But is this a meaningful saving? There are other important considerations. Most orthodontists want retainers in place about 4 days after debanding. Commercial laboratories require 7 or more days (including mail service time). The orthodontist must, therefore, weigh the clinical implications of delayed retainer insertion. Another factor concerns model production. Most orthodontists USC irreversible hydrocolloid impression materials. These materials are most accurate when poured immediately because the stresses and strains induced by syneresis, imbibition, chemical reactions, and all other changes involve dimensional disturbances. Storage in a high-humidity environment reduces dimensional

Despite the above consideration, it Sims that at realistic protlnption 11~1s the commercial laboratory is comprti~iv(~. The recent pvadualc shonltl c’lll~‘lo~ long-range planning in dcvcloping the office laboi7ltory, however. .I small, modest, but well-equipped laborator)- should bc inclntletl in the initial office design. The space should probably oc~*np~ no more than 100 square fret. i1 single-wheel model trimmer is adequate t’or gross motlcl trimming. ,‘I vibrator and hand spatulator are less cspenaivc than the vacuum mixer. One final comment on commercial laboratory costs. Not includctl is that portion of the dental assistant’s salar!- that is rcquirctl to process the impressions for mailing (or pick-up) and the sorting out oi’ returned fabricated appliances. Nor is the orthodontist’s time cost inclntled whcrc it is neccssnry to adjust commercially fabricated appliances to compensate for the dimensional changes related to delayed model casting. These are conreniencc variables or intangible variables which ma>- be worth more than $0.90 per retainer and ma,v make office laboratory costs more competitive at a lower production level. Further, long-range planning can reduce total costs f’or office laboratory production so that office and commercial laboratory c*osts will bc more nearly equal. Because of commercial laboratory methods, their costs will always be lower below certain production levels. Nevertheless, convenience or intangible costs may more than compensate when a high production level is reached. This article has identified major laboratory expense variables and presented a method of analysis based upon principles of economics.” We hope that we have provided the orthodontist with additional data and a useful approach for considering short- and long-range practice planning. REFERENCES

1. How much does the convenience of operating your own lab cost you? Dental Corporation of America, 1971. 2. American Dental Association, Bureau of Economic Research and Statistics: The 1971 survey of dental practice, J. Am. Dent. Assoc. 80: 1379-1383, 1972. 3. Thomas, Q. B.: Calculus and analytic geometry, Reading, Mass., 1973, Addison-Wesley Puhlishing Company, Inc. 4. Mansfield, E.: Microeconomics, theory and applications, New York, 1970, W. W. Norton.

College

of

Dentistry,

University

of

Eentucky

(40506)