PPO Write-Offs Explained: How Insurance Impacts Your Profitability

What Are PPO Write-Offs?

When you participate in a PPO (Preferred Provider Organization) network, you agree to accept contracted fees lower than your usual and customary fees. The difference between what you charge and what the insurance plan pays is called a "write-off" or "contractual adjustment."

Example: Your usual fee for a crown is $1,500. The PPO contracted fee is $1,100. You write off $400—revenue you'll never collect, even after the patient's portion is paid.

Why PPO Write-Offs Matter

PPO write-offs directly impact your bottom line. While PPO participation brings patient volume, it comes at a cost. Many practices don't realize how much revenue they're losing until they calculate total annual write-offs—often $100,000 to $500,000+ per year for multi-provider practices.

The Hidden Costs of PPO Participation

• Revenue erosion: You produce the same quality work but collect 20-40% less
• Increased volume requirements: To maintain revenue, you need to see more patients—leading to rushed appointments and staff burnout
• Lower profitability: Fixed overhead costs (rent, salaries, equipment) stay the same while revenue per procedure drops
• Patient confusion: Patients don't see the write-off and may not value the discounted care

How to Calculate Your Write-Offs

Per-Procedure Calculation

Write-off = Usual Fee - PPO Contracted Fee

Write-off percentage = (Write-off ÷ Usual Fee) × 100

Example:

• Usual fee for crown: $1,500
• PPO contracted fee: $1,100
• Write-off: $400
• Write-off percentage: 26.7%

Monthly Practice-Wide Calculation

1. Calculate total production at your usual fees
2. Calculate total PPO adjustments/write-offs
3. Divide write-offs by production to get percentage

Example:

• Monthly production (usual fees): $150,000
• PPO write-offs: $45,000
• Actual collections: $105,000
• Write-off percentage: 30%

This practice is giving away 30% of its production to PPO contracts—$540,000 per year.

Analyzing Your Payer Mix

What Is Payer Mix?

Payer mix is the breakdown of your patient revenue by payment source:

• PPO insurance
• Fee-for-service (FFS) / Out-of-network
• Medicaid / Government programs
• Cash / Self-pay
• Membership plans (in-house)

Why Payer Mix Matters

Different payer types have vastly different profitability:

• Fee-for-service patients: 100% of usual fees collected
• PPO patients: 60-80% of usual fees collected (20-40% write-off)
• Medicaid: 40-60% of usual fees (40-60% write-off)
• Membership plan patients: 85-95% of usual fees (small discount for loyalty)

A practice heavily weighted toward PPO and Medicaid will struggle with profitability even if production is high.

How to Analyze Your Payer Mix

Run a report from your practice management software showing:

1. Total production by payer category (last 12 months)
2. Total adjustments/write-offs by payer category
3. Percentage of patients in each category

Healthy payer mix benchmark:

• 30-50% Fee-for-service / Out-of-network
• 40-60% PPO (selectively chosen plans)
• 0-10% Medicaid (if you accept it at all)
• 5-15% Membership plans (growing segment)

Should You Drop PPO Plans?

When to Consider Leaving a PPO

• Write-offs exceed 35% for that plan
• The plan represents <5% of your patient base
• Administrative burden is high (slow payments, claim denials)
• Your schedule is consistently full without marketing
• You're in a desirable location with low competition

When to Stay In-Network

• The plan represents >20% of your patients
• You're in a competitive market and need volume
• You're a newer practice building a patient base
• The write-offs are manageable (<25%)
• Contract terms are negotiable

The Middle Ground: Selective PPO Participation

You don't have to be all-in or all-out. Many practices selectively participate in:

• Keep: 2-3 major plans with low write-offs and high patient volume
• Drop: Plans with high write-offs and low patient volume
• Negotiate: Request fee increases every 2-3 years

Strategies to Reduce PPO Impact

1. Build a Fee-For-Service Patient Base

• Market to self-employed professionals, executives, and retirees
• Offer membership plans for uninsured patients
• Provide exceptional patient experience to justify premium pricing
• Educate patients on the value of out-of-network benefits

2. Maximize Production Per Visit

Since PPO fees are lower, increase value per appointment:

• Offer same-day dentistry when possible
• Bundle procedures (e.g., multiple fillings in one visit)
• Improve case acceptance for comprehensive treatment plans

3. Negotiate Better PPO Contracts

• Request fee schedule increases every 2-3 years
• Highlight your quality outcomes and patient satisfaction
• Leverage competition—if the network lacks providers in your area, you have negotiating power
• Consider out-of-network status for high-reimbursement plans (patients can still use benefits)

4. Optimize Billing and Collections

• Verify benefits before treatment to avoid surprises
• Collect patient portions at time of service
• Submit claims electronically for faster payment
• Follow up on unpaid claims within 30 days

5. Create an In-House Membership Plan

For uninsured patients, offer an annual membership that includes:

• 2 cleanings and exams
• X-rays
• 15-20% discount on restorative treatment
• Annual fee: $300-$500

This creates predictable revenue and reduces reliance on PPOs.

Real-World Example: Evaluating a PPO Contract

Scenario: A practice is considering dropping "ABC Dental PPO."

Data:

• Total annual production from ABC PPO patients: $120,000
• Write-offs: $45,000 (37.5%)
• Actual collections: $75,000
• Number of ABC PPO patients: 180 (8% of active patients)
• Average claim processing time: 60 days (slow)

Analysis:

• High write-off percentage (37.5%) indicates poor reimbursement
• Small patient base (8%) means limited disruption if dropped
• Slow payments create cash flow challenges

Decision: Drop the plan and transition patients to:

• Out-of-network benefits (patients can still use insurance, practice collects full fees)
• In-house membership plan for uninsured patients
• Payment plans for those needing financing

Outcome: Over 12 months, 60% of patients stayed. With out-of-network reimbursement and membership plans, the practice collected $95,000 from this patient group—$20,000 more than with the PPO contract.

Using the PPO Write-Off Calculator

Our PPO Write-Off Calculator helps you estimate the financial impact of your PPO contracts:

1. Enter your usual fee for a common procedure (e.g., crown)
2. Enter the PPO contracted fee
3. Enter average monthly volume for that procedure
4. Enter the percentage of patients with that insurance

The calculator shows:

• Write-off per procedure
• Monthly and annual write-offs for that procedure
• Estimated total practice-wide annual write-offs

Conclusion

PPO write-offs are a necessary cost of doing business for most dental practices—but they shouldn't be accepted blindly. By analyzing your payer mix, calculating write-offs, and selectively participating in profitable plans, you can maintain patient volume while protecting profitability.

The key is data-driven decision making. Use the PPO Write-Off Calculator to quantify the impact, then develop a strategic plan to optimize your payer mix over time.