These are questions that we as independent practice owners ask ourselves and need to answer for ourselves:

• If I drop a particular insurance plan, will I increase my profits?

• What’s the best way to evaluate an insurance plan?

• How does taking a reduction in fees affect my profitability?

• How do I go about dropping an insurance plan?

Let me be clear: I am not advocating any course of action for your practice, but offering up for discussion what I am considering doing with mine.
I have dropped many PPO insurance plans over the years. I find that the key is to drop one at a time.
Here’s my process:
First, I identify the plan I am currently contracted with that requires the greatest reduction in my fee. Let’s call it Plan 1. I research how many of my current patients are on Plan 1. In this case, 200 patients or 10% of my current patient base. Once I have established the same number of new patients not on Plan 1, I would drop the plan.
In the example of Plan 1, we typically see 30% of patients leave the practice, which may sound daunting.
But think of it this way: Even if every patient on Plan 1 leaves, the practice will still be more profitable. Why? Because we have the same number of patients we had before, and we are now getting a higher fee per patient.
This approach will not work for the PPO I am now considering dropping. Let’s call it Plan 2. 40% of my current patients carry Plan 2, so it’s too risky to just drop it. Instead, patients on Plan 2 will still be able to use their insurance in my practice, but it will be considered out of network.
In order to determine how Plan 2 is affecting my practice’s profitability, I need to know my practice overhead and net. My practice operates on an approximately 65% overhead and 35% net. What this means is that for every $100,000 we make, $65,000 will go to expenses and $35,000 will be profit.
Let’s say I do a number of procedures for a fee-for-service patient including an exam, x-rays, prophy, two fillings, and a build-up and crown, totaling $2,300 over 4 hours. With 65% overhead, my cost is $1,495. That makes my profit $805, or approximately $200 per hour.
Plan 2 requires me to accept a 25% reduction in my fee. Let’s look at what that does to my profitability. Our regular fee for these procedures is $2,300, but with a 25% reduction, our fee is now $1,725. Our overhead stays at $1,495 because I still use the same lab, materials, facility, and staff. That makes my profit $230, or approximately $58 per hour.
Looking at my participation in Plan 2 from this perspective is pretty sobering to me. I am only receiving $230 profit for 4 hours of hard work. I have to do four times the amount of work for the same amount of profit.  
While I admit that I am nervous to drop Plan 2, I realize that by accepting their fees I am working for very little profit. I feel my time, training and expertise is worth more than $58 per hour. I am fortunate that in my practice we currently have a capacity problem, meaning that we are booked out a few months in advance and it is likely that even when we drop this insurance plan we will maintain a fairly full schedule.
But I have to ask myself: Even if we were less busy, would it really matter? Wouldn’t it make more sense to simply work a few days less per month and make the same amount of profit?
After all, it’s not what you make, but what you keep.