Since its inception in 2001, the Academy of Dental CPAs (ADCPA) has expanded from six CPA firms to 24 across 27 locations. Even through this growth, the vision and goal of the organization’s members have never deviated – to help clients grow their practice through industry-focused consulting, accounting, and tax services. On a bi-annual basis, ADCPA members meet to discuss relevant industry topics and how these topics can impact dental practices. As a founding member of the ADCPA, Baker Tilly was fortunate to host the spring 2014 event which focused on the future of dentistry. This event incorporated visions from all sectors of the industry including practicing dentists, insurance providers, equipment representatives, a dental school Dean, and practice management consultants. The opportunities as well as the challenges to the dental profession are numerous, which raises the question, “Are you prepared for what lies ahead?”
An aging profession
The age of the average dentist increases each year, following the general dynamics of the baby boomer population. In the most recent census from the American Dental Association (ADA), over one half (51 percent) of all dentists are more than 50 years of age. While the average retirement age has also increased in the past several years (now north of 70 years old, albeit many of these dentists are currently practicing on contracted terms vs. owning a practice), the fact remains that the trend of practice sales and mergers will continue.
A concerning trend is the available pool of dentists to buy all of these practices. Nationally since 2008, the number of retiring dentists has exceeded the number of dental school graduates, making the exit strategy for each dentist far from a certainty. To date, the proliferation of group practices and dental support organizations (DSOs) has largely filled the void. Also, contrary to what’s happening in the medical industry, there is still strong demand from recent graduates to be entrepreneurs in their own practice or a significant part of the ownership in a group practice setting.
Dentists considering a transition of their practice should keep in mind that each dental market is unique, and transition factors depend highly on location (rural vs. urban), the age demographic within that location and its surrounding community, as well as marketplace competition. It is important for current owners to evaluate their individual situation, have an annual review with their advisors, and not get caught up in general market trends. The ultimate value in a dental practice is from active patients treated, a positive history, a well-known name in the community, and the ability to transition current patients to a new owner.
An aging demographic
Items such as increased competition in more advanced services and decreased insurance benefits covered have contributed to fairly flat revenue growth for the profession over the past several years. Given this, the dental community is asking how to improve their practice’s bottom line and ultimately, their personal bottom line. One answer lies in the aging demographic of the patient population.
As the last baby boomers reach age 50, and with the increased proliferation of periodontal disease, the need for dental care will most-likely increase in the near future. Coupled with the possible decline in the number of practicing dentists noted earlier, the Harvard Business Review estimates the current marketplace is short approximately 10,000 hours when it comes to fulfilling patients’ dentistry needs. And this number will only increase, which means more opportunities for practicing dentists in terms of revenue growth.
Now it is up to each practice to take advantage of the expected changes – whether that means being in a position to purchase new equipment to expand the services performed, acquiring patients through “tuck-in” transactions, or creating efficiencies within your current processes to take advantage of the upcoming increased workload. Preparation and anticipation are vital in today’s changing environment.
Group practices, DSOs, and outsourcing
Group practices and DSOs are here to stay. Currently, they account for 10 to 15 percent of the overall dental market and that number is expected to grow in the short term, plateauing between 20 to 30 percent. Group practices and DSOs aim to remove the administrative burden of individual ownership for the practicing DDS and may provide additional capital for technology investments. Additionally, as the market continues to adapt to individual dentist’s needs, another factor that will influence the growth of group practices and DSOs is the current generation of newer dentists’ desire for more flexible work arrangements. Also, the market has shifted so that one dentist is generally not responsible for all aspects of operations and patient treatment for the practice, which may allow for additional productivity and profitability.
Outsourcing, which may provide the following benefits, is another alternative to consider:
- Reduction of administrative management tasks
- Retention of practice control
- Preservation of practice ownership incentives
Many dentists outsource their accounting, payroll, billing, and collection procedures, as well as some human resource functions to third parties who can perform these services at a high level. More outsourced services are being developed to serve this niche in the marketplace. Outsourcing non-core functions alleviates the administrative tasks that often fall on the practicing dentist’s shoulders and allows them to focus on running the core practice, much like the DSO and group practice framework, without sacrificing the control that comes with practice ownership.
The need for dentistry will continue in the foreseeable future and the group practices, DSOs, and outsourcing landscape are ways the market is changing to ensure the needs of the general public and dental workforce are met.
There may be no larger challenge in dentistry than insurance, and it, like all other aspects of dentistry, is ever changing. Employers offering dental insurance continue to put pressures on the insurance companies to reduce costs and often default to reducing coverage in order to keep premium levels consistent from year to year.
Dental insurance providers are feeling the crunch and are being forced to reduce spending and benefits in order to keep up with employers’ wants. Unfortunately, the outlook doesn’t appear bright, as the decrease in insurance reimbursement is expected to continue and more products are being developed to compete with the dental insurance marketplace.
Further education of the public that dental insurance is different from other insurance (it is more of a discount plan) needs to occur. Additionally, new insurance alternatives, like patient loyalty programs, can alleviate some of the headaches for dentists and allow them more flexibility in how care is provided. These new products may allow patients to avoid insurance all together, and still end up with similar out of pocket costs and better oral healthcare.
Most dentists will likely be faced with a reduced return on the insurance front . Each dental practice must devise its own plan to combat this trend. Whether it is through reducing costs appropriately, considering implementation of a balance billing process, or looking at insurance alternatives, the time to address this situation is now.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.