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The Deciding Decade of Dentistry

Dentistry Follows Medicine

If you want a glimpse of the future of dentistry, take a look at the history of the medical profession.

While it is indisputable that there are numerous changes in the industry, the future of dentistry is quite predictable. Dentists need to look at the situations that physicians have been facing over the past 10 years and prepare accordingly, because, as history has shown, dentistry often follows medicine. I have been in this field for over 40 years and, although there are distinct differences between physicians and dentists and our respective industries, overall, dentistry has followed the changes in medicine and will continue to consolidate just as the medical and pharmaceutical professions have done. The decisions made by today’s individual dentists that are transitioning into and retiring from the profession will determine the future of the dentistry.

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My name is Dr. Bill Adams and I practiced dentistry for 25-years after graduating from Emory University in 1969. In 1998, following my retirement from practicing, I founded Southeast Transitions to help my fellow dentists transition their practices to other dentists who share similar values and philosophies. Unlike the days when I was practicing, we’re seeing the sole practitioner slowly disappearing. There has been a slow decline in sole practitioners and we anticipate this rate to pick up quickly over the next 5 years. In 1991, dentists in ownership positions represented over 90% of all practicing dentists, and solo practitioners accounted for almost 70% of all dentists. In 2012, the percentage of owner dentists decreased to 85% and the percentage of all dentists in solo private practice declined to 57%. Dentistry is now following in the footsteps of the medical industry, which has been consolidating for the past decade. In 1992 there were 10 predominant Dental Service Organizations (DSOs). In 2016, there are more than 100 DSOs. The growth of DSOs is quickly outpacing that of the solo practitioner and, with continued consolidation, DSOs stand to gain a dominant presence in the industry.

The dental industry is still fragmented, which is creating an opportunity for the DSOs to grow. This means that an independent dentist founded on quality can do very little to compete effectively with a well-capitalized investor whose strategy is built on scale. The DSO has created extraordinary leverage unavailable to the solo dentist and has fueled the opportunity for investors.

In the 1990’s, hospitals began buying medical practices and it was a seller’s market. We, in dentistry, are now in a seller’s market. This is similar to the time medical practices were in a seller’s market, when hospitals began buying medical practices in the early 90’s. You can ask your physician what price he/she thinks they can sell their medical practice for today. Similar to medical practice sales this dental sellers’ market will not last forever.

Why is the dental profession going through this evolution now?

Baby boomers: In 1998, we had almost 1,000 more dentists entering the work force than were leaving the work force. In 2016, we will have approximately 1,000 more dentists leaving the work force than entering. This fact alone will clearly change the way dentistry is delivered. Approximately 40% of all dentists are 55-years or older. Only 30% of dentists between the ages of 67 and 74 are retired, the remaining 70% are still practicing, but they are reaching a point where retirement is imminent.

Women entering the dental field: 50% of the dental graduates are women who have different practice patterns than male dentists. Many women prefer a better work/life balance with more freedom and flexibility. They prefer to work part-time and not have the demands of practice ownership and management. Female dentists are twice as likely to work part-time as their male counterparts and twice as likely to work in government service, hospitals, and as members of health or dental organization staff.

Dental school debt and preparation: In 2000, the average dental school graduate left school with $100,000 in debt. Today that number has grown to approximately $250,000, and it can be as high as $400,000 for a dental degree. Dental school loans make it much more difficult for new graduates to purchase practices.

High functioning dental hygienists and PA equivalents: Hygienists are starting to stake ground in underserved areas. In some areas, the shortage of dentists is so great that they have passed a law to allow dental therapists to perform services typically only allowed by a licensed dentist. These PA equivalents can provide care at a lower cost to the consumer. This provides a solution for low income patients, and patients without dental coverage.

Marketing to patients: Multi-million dollar DSOs have figured out how to market and drive new patients to their practices. They can afford to take a loss on a new office while they make this investment because they have the money, knowledge and the marketing power. DSOs can drive 100 to 200 new patients per month to their offices. How do you plan to compete in this new environment?

For the sole practitioner, the real future of the private practice model will hinge on how the owners are able to respond to the challenges of the new marketplace. Sole practitioners need to find new ways to attract and retain patients. A 30 to 40-year-old practice purchased by a young doctor cannot be sustained on tools of the past. This transition may be challenging to some dentists and onerous to many, but it is a necessary step in order to remain competitive as consolidation continues. We must realize no one is immune to change, it is not optional, but growth is a choice! The main factors that fueled this seller’s market include:

Influx of capital: Private equity and Wall Street provided low cost debt for individuals or institutions to consolidate the industry. It’s very simple – dentists pay their bills. The default rate on dental practice loans is far lower than the default rate on business or personal loans.

Economies of scale: Through consolidation and scale the DSOs are able to change the game. DSOs can: pool many practices together, centralize operations, and implement good cost controls through volume purchasing. These economies of scale allow investors to create more profit per patient visit than an independent dentist. This all translates to a profitable enterprise for the DSO.

A CAUTIONARY TALE FOR DENTISTS: What Dentists Can Learn from the Physician’s Plight

Let’s examine one example that has played out across the country. A suburban Maryland family physician has been in private practice for 32 years. He is 62 years old and is loved by his nearly 4,000 loyal patients. He didn’t take advantage of the buying spree a few years ago because he wasn’t ready to retire. But now, he is getting older, his costs are increasing, reimbursements are decreasing and he is thinking about moving toward retirement so he decided to put his practice on the market. His practice is a highly profitable practice, but he was unable to sell it. Many younger doctors, half of whom are now women, don’t want to purchase this type of practice. They want a more balanced lifestyle where they clock in and clock out and don’t have to worry about working nights or weekends dealing with all of the responsibilities of managing a practice. The doctor decided to work a few more years then again tried to sell, still no luck.

He had an associate working with him, but, as happens all too often, after working in the practice for four years, the associate decided he didn’t want to purchase it. He had a large amount of school debt and a growing family to consider. He was not willing to adopt the rigorous schedule the doctor kept in order to keep his business going and opted to work for the government where he has a predictable salary, schedule and benefits and does not have the headaches of managing a practice.

Associateships, which used to be thought of as the most practical way for a new dentist to begin their career and for retiring dentists to find their successor, typically don’t work out well for one or both parties. Associateships have a 50% to 70% failure rate during the first two years and a failed Associateship can set a dentist back significantly in their plans to retire.

Had this doctor taken advantage of the seller’s market and, not necessarily retired at that time, but solidified his transition plan when the market was favorable, he would have likely received $500,000 or more for his practice and been able to retire on his schedule. Today, he cannot give the practice away. So this physician is now forced to work more years than anticipated to make up for the income he was planning to receive from the sale of his practice. And when he can no longer work, he will close the doors of his practice and his loyal patients will be forced to find a new doctor. This is not an isolated incident and dentists need to take heed. This is not a scenario any dentist wants to face and, with proper planning, it is avoidable.

Over the next 3-10 years, we will, undoubtedly, see an accelerated retirement rate in dentistry based on the demographics of currently practicing dentists. The case of the Maryland doctor is a very real scenario and exemplifies what dentists may be facing if they wait too long to plan for their practice transition. Now is not the time for complacency. Now is the time to take the steps necessary to make your practice attractive not only to patients, but also to prospective buyers.

Buyers want a growing practice, not a declining one. Reduce costs where possible, keep production high and make a plan. Even if you aren’t ready to retire, it is prudent to take steps toward transitioning now so you are not forced to sell suddenly due to a health problem or family issue. Some dentists opt to sell their practice and remain working in the practice for several years. This is a win-win for the buyer and seller.

Many dentists have so much of their identity tied up in being a practicing dentist, that the idea of selling their practice and no longer being what they have always been paralyzes them with fear and makes them put off the decision to sell. The problem with this scenario, which we see all too often, is that, at some point, it no longer becomes a decision. Many dentists are forced to sell and when you are forced to sell, you cannot time the sale well and you cannot wait for the best offer or terms. The time is chosen for you and this puts you at a great disadvantage.

While the future is not crystal clear, it is obvious that, in the near future, a large number of dentists will be retiring and trying to sell their practices to an ever-shrinking buying pool. There is a 100% certainty that you are going to transition your practice at some point; it is up to you whether you are an active or passive participant in the process.

Feel free to contact me directly at 678-482-7305 if you would like more details on how we can assist you with any changes in your practice. We will also provide a 1-hour complimentary consultation and a detailed analysis of your practice.

bill.adams@usdentaltransitions.com

Dr. Bill Adam, DDS, FAGD

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