Anita Roubicek, June 2017
Let’s have a look at what’s happened in the last 10 years with respect to the provision of dental services.
Ten years ago…it was only private practices providing dentistry. Yes they were aggregating, but still they were all owned by the dentists who were running them.
Let’s look at today. What’s the situation?
There are lots of groups offering dental services in Australia, with vastly different ownership structures.
- There are large groups associated or owned by insurance companies
- There are listed companies (in Australia there is Pacific Smiles, 1300 Smiles, Primary Health)
- There are private equity companies putting together groups of practices
- There are private individuals buying up groups of practices, or expanding into multiple sites
Each of these ‘players’ in the industry has their own model, and methodology for trying to achieve what every dentist wants.
They all want to increase the profit in running a dental practice through:
- Increasing revenue, and
- Decreasing expenses
How do they do that?
They all have their own ideas on how to decrease the overheads of running a practice. Some use bulk buying deals with suppliers of materials or labs, and decreasing accountancy costs of each practice thru centralisation. All of them have cheaper financing costs, decreasing marketing costs through various means, and decreasing practice management costs thru shared services (bookkeeping, HR, etc) across many practices.
Similarly, they each have their own style, and model, for increasing the productivity of their practices.
So where is this all going?
Let’s look at what’s happened in the USA, which will often lead the world in trend-setting.
Group dental practices – or dental service organizations (DSOs) – represent an important shift in the way dentistry is practiced in the USA. In 1991, 91% of all dentists in the United States owned their own practice and 67% of them worked as solo practitioners. By 2012, the number of dentists owning their own practice dropped to 84.4% and only 57.5% were solo practitioners.
Conversely, the number of group dental practices operating ten or more locations grew 530% between 1992 and 2007 and the number of offices operated by these firms increased from 157 to 3,009. The ADA (USA) reports that ‘the trend toward larger, multi-establishment dental practices is expected to continue, driven by changes in the practice patterns of new dentists, a drive for efficiency and increased competition for patients.
“The ADA (USA) also notes that between 2002 and 2012 total receipts accounted for by dental firms with 20 employees or more increased from 15.7% to 20.1%. During the same period the percentage of total receipts accounted for by the small practices (0 to 4 employees) fell from 19.9 % to 16.0%. Between 2002 and 2013, the number of dental employees employed by dental firms grew from 750,129 to 873,172 – a 16.4% increase.”
Many dentists in Australia don’t want to hear this. They’d rather live in hope that solo private practice will continue as the dominant model in dental delivery.
The evidence is clear and the trends are obvious. In the US, as we have seen above, there is a steady decrease in solo practice and a strong continuous growth in managed group practices.
Will this be replicated here?
When you look at the past 10 years in Australia from a helicopter view, some things appear to be inevitable — consolidation, aggregation and acquisition are happening more and more.
Let’s look at the evidence.
In 2002, there were virtually no group practices other than a handful of insurance company owned clinics.
Now there is almost no suburb or regional town in Australia that doesn’t have at least one, and often a multiple of clinics owned by a group.
This is not to say that private practices won’t or can’t be successful. They can and will be for a long time into the future. But everybody needs to factor in the long term effect of group practices in general.
Private dentistry will never again have the situation where they are the dominant force in the marketplace.
Many dentists think this is a passing fad, and that corporate dentistry will fail, and private dental practice will again be more successful than a group or corporate.
What are the challenges for private practice?
The increasing costs of setting up a practice, and then marketing it to make it successful will, for some, become a gamble that they don’t want to take.
For the privately owned practice, they need to compete with the groups who have deeper pockets with respect to marketing, and, in the case of insurance company owned practices, an unfair advantage in that they can make use of their membership lists to market directly.
The privately owned practices need to improve their service levels, and their profitability, so that they are successful in their own right, plus so that a group will want to buy their practice when the owner is ready, and for an increased amount.
Many dentists in Australia are already finding it easier to take their commission for working some sessions as a dentist, and go home at the end of the day to their families, rather than the perceived hassles of funding debt (to buy or setup a practice), and administering and running the practice, dealing with staff, and making a myriad of decisions on equipment, and technology.
What are the challenges for group practices?
There will always be competition between the various group practices themselves, and between group practices and private practices.
For group practices….there will be constant vying and jockeying to increase their market share, and for them to ensure that:
- there is a consistency of service across different practices
- there is an increase in productivity
- they attract and keep excellent dentists, and prevent them from wanting to setup their own practices
- they maintain maximum patient retention
- they ensure passing on of skills and mentoring of younger dentists
- there are ways of tracking KPIs across different pm software
- their dentists and their practices are compliant
- their dentists are ethical.
But when you look at that list (and it’s not meant to be exhaustive), isn’t that the same list as privately owned practices would have?
Group practices and private practices each have challenges in the current climate. Both of them will be sharing the dental marketplace for a long time to come. Despite the fact that they compete with each other, both types of practice will be looking to make themselves attractive to the other. Corporates want to be seen as a potential buyer for the better private practices. And as they all will need dentists to work for them they want to be seen as an employer of choice generally.
And the better private practices see the corporates as the most likely potential buyers for their practice, and want to be attractive to them.
Interesting times ahead.
Thinking of changing the business model of your own practice? Ask us how. Contact Prime Practice here.
Anita Roubicek is a business and talent development professional with extensive experience in providing business solutions, training, coaching, consulting and learning and development from operational to senior executive levels, across multiple business sectors.
As CEO of Prime, Anita is responsible for the successful integration of corporate business and talent development strategies and solutions into the dental industry.
Since joining Prime Practice, Anita has managed, designed and delivered training programs for thousands of dentists and their teams throughout Australia, New Zealand, USA, UK, Asia Pacific and Canada. She is a leading expert on teaching dentists and practice managers leadership and management skills required to run a successful practice and achieve their goals.
Anita is a regular keynote speaker at major international dental conventions and consults with large corporations on their business strategy, team engagement, business development and growth.
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