Maybe it’s just me, but I see a strange, almost incomprehensible trend in pay and the cost of doing business in dentistry. Over the last decade or so, I have seen good practices held hostage by the pay demands of staff in ever-diminishing productive dental offices. I am not referring to low producing offices that pay miserable wages because they can’t afford a competitive compensation. This is a broken business model that perpetuates itself because of our ignorance of business (for most dentists).
It all began decades ago when businesses tended to give cost of living raises each year based on the national inflation rate. The definition for inflation is the increase in prices and fall in the purchasing value of money. Every year, most of us raised our fees to match the climb of inflation. There were years where we increased our fees 4-8%. This leapfrog of inflation and fee increases kept our offices functioning profitably and was possible because we were not insurance dependent upon in-network patients. This was just passing along the never-ending increase in the cost of doing business through changes of supplies, maintenance, and services. With this we found ourselves also giving our staff more money at about the same rate of the increase for inflation for that year. This meant that if we looked at what we payed for an assistant today and looked at the same assistant 4 years later, they would be making about 12% more than they used to make. Certainly, there were years where inflation fluctuated and the pay did not rise that much. But year in, year out, the cost of our employees increased. This was offset by the increase in collections as a result of raising the fees.
Secondly, it was commonplace for doctors to pay staff who stayed longer more than those that they just hired. In other words, there were “longevity-based raises” that were given for no reason other than that the employee continued to work for us, year in and year out. On paper, longevity should mean that this was a reward for loyalty and long-term service. This, once again, was countered by our steady climb in productivity and general growth. Today, this outdated strategy is simply a Dr. Phil moment: “What were you thinking?”
These two areas were the basis for upside down economics when it came to running a dental office. We have continued these outdated practices even though a business model for the 2020’s does not and cannot support these arbitrary raises. I can only assume that the original source of this tragic habit of unwarranted and unearned raises was from dental school professors who, by overwhelming evidence, were never able to compete or reach even mediocre success outside the academic arena. Since dental schools fail miserably in equipping our graduates with even a semblance of business knowledge, this would be the last source I would model a practice after. Yet, here we are. So, the question is: What do we do about it?
This model of “unintended consequences” has created a work force of overwhelming entitlement. New associates, assistants, hygienists, front desk, and office managers – all are ignorant of the business of dentistry and the current trend in ever rising overhead. Part of this is generational, and part comes from our side by not educating our team to the reality of the “Business of Dentistry”. If you think it is bad here, take a look at Canada where the new grads expect to make 40% plus when even the owners don’t take this high of a percentage and overheads on average exceed the US by 5%-10%. This kind of makes it difficult to sell a practice when the numbers mean the new owner will now make less than they made as an employee.
Click this link and take the couple of minutes to smile and nod to this great song. This is the era of illusionary entitlement. Generations with an incredible self-image for no apparent reason.
Here comes the tipping point in a house of cards. It happened in 1975 following a Supreme Court Ruling and simmered for a decade and a half before it started its slow but steady rise to change the face of US Healthcare forever. Healthcare insurance ravaged the drug and medical sectors through the late 1990’s and up until 2005 grew at a tremendous rate. Dentistry, being the last to be exploited, has risen more quickly because insurance companies have their act down pat. Individuals no longer own pharmacies. Visions centers have gone to corporations. Medicine as we knew it died to “for profit hospitals” and now dentistry will slide into those murky waters. Reimbursements have decreased annually for the last 20 years while coverage adjusted for inflation has diminished. The dental policies of today cover less than half of what they did two decades ago. According to the ADA, only 7 percent of dental practices are currently fee for service only. The unstated part is that 50% of the 7 percent are older practices that really are not productive and owned by senior doctors who are just OK with slowly fading away. Insurance companies have decreased our reimbursements, managed to average a 76% penetration into most markets, while dictating treatment and creating roadblocks in our path to do comprehensive and preventative dentistry. That means that while production has increased a few percentage points, net collections have decreased every year for the last 13 years while overhead has continued to increase.
Over the same period of time, supply and demand has changed the dental landscape. In 1974 the decayed, missing, and filled number of teeth in an average adult was 16.1. Literally, you could open an office and couldn’t help but grow. Today that ratio for decayed, missing, and filled teeth is 3.2 in the average adult. Scan the graduating number back then till today and you see a pretty drastic increase with 6,500+ individuals graduated in 2019 from 67 dental schools and we have 3 more new schools in the works and increased class sizes planned in a majority of the existing schools. Any one with a lick of sense can see that when the supply of doctors increased while the demand for services dropped, it creates an “oh s__t” moment for the business of dentistry.
Going hand and hand with this competition is more marketing. This has led to what most call “the commoditization of health care”. The definition of this for you book worms is: The process by which goods and services that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming a simple commodity in the eyes of the market or consumers. For the rest of us, marketing and competition along with insurance has created the idea that a cleaning is a cleaning and a crown is a crown, so picking a dentist comes down to convenience and price, and whether or not you are an “in-network provider”.
Consumers, during this time unprecedented era of insurance penetration, prolific marketing, and growing competition, have also changed. Welcome to the age of the educated consumer where QR codes and marketing have made them knowledgeable and challenging almost to the point of nausea. Their demands have increased and their patience has decreased. If we overlay this new consumer with the fact that generational changes have created a buying public that places little or no value on a long-term relationship with their caregivers, and you see dentistry is in a new arena of survival with convenience and low price atop the scoreboard.
With only 32% of female and 67% of male dental graduates ever moving to practice ownership, we are finding that 50% of graduates will be employees during the entirety of their careers. Combine this with ever increasing school debt and no place to go but national and regional DSOs and we find the overall landscape of dentistry, overhead, and business plans have to morph into business strategies that generate sustainable profits in dentistry. All of this to say that we have arrived at the need for a “reality of pay formula” that you must incorporate in your practice. Failure of not adapting to this reality is not an option. Your career and financial future hinges on your ability to follow your numbers and study your Profit & Loss Statement as a tool to measure your performance and make practice business decisions. This is how you Summit.
Michael Abernathy, DDS
PS. Ever wonder why I sign off these articles with my personal email and personal cell number? I want you to reach out, call, start a dialogue and consider what you can do now to grow and preserve your financial future. There is a way and it begins with a call and a frank discussion of where you are and where you want to be. Don’t wait! Call today.