ECONOMIC FACTORS AFFECT DENTAL TRENDS

ECONOMIC FACTORS AFFECT DENTAL TRENDS

APPRAISAL FALLOUT

STAN POLLOCK, DMD, MS, PHD, JD, MCBA, BVAL, ABAR, CMEA 

            Dentists were deeply affected by the recession last year, 2009 was a difficult year for dentists and dentists are cautious about the year ahead.  The American Dental Association (ADA) reported these findings in its new Quarterly Survey of Economic Confidence.  The survey revealed that the net incomes of dentists declined more than 5%. Respondents to the Survey were less optimistic about future economic conditions and future gross billings than they had been previously. Despite these findings, more than 25% of the responding dentists expect to purchase new equipment and 14% expect to reduce staff this year.  Other important findings indicate that 56% of respondents reported that net income was down, 50% indicated that gross billings (the total amount of fees charged by the entire practice) were lower and that patient acceptance rates for treatment were 47% lower durng the fourth quarter of 2009.

            Our government accumulated pertinent data relative to dentistry and dentists.  Recent data disclosed that the growth in overall health care spending slowed in 2008, the slowest rate of growth in 48 years. However, the data projected a 3.3% for 2010. Dental service expenditures for 2010, interestingly, are projected to be $107.9 billion (3.3% increase) and $135.7 billion for 2014 (5.9% increase).   

            Over the years, economic factors affecting dental practices have flucuated according to geographic areas and unemployment in them.  There are pockets of the country that are doing well and others that are not.  By way of example, Michigan’s 12.8%+ and California’s 11%+ unemployment rates have greatly and negatively affected the economy of dental practices whereas Iowa’s 5.7% has shown little affect. Dentists in Florida, wihich experienced significant downturns in the financial and real estate markets and an aging population, have also experienced considerable reduction in dental services and revenues.  Practice brokers in certain areas of the country have experienced some decrease in practice sales and practice values while others have not and have seen values remain steady and even increase.  Most mature specialists (ages 45 to 59) have seen the value of their practices remain stable or even slightly increase although orthodontists, to some extent in certain areas, have experienced a decrease in their earnings due to the elective and expensive character of the services which they provide.               

            In contrast to the experience of the business communities across the country, bank and third party lending for all types of dental practice transition has never been better.  Lenders are eager to lend up to 100% of the requested loans plus amounts for working capital.  Rates are reasonably low, involved times are low and there is less reliable for complicated and expensive Small Business Administration participation.  Large educational debt does not seem to matter; good credit does.             

            Another Survey, the American Dental Association’s 2008 Survey of New Dentists, reports that 24.5% of new dentists purchased an existing practice as a partner, 37.7% as a sole owner and 37.7% started a new Practice.  There was little variation in the amount spent to establish or purchase a practice.  Among new dentists who purchased an existing practice as a partner, the mean amount spent for the purchase was $472,390, the mean amount was $471,930 for those who purchased an existing practice as a sole owner and $457,600 for those who had started a new one.  These are astounding but pertinent data.

          The rate of female dentists is rapidly increasing and relevant.  Demonstrating the gender shift within the dental profession, for independent dentists as a whole, 12.5% are female.  For new independent dentists, the increase to 22.9% is dramatic.  In general, female dentists are working less hours per week than male dentists.  The American Dental Association’s 2008 Survey of New Dentists (1998-2007) lists 59.9% of new dentists were males and 40.1% were female.  

           Economic conditions, especially local ones, are vital factors in the valuation process and valuators, more than ever, must consider them in great detail in determining the approaches, forecasts and final estimates of value.  

Source: 

1.  ADA Quarterly Survey of Dental Economic Confidence.  American Dental Association,       

     Chicago, IL 2010 

2.  Centers for Medicare andMedicaid Services.  Office of the Actuary, National Health Statistics

     Group

3.  U. S. Department of Commerce, Bureau of Economic Analysis and Bureau of the Census

4.  2008 Survey of New Dentists, American Dental Assaociation, Chicago, IL

5.  Kenny Jones, President, Doctors Choice, Jupiter, Florida.  Personal communication