Happy New Year!
In this issue of The Everything Dental Blog we will explore the consolidation of the dental marketplace. We will attempt to predict the impact of 20% consolidation in the ownership of independent dental offices.
Currently, regional dental groups and corporate dental service organizations (DSO’S) are buying dental facilities. Their sweet spot are progressive offices that have proven leadership, reasonable hygiene output and a facility with five plus operatory capability. The sellers of these dental offices are generally 50+ years old and welcome this transaction. This is because they may have failed to construct a better exit strategy for themselves. Others are simply concerned about the future and want a pathway to retirement.
On the dental manufacturing and supplier fronts, the cartels are preparing for new entries like Amazon™ and a different looking dental landscape. With each acquisition, merger or strategic alliance these multi-national healthcare companies are focused on progress and profits. The game is no longer played on local turf or in the dental arena exclusively. Strategies cross dental lines into other verticals and healthcare environments and can be accompanied by international distribution agreements.
On the domestic front, Big Dental is moving towards specialized sales forces dedicated to Corporate Dentistry, The Regional Groups, National Accounts and Community Health Centers. This activity and a shrinking customer base could result in fewer middle management and traditional sales professional jobs in the dental industry.
The distribution sector will change as many of the offices that were once served by a professional detail rep will now take their marching orders from a corporate entity. This will lead to modified distributor representation as the groups will negotiate low prices forfeiting traditional services. Compound these forces with the millennia’s buying habits (more apt to make purchases via the web) and we could see a major shift. This will create a challenging environment for the distributor unless their core strength is providing business solutions, practice management services and technology integration.
As the relationship between supplier and customer evolves, a new generation of distributor representative will emerge providing vital functions that the groups will embrace. These business solutions will allow the distributor to leverage services for the supply business. However, it is likely that we will see a sharp decline in the number of dental dealer sales reps. The dealer rep of the future will be a relationship manager, resource connector and an ambassador to a large client base.
I know that, in any environment, the good survive and the great thrive but I don’t believe the future will be kind to just average and laggards. The urgency to evolve and pay attention to your business has never been more important!
Forces Converge on Our, Once Cottage, Industry
(Average age of dentists) A significant percentage of dentists in the US are baby boomers with varying degrees of focus on their retirement. Many of these professionals are still recouping and growing their nest egg from the 2008 meltdown. Some are transitioning now or will be shortly. Others will consider corporate dentistry as a means to an end.
Many older dentists were counting on the revenue from the sale of their practice to fully fund their retirement. This was a common belief from a simpler time that has little truth today. The sale of a practice will generally yield 1-3 years’ worth of income at best.
Among this group of senior dentists we also have the un-engaged and the technology-less practitioners. This group refuses to conform and has never treated their practice like a business. Today, their operation is not digital and their facility cannot accommodate the current business model. This will contribute to the industry’s consolidation as these offices will just close their doors when the practitioner retires.
(Big Business) – Dentistry is an integral part of the healthcare complex which is experiencing revolutionary change. The manufacturer and distributor base will continue to consolidate while making strategic maneuvers around the emerging groups and expanded distribution landscape.
(Digitizing healthcare) – Technology has created a divide among the committed and uncommitted (the progressive and unprogressive) dental professionals. Offices that lack technology and haven’t invested, may find themselves at the point of no return. The cost of catching up may be too great and may never be recouped. The Millennia’s expect technology and they are the next generation of dental patients with discretionary income. The offices that refuse to embrace technology will be marginalized over time.
(Group dentistry) – Group practice is thriving and it’s changed the dental landscape forever. The long term implications are unknown but this movement is ominous. Unlike the medical movement to group practice, dentistry’s movement towards group practice is less about survival and more about profits. Amongst the many differences between the medical and dental movement is the demand for elective and cosmetic procedures that improve the patient’s appearance. This and the fact that dental insurance is not as comprehensive as medical insurance suggest that there is still profit in dentistry.
Many regional groups are built on traditional financing and have dental leadership. These two factors can play a huge role in branding, community acceptance and practice solvency.
(Corporate dentistry) – Corporate dentistry will continue to grow through acquisition and by building DE novo practices. Venture capital money is perpetuating this movement and eager recent grads (with high debt) are making it easy to staff these entities. I see monumental expansion by corporate dentistry but I believe the regional groups will be dominant ten years from now. When the financial markets slow and monetary policy tightens, we will see less venture capital paper in dentistry which will dampen the surge of corporate dentistry.
(PPO’S) PPO dental coverage is the dominant choice amongst employers that provide dental benefits today. I recently attended a seminar and the speaker stated that over 93% of employers that offer dental benefits have selected a PPO plan. The days of indemnity dental coverage are almost gone. PPO reimbursement can add pressure to a dental practices overhead and cash flow. This is why operational efficiency and strong business systems are required to succeed.
(Fee for Service Dentistry) The FFS business model is alive and well but not recommended/manageable for everyone. A FFS dental practice is more difficult to build than it was ten years ago but it is still viable. Location, branding and leadership are key components.
I am lucky to serve many FFS and hybrid FFS practices. These offices generally have incredible customer service, run on time, treatment plan and execute. A FFS practice knows their stats and monitors their performance regularly.
Today, FFS practices need a differentiator. Is their dentistry really worth the higher fee? Have they invested in additional training such as Dawson™, Pankey™, LVI™, Spear™ or Nash™? Are their branding and marketing efforts contributing to their new patient numbers? Is the appearance and modernization of their facility in alignment with their brand?
(The Affordable Healthcare Act/Obama Care) will have its impact on dentistry. It will expand the dental pie while providing coverage for the underserved, pediatric and geriatric patients. It will fuel the dentistry done in Health centers and Medicaid practices in the short term. In the long term, it will produce the next generation of dental patients who patronize private healthcare.
(The Oral/Systemic Link) – As dentistry becomes more relevant, medically, we will see greater collaboration from the medical community. Sleep medicine, Oral cancer screening and saliva testing are at the forefront of this movement.
(Health Centers) – The growth of Community health centers will spur collaboration between medicine and dental as they reside under one roof. This will lead to sharing E.H.R. (electronic health records), common supplies, equipment and even personnel.
(Governmental regulation) will continue to impact dentistry requiring anticipated and unexpected investments in time, money, training and resources. Electronic records will require encryption and other security measures adding to this mix.
How Will Consolidation Affect You?
General Dentists – The race to integrate technology and achieve operational efficiency is on. PPO insurance will continue to dominate the dental benefit arena and progressive dentists will embrace professional marketing and advertising for patient acquisition. Implant and same day dentistry will become the norm and the movement towards Total Health (comprehensive exams, saliva testing and advanced oral cancer screening) is gaining traction. Dentists will be busier than ever!
Specialists – Specialists will be as vital as ever, some even more so, but we will see some specialties move towards an office-less platform. This new breed of specialist will work with several offices and may not own their own facility. The reduction in fee will be offset by no overhead (extremely low overhead) and a schedule built by internal referrals. This movement will accelerate the trend towards multi-specialty practices. Group Practices will benefit from this movement because they’ll be able to refer from multiple offices – making it quite lucrative for the specialist! Standalone specialty offices will continue to dominate the Oral Surgery, Orthodontics and Pediatric arena but expect to see Periodontists and Endodontists embrace the new platform.
Reception – The receptionist position of the future will be more about relationship management and social networking. The receptionist meets and greets your patients, is the voice on the telephone and responds to patient inquiries and online practice reviews. This is an important role and will either enhance or hurt your brand. A strong receptionist will master several software programs and will manage your social media presence.
Appointment coordinators – There will always be a need for appointment coordination at the office. Expect to see kiosk and interactive web portals to gain popularity in the future. Traditional scheduling will be replaced by sophisticated scheduling techniques as offices will be busier and specialists will be in the mix. I believe centralized and/or outsourced appointment coordination will take off in the next few years. This will eliminate the burden of HR responsibilities and will lower overhead.
Office managers/operational people – Administration is a growth area for dentistry. As dental offices focus on operational efficiency they will incorporate more business protocols. As group practice and the regional groups become omnipresent, they will require an infrastructure of middle management and on site management. While I see this position of office managers expanding greatly, I believe many of the mundane processes and phone work will be outsourced to a third party or moved to a centralized location.
Expect AADOM (American Association of Dental Office Managers) and other organizations to gain notoriety and become more relevant as they provide much needed training and expertise in office management.
Assistants – I see the dental assistant position expanding in relevance as we move towards expanded duties. This movement will either be accelerated or delayed based on the progressive nature of that state’s dental board. Dental assistants will triage, take x-rays, provide patient education and will be cross trained on many administrative processes. Think about the evolution of the dental assistant over the past two decades. They went from goffers to four handed dental assistants and now many dental assistants take impressions, make temporaries and manage the lab work. As Same Day Dentistry becomes the norm, dental assistants’ will become critical players in CadCam dentistry.
Hygienists – Hygienists have and will always be the secret weapon of the dental office. These professionals have strong relationships, produce revenue and can sell dentistry. I see expanded duties and a bright future for hygienists. A talented hygienist can make an office go from good to great! Doctors must encourage hygienists to seek expanded certification in many areas! Expect hygienists to trend towards production/commission compensation from the current hourly rate model. This is mutually beneficial for the office and the hygienist. Time restraints compounded by rigorous standard of care and customer service models will require hygienists to be great time managers. This movement will either be accelerated or delayed based on the progressive nature of that state’s dental board.
Dealers – Traditional distribution is responsible for 70+ % of the actual commerce done between supplier and dentist today. One stop shopping, 98% order fill, next day delivery, equipment repair, handpiece repair, financial services and practice management solutions are just some of the reasons why.
As the dental landscape evolves, we will see many new players making a pitch for the dental sundry business. However, the complexity and regulatory challenges will limit these marketers as the infrastructure and expertise cannot be built overnight. In the short term these new players will be disrupters and will accelerate the commoditization of disposable and infection control items. These new suppliers will not have a complete offering of product, parts and medicaments. They will not know what lab, lawyer, accountant or medical waste company to recommend. They will not know the local manufacturer reps or the clinical evolution of restorative materials. They will certainly not know if there are jobs available or if any assistants, hygienists or associates are looking for work in your area!
Lastly, technology will change distribution in ways that we never thought possible. We already have mobile applications for ordering from your smart phone. I suspect we will see limited, automatic replenishment offered from distribution as controlling inventory equates to higher profitability.
Dealer reps – Access to information and products via the web will diminish the perceived value of the average dental dealer representative. This will result in the commoditization of certain consumables and will put pressure on margins. The distributor rep of the future will have one or more of these skills:
- Vast computer knowledge (Hardware/software)
- Dental operational knowledge
- Practice management experience
- Dental facility management
- Dental material guru
- Social Media and Marketing expertise
- Event planning expertise
- Provide CE and other education programs
- S.H.A. and H.I.P.A.A. certification trainers
- Software trainers
Manufacturer reps – In the future we will see more accountability and greater demands put on the manufacturer rep. Expect less reps with bigger territories in the future as manufacturers crunch the numbers and put resources where they are needed most. The days of three to four days a week of traveling with dealer reps are over. The doctors are too busy for the interruptions and the dealer rep has critical work to do at these offices when they are on site.
Manufacturers – Never before has such an arsenal of preventive, restorative and cosmetic dental materials existed. Many dental manufacturers are part of larger corporations providing them with research and development or products from vertical markets. This has led to a renaissance in materials and dispensing applications. Today we are seeing the results of many recent mergers and acquisitions. Several brands have folded into another company’s portfolio and the result is less competition.
Consultants –2015 will be the year of the consultant. Simplicity has been run over by complexity therefore ma and pa dentistry is fading fast. Consultants are excellent at helping teams develop systems and improve their performance. Whether you are going paper-less, integrating technology, growing a hygiene/perio dept. or are just looking to take your business to the next level. A consultant can help!
Many doctors have great teams and wonderful facilities but sometimes they require leadership training. There are several consulting groups that provide world class leadership training (retreats)! These events allow dentists to meet contemporaries with similar styles and challenges.
Dental associations – The future is going to be challenging for societies unless they identify new revenue streams. CE and membership revenue will only go so far as many other organizations have entered into this arena. I am a huge advocate of organized dentistry and believe they have much to offer beyond continuing education programs, a legislative voice or political representation. I look forward to collaborating and helping these dental societies and organizations develop tools to attract new members and help their existing constituents.
Change can produce positive results but it can be very stressful. Sometimes change stirs the pot and makes a mess and sometimes change makes everything right. No one ever said you have to like change and no one ever said that you can’t capitalize on it either.
Happy New Year!