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Trends In Dentistry
Economic Milepost: The Rise in Competition
After weathering the economic storm, the industry is beginning to adjust to a new landscape
At the beginning of 2014, the Wall Street Journal identified one of the key questions for the economy: “When will businesses finally shed their caution?” Concerned about slow consumer spending post-recession, U.S. companies had been cautious about hiring employees and investing in equipment. However, economic forecasters were hoping that 2014 showed signs of being a breakout year, moving out of this wilderness of lethargic growth.
This crucial question should be asked specifically of the dental industry: Has practice production finally hit bottom and is there growth on the horizon? Inside Dental Technology turns to Roger Levin, DDS—founder and CEO of the Levin Group, a dental consulting firm and the Levin Group Data Center, one of the largest data collection centers in the profession, based in Owing Mills, Maryland—for insights from his vantage point.
“The answer to when will dental practices shed their caution is no time in the near future,” Levin says. “I believe that the dental economy is disengaged from United States economy. So if we are in a new normal—and I truly believe we are—it’s going to take a few years for dentists to adjust to and become comfortable with where we are.”
Levin identifies the three most significant factors to watch at this point. First, general dentists have been performing more specialty services, because production has been dropping during last five years. These services—including root canals, single-tooth extractions, aligner orthodontics, and initial periodontal therapy—are all procedures that clinicians are either already trained to do or can easily learn, and that can be quickly adopted by a general practice without requiring significant capital investment.
Second, more insurance companies are lowering reimbursements, which has an effect on practice production. Even for patients who may not be relying on insurance, the ability to raise their fees in this environment is a challenge. Third, as expected, the industry is experiencing an increased number of corporate dentistry practices (which is discussed in a later section of this article).
“There’s a lower demand for dental services than ever before,” Levin explains. “We’re seeing more patients missing appointments. Fewer patients are coming routinely for hygiene. Those factors (all validated by the Levin Group Data Center) indicate that rapid recovery is not going to happen.
“There are some indicators that production may go up very slightly—1%-2% in 2015. But what that really indicates is a very flat industry. The Data Center is finding that the confidence index for dentists is down by about 33%.”
Bottom line, Levin is concerned that dental practices need to prepare to see a higher volume of patients at both a lower insurance reimbursement and a slower ability to increase fee-for-service fees. “The reality is that practices today have to become real-world businesses. Running a practice to get through the day, to figure it out as you go along—I think that option has come to a close. Practices need comprehensive integrated systems ›
› that work to get the results that they’re after. They need to do an exquisite job of getting patients in, creating excellent value and customer service.”
Looking at the most recent research from the Data Center, Levin notes a few points of special importance for practitioners’ lives. “Unfortunately, 38.3% of dentists reported very high stress, which is up for the fifth year in a row. On top of that, 49.3% of dentists believe they will have to postpone retirement. In fact, we’re projecting that in the next five years, the average retirement age for dentists will rise by about 3 to 5 years, and that concerns me greatly.”
Summing up the new terrain for dental practices: “If there’s any overall factor that we’re seeing that’s part of all the game changers: It’s a rise in the level of competition. As each factor impacts a practice, competition goes up because there’s a larger supply of dentists and more corporate dentistry competing with each other. I would say the rise in competition in the industry right now is significant.”
Practitioners can begin to address this situation by using analysis tools and then implementing the real-world business systems that are needed. The Levin Group works with about 1,800 clients annually and has reached over 25,000 alumni, and Levin has found that when dentists bring management and marketing into a practice and people feel like they’re making progress, confidence starts to return “Dentists are confident in their dentistry, they’re confident in their ability to run the clinical aspect of a practice,” he explains. “Where they don’t have confidence today is their ability to grow the practice, bring it back to where it was, or take it into the future. But there are systems that will allow them to adapt to this new normal—to absorb a higher volume of patients, but without higher stress.”
The Rise of Managed Group Practice
As in other industries, dentistry finds itself on the threshold of structural change
according to Malcom Gladwell, author of The Tipping Point, the acceleration of change occurs when the critical mass of any idea, concept, or trend crosses the 15% to 18% threshold of acceptance. If his theory is correct, then dental practice is well on its way to reorganizing into a group business structure, says dental practice management consultant Dr. Marc Cooper, founder of The Mastery Company and author of seven practice management books.
Economic and competitive stresses are posing barriers both for new dentists entering the profession and for established solo practices that want to keep their earnings growth above the rate of inflation or find a path of egress. It’s the same type of restructuring cycle Cooper witnessed in the 1990s as a consultant in the healthcare industry when, working with hospitals and their physician groups, managed care transformed solo medical practice owners into employees. Now, looking at dentistry from the outside in, he sees clinical dentistry at that same place in its evolution.
Managed Group Practice’s Appeal
t’s not difficult to see the economic advantages and financial appeal a managed group practice structure offers. In a market experiencing declining adult patient utilization, dental plan reimbursement rate reductions, and patients shopping for quality care at lower costs, the cost efficiencies negotiated by the group structure help practitioners shore up a squeezed profit margin. “When your revenues are flat, and you find yourself working harder while insurance companies are knocking more and more off the top, and at the same time, everything costs more, a heavy discomfort sets in,” says Cooper. “You look for a relief valve to reduce the pressure.”
Cost containment for supplies, equipment, and technology; centralized management services for business finances, patient scheduling, and staff recruitment; deep-pocket capital for marketing; and generous salaries and benefits for staff are among the advantages of the large group business structure. For existing solo practitioners, managed group practice promises a relief valve from the traditional burdens of the solo practice as well as a more reliable exit plan when they are ready to retire. For new dentists entering the profession, managed group practice provides a means to pay off school debt and make a living without incurring the added expense, management headaches, and financial risks inherent in establishing a new solo practice. It also offers the allure of retaining a work–life balance.
“The economic strain on the average solo practitioner and on new dental graduates can be seen in the decreasing percentage of solo practices today,” says Cooper. He cites a recent report released by the American Dental Association’s Human Resources Center stating that between 2006 and 2010, the percentage of solo practices in the US decreased from 76% to 69%, a drop of 7% in just 4 years. Cooper estimates that managed group practice will surpass the tipping-point threshold of 15% within months, not years. “Because of their size and economies of scale, along with the centralization of management functions, the managed group practice has a distinct advantage over solo practice,” says Cooper. “So if you ask me why there has been an explosion of group practices, conditions today are perfect for them to gain rapid market share.” This is a trend that could potentially result in the majority of practices being group or corporate by the year 2020, when he will analyze the current statistical information that is available.
The corporate model is also attracting long-established solo practitioners planning for retirement. Because of the economic recession, banks are less willing to loan debt-strapped young dentists the money they need to buy an existing practice or fund the high-ticket technologies needed to set up a modern new practice. For practitioners who want to sell their practices, this means the well of buyers is drying up and leaves them with few options other than to turn to a willing group for a buy-out.
As yet, there are no strictly defined structures within consolidated practice business entities. The industry is still in an evolutionary stage and unique variations exist. However, each of the different structures is driving the restructuring of the industry and can be identified or classified into broad commonly recognized infrastructures.
Driving the merger acquisition side of group practices are equity partners and venture capitalists, who establish a management component. Backed by outside capital, groups that handle the business management aspect of dental practices are formed. These are most often referred to as dental management organizations or dental services organizations. “I get one or two phone calls a week from equity partners that have $25 to $50 million to spend and want to aggregate practices and roll out as quickly as possible,” says Cooper. The attraction for them, he explains, is the opportunity to harness market share of an industry worth some $110 billion annually. They see a highly fragmented industry, where practices can be “rolled-up” easily. They also see the financial advantages of buying practices and running the business of dentistry through economies of scale, and building a corporate-type vision and structure using a centralized management system.
Another factor driving the success behind managed group practice dentistry, says Cooper, is the changing mindset and buying habits of the consumer. Many groups are branded. Brand organizations, in many consumers’ minds, hold the promise of convenience, efficiency, reliability, consistency, and cost control. “It is the promise of quality care and the perception built into the minds of consumers that sells,” says Cooper. “These managed groups have the money to spend on brand development, shaping the brand promise and marketing that influences the mindset, unlike small independent businesses.”
However, it’s not just big-brand dentistry that is organizing. There are new organizational business models coming up the line, says Cooper. These include entrepreneurial dentists who own two to three practices and want to expand to 10 or 12. Typically, these groups are composed of like-minded professionals with the same values, purpose, and vision, who decide to organize as a small group in response to what is happening in the industry. As they expand to a group of 8 to 12 practices, they go through the process of adopting a board of directors, hiring a CEO and CFO, and beginning to operate like an organizational structure. It is what he calls an organizational approach to dentistry rather than individual approach.
As these new group and corporate business models take shape, and the industry consolidates further, the challenge becomes retaining the quality and value of the services provided while maintaining costs that the market can bear. “The industry will need to find the leadership and willingness to redefine itself into a new structure much the same as what has taken place in other industries, from the optical industry to the airlines,” says Cooper.
Which organizational structure will prove most successful and be the dominant business model is not readily discernible at this point. “There are no benchmarks or consistency of business models at this point,” says Cooper. “That is what makes this is a tremendously exciting time in dentistry.“ And, Cooper adds, “The structural upheaval happening here in the US is occurring in countries all over the world. It is a global phenomenon.”
Chairside Milling as a Niche Market
The need for knowledgeable dental technologists will continue
regardless of which statistical forecast is referenced, analysts are projecting that the chairside milling market will grow rapidly over the next 5 years. According to an iData Research report issued in September 2014, double-digit growth is expected through 2020 for the overall US CAD/CAM market with adoption of chairside milling cited as the fastest growing segment in this category. It is a trend that concerns dental laboratory owners, who already are facing competition from a number of fronts, but it is one that Dr. Marty Jablow, a private practitioner in New Jersey and consultant as America’s Technology Coach, still believes will not become a standard fixture in the private dental office. “Chairside is a growing trend that serves specialized niches of the market,” says Jablow. “However, it will never overtake the need for the dental laboratory and laboratory technician in the restorative process.”
So why are analysts so bullish on this technology trend and what are the driving forces behind its projected growth?
New Systems, New Competition
Dominated by a single system for more than two decades with the introduction of the CEREC system in 1987, the chairside milling market made slow but steady penetration into the marketplace over the past 27 years. As with any major innovation that requires a dramatic shift in users’ day-to-day protocols, the technology first garnered interest primarily in that small percentage of willing early adopters. As the technology gained wider understanding and acceptance among the clinical audience, new manufacturers have emerged on the market to offer a competitive alternative. That, in turn, has spurred further expansion, pushed innovation forward, and improved operational performance of the technology. Today, there are a total of six chairside milling units on the market and, depending on what statistical report is referenced, those systems are in the hands of 15% to 20% of the 140,000 practicing dentists in the US with more new systems on the cusp of launch next year at the IDS show in Cologne, Germany.
“There are several factors driving the surge of new systems coming to market,” explains Jablow. “Primary to this trend is the growth and the adoption rate of digital impression technology.” He explains that the introduction of lower cost, open-architecture digital impression scanners and milling units is allowing dentists to put together systems well under the $100,000+ price tag demanded for some closed architecture systems. “When it is possible to buy a $12,000 to $15,000 impression scanner and pair it with a $16,000 desktop milling unit, then bringing the digital workflow into the practice for single units or same day dentistry becomes much more appealing.”
Rise of Corporate and Group Practice
Another driver that Jablow believes may be behind the optimistic market analyses is the growth of the group practice business structure in dentistry. With deeper pockets than solo practices to invest in expensive systems and with economies of scale to leverage the cost of milling materials, group practices may benefit by producing cost-effective single units in-house. “This is a more volume-based situation where return on investment is much greater.”
According to a 2013 American Dental Education Association survey, nearly one in four graduating seniors (23.2%) indicated they would be seeking a position in a corporate practice environment while a mere 6.1% reported their intention upon graduation was to set up a new private practice. The fiscal inability or unwillingness to invest large sums of money into setting up a new practice with the latest technologies may cause debt-ridden graduates to migrate to business models where affordability and access to cash are not an issue.
Milling Material Expansion
The recent introduction of new chairside CAD/CAM materials has also been an indicator and driver of projected growth in this category. Once limited to feldspathic monolithic and multicolored gradient ceramic blocks, material options for chairside milling units have expanded to include lithium disilicates and lithium silicates, zirconia reinforced glass ceramics, flexible nano ceramics, resin nano ceramics and hybrid ceramics. Some require little more than polishing after milling to achieve the esthetics of the final restoration; others require a firing cycle to crystalize the material to final hardness. All offer the possibility of staining to achieve higher esthetics. The newest entrants into the market were developed to equal or increase the strength, fracture toughness and esthetics of current market leaders. However, none have come close to achieving the high flexural strength of zirconia. “If chairside milling units could mill a material equal to the properties of zirconia, that would be a game-changer for adoption of CAD/CAM chairside,” said Jablow. “Zirconia is where dentists want to be today.”
Regardless of the indicators and prognosticators, Jablow is firm in his conviction that chairside milling technology will never overtake need for knowledgeable dental technologists. “These units are designed for producing simple cases that require minimal labor on the part of the dentist or staff,” said Jablow. “And when you talk about growth in this market segment, buyers also have to seriously consider the downward shift we are seeing in the cost of a posterior crown today against return on a large capital investment.” These are reasons enough to keep Jablow convinced that even though the trend is pointing upward, chairside CAD/CAM will remain a niche market that will hit a new saturation point and stall again.
How Can Laboratories Help Dentists Find Their Footing?
#Relationship_building. Levin believes laboratories could do more outreach with their current and future clients to enhance relationships for everybody’s benefit. “One of the fastest ways I think would be if they would learn some basic practice management. They can’t fully understand the day-to-day behaviors and psychology of the dentist who’s the customer. The laboratory sales representative should be a partner and staff member for free in the practice.”
#Case_planning. Laboratories can play a direct role with their clients in helping to plan cases. “Too often, I think, technicians are reticent about what they see,” Levin explains. “They accept whatever’s sent in because they don’t want to upset a clinician, rather than working in a partnership to plan the cases to get the best results.”
#Education. Dental laboratories are major repositories of education, but most of them do not have the expertise to put together programs to disseminate this information. “I think dentists look at the laboratory as their partner, and that relationship will strengthen if a laboratory develops a core competency in education,” Levin says. “The laboratory is the world’s best educator on failures. Nobody talks about failures the way technicians see them, and they can help prevent failures for dentists.”