Big-sized problems for mid-sized dentists

An increasingly competitive environment combined with an oversupply of graduates has created a perfect storm for mid-sized dental practices, writes Tracey Porter

Poor idea execution and lack of forward planning means many Australian mid-sized dental practices risk being squeezed out of the sector by their more dominant corporate competitors, a new report has found.

The report, which was drawn from one-on-one interviews with dentists of mid-sized practices turning over between $1.5m and $3.5m in gross patient fees, identified that while 77 per cent of the dentists surveyed agree their practices are not operating at peak efficiency, only 41 per cent of them have a plan to address this.

The BOQ Specialist Dental Practice Research Report 2016/17 found that while three in four dentists want to improve their practice operations and profitability, only 33 per cent have the ability to properly assess their performance results and earmark areas for improvement.

In addition, while the majority of dentists indicated they have some knowledge of succession planning, 68 per cent said they do not have such a plan formulated for their own business. Of those who do, they consider management succession much more important than ownership succession.

The survey revealed that while dentists are “highly intelligent, highly educated and self-motivated individuals” who have strong values in relation to patient care that go beyond making money, they feel burdened by the impact of toughening economic conditions on patient growth. They also admit being worried by the threat posed by corporatisation and health-fund preferred provider arrangements largely because it’s such a battle to compete against the economies of scale the biggest businesses bring to bear and their resulting cost reductions and marketing advantages.

Currently around 10 per cent of the estimated 6,000 to 7,000 dental practices in Australia have joined forces with multi-practice corporatised groups.

According to one respondent, this signals the beginning of the end for free enterprise while a second dentist interviewed said oral healthcare should now be considered a “sacred” sector.

“Dentistry needs to maintain integrity and not allow itself to be ‘bought’ by the health funds and corporates at the expense of patients’ health,” the dentist warned.

Compounding the dentists’ concerns is the high number of graduates entering the field. According to the Australian Dental Association, there will be oversupply through until 2025, resulting in increased competition for patients, and impacting on mid-sized practices’ ability to maintain fees.

Currently around 10 per cent of the estimated 6,000 to 7,000 dental practices in Australia have joined forces with multi-practice corporatised groups.

But it appears these aren’t the only reasons dentists are concerned.

“The oversupply of dental graduates can be good or bad. You can see it as more competition or as cheaper labour. There are more graduates to choose from, but are they any good?” one respondent asked.

Stephen Guthrie, director of financial advisory firm Prosperity Health, whose clients were some of the broad cross-section of dentists invited to contribute to the report, says fear concerning the high number of graduates entering the sector is justified.

Department of Education, Science and Technology figures show that in 2003, 227 dentists graduated from Australian dental schools. By 2014 that number had more than trebled to 1,000. At the end of 2014, around 80 per cent of those graduates found full-time jobs, meaning “around 20 percent are in casual or part-time roles”, Guthrie says.

But then, a reduction in the number of overseas dentists entering Australia in 2015 saw employment of local graduates rise to around 87 per cent—a positive development, though one tempered by the widely-held view, highlighted in the survey, that current graduates are less experienced, have fewer clinical hours under their belts and are generally of a lower quality.

“So there is a bigger hit to the more experienced dentist in taking on a grad, due to their higher short- to medium-term training needs,” says Guthrie.

Guthrie says the report makes it clear there are many challenges ahead for the industry and that mid-sized practices cannot afford to ignore the issues in the hope they will go away.

“The oversupply of dental graduates can be good or bad. You can see it as more competition or as cheaper labour. There are more graduates to choose from, but are they any good?”

While the number of corporatised practices is relatively small at present, it is growing fast, he says, adding there is a “huge risk” for owners of mid-sized practices who fail to act on their good ideas and intentions to grow their practices.

“The ‘corporates’ have focused to date on building scale but their next phase will be brand development and marketing. At the other end, the single-chair practice gives no scope to grow—it just keeps the one dentist in a job, rather than building a scalable business.

“In between, [the mid-sized] practice needs to work much harder at patient acquisition and retention, marketing, training and managing growth progressively.”

Guthrie says while there may be many reasons why mid-sized dentistry practices are failing to implement the changes needed to facilitate growth within their businesses, it is not through indecision or fear.

“It’s not lack of knowledge of the issues or even ideas about what to do [either]. I think many simply don’t know where to turn for assistance or where to start and are wary of wasting money. It’s telling that only 40 per cent of the surveyed dentists had an actual plan on how to grow their practices.”

Guthrie—who has more than 20 years’ experience providing strategic business advice and taxation services to clients in the medical, dental and allied health sector—says it’s important that mid-sized practices and their advisors focus on the key areas of growth opportunities identified by successful practices.

One such strategy would be by increasing their service mix, especially in specialist areas such as orthodontics, implants and cosmetics, to bring these types of services in-house.

Likewise, mid-sized practices seeking to grow their businesses should also consider investing in marketing, he says.

“They need to work out, in an increasingly crowded market, what is going to bring new patients in the door and stop existing patients going elsewhere by thinking laterally, exploring new markets [and] engaging with their community.

“My advice is to just take some small steps—benchmark their practice, identify some early easy wins and then sit down with an external adviser on a quarterly basis in a structured meeting to set some action steps and begin the journey.”

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