The New Economy and its Impact on Dental Practice

Allison M. DiMatteo, BA, MPS

Author’s Post-Production Note: The following cover feature article about the dental industry and the affect the economy is having on it—as well as on dental practices—was developed based on interviews that were conducted in late August/early September. Events following the completion of the interviews (eg, severe market drops, Wall Street bail-out plans, election results, etc) continue to evolve, making it all the more important for all of us to keep abreast of the topic. These events and their effects on the economy may not have been addressed in the feature due to timing.

The pressing question on the minds of members of the dental profession is: “What effect is the downward economy having on dentistry in terms of patients’ willingness to undergo necessary and elective dental treatment?” If you’re a member of the dental manufacturing industry or a distributor, you’re wondering how the macroeconomy is affecting your bottom line, and your future.

The good news is that the dental industry still has growth. The bad news is that the growth is not as great as the industry has grown accustomed to, expected, hoped for, or worked for. That recent observation is according to Gary Price, chief executive officer of the Dental Trade Alliance (DTA).

Based on the first two quarters of this year, it still appears that growth in the dental market has been around 4%, Price says. If that holds through the rest of the year, dentistry would still be looking at a growth year.

Dentistry as a whole has always been remarkably resilient to economic downturns. There hasn’t been a true dental recession since the 1960s, explains Michael Augins, president of Sirona Dental Systems, LLC. “While equipment sales may not be growing as fast as they were maybe 12 to 24 months ago, we are seeing that most dental equipment companies continue to report growth in their dental equipment sales here in the US,” he explains.

“I would say that the rate of growth has slowed a little, but for the most part, dentists are still spending,” Augins observes. “Perhaps the dentist takes a little longer to make a decision on an expensive equipment purchase, but in the end, we believe dentists will continue to make those purchases.”

According to John Franz, general manager of Instrumentarium Dental and Soredex NA of the Palodex Group, it’s not that dentists are sitting on their wallets and not spending money. Rather, there’s more selective buying taking place. When it comes to items that have demonstrated abilities to produce a return on investment in terms of practice building, sales of those types of items are up more than 20% in both units and dollars, he says.

“In other words, dentistry is doing well,” Franz says.

However, Joseph Lancellotti, the creator of DoctorsMarketing.com, cautions that in any economic environment, but certainly during uncertain economic times, planning and foresight are always important. In marketing, it is imperative to come to grips with the realities of the time, especially in an uncertain marketplace, he says.

“The economy is definitely doing poorly. We’ve seen the market drop more than 300 points in a single day; reported earnings are disappointing; housing pricing continues to sink; there are rising personal debt payments; and there is the increasing cost of food and other necessities,” Lancellotti reminds us. “Although a formal declaration of recession has yet to be made, many US families—dentists’ patients—have been in a ‘household recession’ for some time.”

According to Roger P. Levin, DDS, chief executive officer and president of Levin Group, when the economy slows down, dentistry does not feel it right away. Rather, it takes about 12 to 16 months before dentistry is affected by an economic downturn. Unfortunately, he says, this particular economic downturn is now longer than 18 months, and it’s also affecting consumers based on their monthly spending due to the cost of gasoline, oil, electricity, etc.

“In our experience, many practices across the country are slowing down, and what we’re seeing are more no-shows and last-minute cancellations, as well as lower case acceptance and a decrease in the number of new patients,” Levin observes. “It seems like they [patients] are waiting for things to get a little bit better.”

Lonnie Hirsch, founding partner of Healthcare Success Strategies, notes that when there’s a downward economy, people will cut back and defer paying for things that they consider to be more optional than critical—at least optional in terms of when they do it. Considering how people in the general population tend to view dental care, unless they’re in pain or consider their dental problems critical, it’s natural that they’d postpone dental care, he says.

“This affects everything from case acceptance to the level of commitment to treatment; willingness to pay for the cost of treatment to continuity of care—even for hygiene appointments; and how decisions are made about ‘nice to have sometime’ versus ‘must do now’ treatments,” Hirsch explains.

As we close 2008 and look forward to a more prosperous and peaceful 2009, Inside Dentistry takes a brief look at the impact the economy is having on activities within the dental industry and the profession at large. To make the most of changing circumstances, we also outline some forward-thinking steps that dental professionals can take to keep a positive production flow occurring in their practices. From internal marketing to more prudent business strategies, this feature will outline the communication, case presentation, accounts receivable, and other approaches that can be taken to maintain the practice’s bottom line during difficult economic times.

Understanding What’s Happening in the Dental Economy

Steve Kess, vice president of professional relations for Henry Schein, observes that the dental market’s rates as a gross billing phenomenon have continued to expand in almost every year since the mid-1980s regardless of the economy. The old reference to dentistry or the oral health industry as being unaffected by the economy probably holds true to a degree, he says.

“The growth rate of the marketplace has historically been about 4% to 6% per year, so in a good year, growth would be at the higher end of this range, and in the economic downturn years it might be growing at the lower end of this range ,” Kess explains. “I think right now we’re looking at an economy from a dental billing point of view that will continue to expand, but in the range of between 2.5% to 4.5% of gross billing revenue, as reported by dentists in practice.”

According to Paul Jackson, vice president of marketing for Benco Dental Supply, other indicators of how dentistry is doing include an equipment backlog and open orders for which dentists have contracted, signed contracts, and otherwise given deposits for future purchases. Those seem to be unaffected, he says.

“They perhaps could be higher, but you don’t know what they could have been,” Jackson admits. “However, they’re still at a strong pace and not behind last year.”

On the laboratory side of things, however, Price says that anecdotally, laboratories are reporting some softness in their market and figures that are even with, or lower than, last year. This is suggestive of what’s happening in the dentist’s office, he says.

“Clearly we know there are issues in the economy. There’s no doubt about that, whether it’s oil prices, credit tightening, layoffs, etc, that will affect the dental office,” Price says. “But dentists are still booked, and they are still seeing patients.”

The Economy’s Effect on the Practice Environment

The reality is that despite slower growth in sales of equipment or materials for some—but not all—companies and distributors, dental practices still are making purchases. They may be taking a wait-and-see attitude toward their purchases of standard equipment, but that may be caused by appointment scheduling not being as far out as in previous months or years.

“Now they may be booked out only 3 weeks instead of 5 to 7 weeks, so dentists may be exercising a little caution and trying to control their spending a little bit,” explains Franz. “However, with consumer confidence coming back slightly—and bookings not dropping in the last quarter, based on discussions we’ve had with dentists—things seem to be holding steady.”

According to Kess, part of the reason that the dental industry continues to experience growth during economically difficult times is the demand for dental services from both the primary care point of view and from a desires point of view. Additionally, the boomer generation—members of which are sustaining their teeth for longer periods of time in their life and who are also more educated—demands and appreciates good oral health, as well as the cosmetic and the restorative nature of the profession, he explains.

“These individuals are continuing to access dental services, albeit perhaps not at the rate that they might have in better economies,” Kess observes. “So, the dental marketplace is growing, but it’s growing at a slower rate because of the offset of the elective, higher-end procedures.”

Robert Fontana, president and chief executive officer of Aspen Dental Management, Inc, notes that healthcare in general is somewhat insulated from the greater economy, particularly the less discretionary services that dental practices provide. He believes his organization’s affiliated dentists may be even safer from a downturn in the economy because their focus is on serving a segment of the population in need of essential, not elective, dental care.

“While it’s been on our minds, the current challenges with the economy really have not affected us,” Fontana says. “We believe that successful practices don’t allow patient objections, such as financing, to creep into the culture of the office. This is particularly important in a struggling economy. Specifically, we work hard to remove the financial barriers to patients seeking the dental care they need by offering competitive fees, working with all insurance companies, and providing a variety of affordable payment plan options. These services, and our focus to overcome objections, may be the reasons why we really haven’t seen a significant impact during this down economy.”

To counteract some of the negative impact the economy could have on a patient’s willingness to accept even necessary treatment, Hirsch emphasizes that it’s important to implement thorough education that focuses on the important “benefit versus risk” formula for maintaining good dental health. Dental education with a degree of motivation can help ensure that patients understand the importance of proactive care, he says. (See How to Communicate With and Motivate Patients about the Importance of Proactive Care.)

“Additionally, patients who have dental insurance should be reminded that their annual benefits will expire at the end of the year, and that if they haven’t utilized them fully, they should do so before they lose them,” Hirsch advises. “Practices should try to give patients sufficient time and notice to schedule the appointments into the dentist’s schedule prior to the end of the year.”

Lancellotti notes that a sustained, conservative marketing effort in good times and bad will help ensure that a dental practice’s new patient pipeline is consistently replenished, and that the dentist’s market presence is maintained.

“There are of course short-term benefits (eg, marketing assists in generating immediate results), such as attracting new patients, increasing the purchase of additional services by current patients, and reactivating inactive patients,” Lancellotti elaborates. “However, the real long-term power of a marketing program is cumulative, and this cumulative effect drives awareness and, ultimately, preference for the doctor or his/her services at the elusive time of need when the potential patient thinks of them first.”

How the Economy will Affect Pricing

Our interviewees suggest that while dental and all medical inflation has been slightly higher than the overall rate of inflation, ultimately dentists’ margins will actually get better because they’ll be able to raise prices in concert with inflation. As a result, they’ll likely be able to capture more of the profits for themselves. Therefore, it’s unlikely that dental pricing will come down.

“Fundamentally we think that there is more inflationary pressure than deflationary pressure in the macro environment,” explains Augins.

According to Kess, companies in the marketplace are always concerned about pricing and profit margins. The core conundrum is that the cost of supplies within a practice, depending on the specialty, ranges between 5.5% and 7.5% of billings but perhaps as high as 8%, which is almost equal to the laboratory bills of most dental practices, he says. The ability of a practice to save its way to success by reducing its product costs at the practice level is a misnomer, Kess further explains.

“It’s an artificial focus of time and resources by the dental team and, in many cases, the dentists themselves,” Kess says. “The total product purchase cost for a $500,000 practice is approximately $30,000 to $35,000. If that was 10% less in cost, that would reduce the expenses by $3,000 to $3,500. That would not necessarily mean success for the practice. So I think the pricing of supplies, although it’s a favorite subject, is not really an economic driver of practice success.”

According to Fontana, Aspen Dental’s practice model benefits its affiliated dentists, dental specialists, and hygienists because the management company eliminates their need to do any non-clinical, administrative work. They are free to do what they do best: focus on dentistry. Aspen Dental practices also benefit from better product, equipment, and material buying power, he says.

“One of the things that our dental professionals appreciate is that we have the ability to aggregate our information across our network of offices, and that allows us to see trends and gain insight into the market,” Fontana explains. “More than just financial results, these are leading indicators to help us understand how to modify our marketing strategies and continue to execute our services more efficiently so that Aspen Dental patients receive the care they need. This equips us to respond to economic trends a little more quickly than perhaps private practices can.”

Of course, the end of the year brings with it traditional promotional offerings and special pricing promotions, but every-body’s always promoting something, Franz observes. With tax incentives pending for capital purchases, he suggests being on the lookout for aggressive promotions, particularly for such categories as standard equipment (eg, chairs, units, vacuums).

“December 2008 will be a very critical month for dentistry in the United States,” explains Kess. “The dental team should be working with their accountants to evaluate the practice profitability for the year and determine the tax advantages they could secure with the current tax break that’s being offered by the federal government for capital equipment expenditure.”

Now is the perfect time for dental practices to optimize the tax benefits by identifying and securing the capital equipment they need for their practice’s success in the future year, our interviewees agree. To determine what equipment to add, practices should evaluate the types of procedures they’re doing so that they can identify areas in their practice mix that they might need to upgrade or enhance, suggests Kess.

“I think that the tax break is a good opportunity for dentists, but with the threat of a recession looming, everybody is waiting for the other shoe to drop,” explains Jackson. “Dentists don’t know what’s going to happen, so they’re not committing to major purchases. But they are still buying.”

Seeing the Silver Lining in the Economic Clouds

While there is no doubt that the economy is hurting many industries, Levin echoes the sentiment that dentistry is resilient, adding that it remains a great profession, even in difficult times. But he notes that dentists have been fortunate in not having to run excellent businesses based on the number of dentists relative to the population. In a tougher economy, Levin says that having best business models becomes critical. (See Counteract the Impact of a Down Economy.)

Kess suggests that during these economic times, it’s important for dentists to examine their practice procedures, patient acceptances and rejections, and case presentation skills. They should also audit the work they’ve been providing their patient population, perhaps with the help of a third party who can help them conduct the evaluation.

Regular communication, staff training on communication, and scripting for all routine conversations with added value brought into the conversation are among the skills that dentists and their staff could take the opportunity to improve upon during these difficult times, Levin suggests. Also, practices need to budget their monthly expenses, their projected revenue, their projected profit, and benchmark against that, he adds.

“Overhead control is also critical,” Levin emphasizes. “Too many practices right now are not focused enough on controlling overhead, which in a tough economy becomes critical because what we spent in a good economy can represent bad spending in a down economy.”

Augins encourages dentists to look around at some of the new technologies that are coming out that could make their practices more efficient, as well as to take more of a business perspective on those technologies. He says that rather than looking at just their price tag, dentists should look at what the bottom line on their return on investment can be from some of those investments in technology.

“Investing in your practice when your stocks are going down is probably your best alternative,” believes Jackson. “Digital radiography and any technology that helps patients better understand their treatment plan, co-diagnose their condition, and accept treatment is a big win not only for the dentist, but for the patient, also.”

Levin notes that case acceptance is an area that always needs attention because that’s much more about human relations than anything else. He says that this area probably has to be improved more than any other area in a down economy.

Another major area of opportunity, Levin notes, is hygiene. It represents 25% of production in many practices, and clinicians want that percentage to be as high as possible in terms of increasing production in the practice. Along those lines, the schedule is absolutely essential, and it requires more than just a book or software program, he says. Rather, it’s a deliberate approach to ensuring that the right number of patients comes in on the right cycle for achieving the daily production goal.

Conclusion

“With every crisis comes new opportunities, and that applies to economic crisis as well,” believes Hirsch. “In a down economy, other dental practices that typically promote their services might tend to do less marketing, creating an even bigger opportunity for the practices that are going to market, since they’ll have less marketing competition. So, the impact of their marketing is going to be potentially greater.”

In fact, according to Lancellotti, the reality is that many of a dentist’s competitors are going to pull back their marketing and, as a result, their dollar is going to go further than it is now.

“I have always felt that marketing during a time of economic difficultly solidifies your patient base, portrays you as stable, takes opportunity away from less aggressive dentists, and positions your practice well for post-recession growth,” says Lancellotti.

According to Jackson, now is the time for dentists to take a long-term view of the dental practice. At a time when the economy is a little bit off, dentists might be able to expand so that they are prepared for their future, he suggests.

For most dentists, the best investment they can make right now is in making their practices more competitive, believes Augins. When they look around at all the other potential places they could put their money that are underperforming, they’ll find that the one place that is performing, for the most part, is their dental practice, he says.

“We are definitely encouraging people to take this opportunity to invest in what we think has the potential for a very high return and is a relatively safe investment,” Augins says. “That is themselves and their practice.”

Counteract the Impact of a Down Economy

Whether in good times or bad, throughout every economic climate, there are things dentists can and should do to recession-proof their practices. According to Roger Levin, DDS, CEO, and president of Levin Group, practices that already have efficient business systems in place, especially for scheduling appointments and making case presentations, are weathering the down economy better. Levin explains that they’re already implementing those tasks that are necessary to achieve total success.

To counteract the negative impacts the down economy could have on a practice (eg, no-shows, last-minute cancellations, slow pays, drop in case acceptance), Levin makes six key recommendations. He says many practices that are implementing these six areas of recommendation are going from slight decline to strong growth in production in approximately 6 months.

1. Analyze the practice. Levin explains that it’s always best to analyze the practice using the right experts and the right ratios to find out where you are. “We know practices are down; but when I talk to dentists, they don’t always know why,” he says. “They’re looking at a total number, such as production, and not understanding which reasons are contributing to that decline.”
2. Reactivate inactive patients. The number of non-active patients has grown in practices based on people not coming for appointments in the same numbers, Levin says. Yet, the practice doesn’t necessarily do anything to get those patients in; they’re waiting for the patients to make the decision versus contacting them and encouraging them to come in.
3. Expand financial options. This will help to increase case acceptance, especially in the area of patient financing. When people are struggling, they have more of a need to access funds, Levin says. Companies like CareCredit, for example, which is approved by the American Dental Association, can be very helpful.
4. Promote practice services. Levin says it’s important that patients are aware of all of the practice services. Many patients don’t realize that the practice has services beyond basic restorative and hygiene.
5. Increase phase treatment. Levin says his clients have experienced success by learning to present big case treatment plans in total but also in phases. For example, a patient who needs $10,000 worth of dentistry and isn’t going to do it right now, either because they can’t afford it or they have a fear based on the economy, may be more than willing to do $2,500 worth of dentistry, he explains. That approach has been very successful versus having the treatment plan turned down, Levin says.
6. Maximize all insurance benefits. Insurance companies do provide benefits. These benefits renew annually, Levin explains, but most practices are not proactive about how they explain and educate patients in that regard.

Buddy, Can You Spare Some Dentistry?

Despite the parody of the depression era song title, the subject matter is broached with anything but humor. According to Gary Price, chief executive officer of the Dental Trade Alliance (DTA), an economic climate such as this can have devastating consequences for public and private programs that provide care to people who can’t afford it and who would have no access to oral care either through insurance or through their own resources.

“That’s obviously a concern, that there would be people who are not being treated because restrictions would be imposed upon what the government can pay through Medicaid and such programs as that, as well as limits placed on private funds that help support dental service programs,” Price says. “One of our concerns is that in times like these, those programs would be the first to be affected.”

For this reason the DTA Foundation is very active with many programs to promote access to care. It supports the National Foundation for Dentistry for the Handicapped, as well as the American Dental Association’s Give Kids A Smile Program. The DTA also provides four or five grants per year to programs capable of being leveraged into larger efforts for promoting and providing access to oral healthcare.

Among the other activities undertaken by the DTA has been designing and providing culturally relevant promotions and education materials about the importance of oral health, explains Price. Particularly among recent immigrants, unless there is a cultural sensitivity to the information they receive, individuals won’t go to a dentist even if they have the funds to do it, he says. Therefore, fostering oral health literacy among such groups is a real educational process, Price says.

How to Communicate with and Motivate Patients about the Importance of Proactive Care

Showing patients the value of dental care and of using a specific practice is something the dentist and team members need to be doing on an ongoing basis, says Roger Levin, DDS. When this occurs, it serves the practice well for strengthening patient retention and the level of interest in services, even during uncertain economic times.

According to Joseph Lancellotti, the laws of marketing rarely change, even in a recession. Successful marketing is about sustained and integrated activity. Like the principle of compound interest, a little investment, applied consistently, will pay great dividends down the road, he explains.

“My recommendations for emphasizing value of dentistry versus price of dentistry would be to enhance the internal marketing, which is really customer service and patient communication; develop a strong, effective customer service strategy that adds value to each patient’s experience; and communicate in the office and by email with patients regarding the office services and opportunities,” Levin explains. “Additionally, it’s also important to educate patients about new oral care issues that will encourage them to come back regularly to the practice.”

Lonnie Hirsch, founding partner of Healthcare Success Strategies, suggests the following mechanisms for communicating the importance of proactive dental care and motivating patients:

• Chairside, verbal conversations
• Internal signage
• Emails to patient base
• Direct mailing to patient base
• Incentives or introductory specials (eg, gas cards, discounts, mechanical toothbrushes or other oral healthcare products)
• Third party financing or payment plans

Echoing the recommendations of others, Lancellotti suggests that as dentists are planning their marketing tools in down economic times, the emphasis should be more toward internal versus external marketing tools. Patient newsletters and unique internal referral programs are important, he says.

Lancellotti also recommends a “7/12 Strategy,” which is attempting to reach your audience a minimum of 7 times in 12 months. These communications can consist of a variety of direct mail pieces sent out over a 12-month period, such as a practice mailer, a newsletter, a postcard, birthday card, etc. The more attractive and informative each presentation, the more memorable it will be, he says

“And of course, it’s important to remember that empathy is significant in your patient communications,” Lancellotti says. “Make it clear that you understand what is going on, and that you’re providing, or trying to provide, some realistic solutions.”

The Inside Look

Issue after issue, the feature presentations in Inside Dentistry deliver coverage of the relevant and thought-provoking topics affecting the greater oral healthcare profession at large. The publishers and staff could not bring the underlying concerns and trends surrounding these timely issues to the forefront without the insights shared by our knowledgeable and well-respected interviewees. For their collective generosity of time and perspectives, we extend our sincere gratitude.

About the Authors

Michael Augins
President
Sirona Dental Systems, LLC
Charlotte, North Carolina

Robert Fontana
Chief Executive Officer
Aspen Dental Management, Inc.
East Syracuse, New York

John Franz
General Manager of Instrumentarium Dental and Soredex NA
Palodex Group
Milwaukee, Wisconsin

Lonnie Hirsch
Founding Partner
Healthcare Success Strategies
Irvine, California

Paul Jackson
Vice President of Marketing
Benco Dental Supply
Reno, Nevada

Steve Kess
Vice President of Professional Relations
Henry Schein
Melville, New York

Joseph Lancellotti
Creator
Doctor's Marketing
Monroe Township, New Jersey

Roger P. Levin, DDS
Chief Executive Officer and President
Levin Group, Inc.
Owings Mills, Maryland

Gary Price
Chief Executive Office
Dental Trade Alliance
Arlington, Virginia