The Death of the Solo Dental Practice

April 8, 2014

Reimbursement for dental services from third party payers has been the one of the most, if not the most hot button issue appearing in dental publications lately. The California Dental Association’s decision to take legal action against Delta Dental is just one shape the dental profession’s response to reimbursement issues is taking. It is a popular stance among dentists, but the underlying intent of preserving fee for service solo practice is destined to fail. The payers (insurance companies, dental benefit companies, and employers) have no reason to negotiate with individual dentists, and no individual dentist matters much in their business models. Delta is the biggest, but not the only payer in the dental benefit business, and their recent experience of difficulty selling anything except low-cost PPO plans is shared by other benefit companies. Most dentists report their costs are rising, and reimbursement allowances from dental benefit companies, including Delta, have not kept up with the cost inflation dentists are experiencing. In fact, many benefit companies are drastically reducing benefit allowances in the face of pressures from employers to reduce premiums, all the while dentists are experiencing operating cost inflation. Watch those curves on the graph and you’ll see a short path to business failure for most owners. It seems apparent that it is swiftly becoming impossible to practice in a solo, fee for service business model.

The “insurance independent practice” was quite common only a few years ago. But the lure of benefit dollars was too hard to resist over the last two decades, and at some point growth of employee dental benefit plans and benefit payments to dentists tipped the scale away from the “private payer” component of most practices. Dental revenue grew steadily with the reliable and predictable benefits many employees enjoyed. Today, most practices are highly insurance dependent. The rare insurance independent practice is usually unique in other ways.

I have a friend and colleague who owns and operates such a practice. I’ll call him Jim to protect his identity, but he is a real flesh and bones (blood and saliva?) dentist. I’ve known Jim about 27 years. Jim is 60, and sold his original dental practice about 6 years ago at age 54. He worked back as an independent contractor, as an associate for his buyer for about 5 more years, which was his general plan at the time of the sale. Jim’s original intent was to fully retire somewhere between age 57 and 59. As one might suspect, Jim is a very successful dentist, with unique talents in restoring complex cases. He is also a successful investor, has remained married to his first bride, and never had any kids. So he was positioned economically to sell his practice and retire at a very young age. While most dentists plan in their thirties to retire in their fifties, few are actually able to do so. Jim is exceptional.

As is often the case, Jim came to love doing dentistry more than ever when he was relieved from the management and ownership responsibilities by his young buyer. He worked happily for five years as an associate, then the buyer’s plans to grow and expand no longer harmonized with Jim’s plans to reduce his time in the office. Realizing he did not want to retire, Jim did something he’s dreamed about and talked about for years. He opened a new practice. The practice has one chair, and one employee. He sees one patient at a time, and takes cash for his service fee no later than the time of service. His overhead is incredibly low, and his net profits correspondingly high. How is this possible? Well, there are many possible structures and business profiles for this model, but Jim’s decision was to share space in a high quality integrated small group practice. He shares space with much busier generalists and specialists in a large dental specialty building, which includes a periodontist who looks after the routine hygiene needs of Jim’s patients.

Consolidation of medical practices is nearing an end-stage of transformation of the medical profession. Depending upon where you data-mine, only between one-third to one-tenth of all physicians will remain in truly independent practices by 2014. Physicians are leaving their independent practices like rats abandoning a sinking ship, while hospital medical groups and other health care delivery organizations are snapping them up like sharks in a pod of sea lions. Few physicians have a problem finding a place to practice. The consolidation of medical practices pools resources and creates economies of scale. I predict there will be further consolidation on a national scale similar to the trends in wireless communication.

Dentists are not being head-hunted to join groups the way physicians are in this economy. Dentistry is quite different from medicine in many ways. There is no equivalent of a hospital medical group in dentistry, or even the centralizing effects of the hospital itself. Dentistry is delivered by decentralized small enterprises in mostly small office settings. It is the independent business style and small enterprise most dentists wanted when they entered dental school. But the pressures on the small independent dentist are really no different than the pressures on small independent medical practice.

So how can independent solo dental practitioners ever effectively achieve the pooled resources and economies of scale that will be required in a world of declining reimbursement? Jim’s small, fee for service practice is one way, but that method will only accommodate a tiny percentage of dental professionals, probably less that 5% if current payment trends continue. The larger integrated small group practice with which Jim has affiliated is another answer, and one that has enormous promise and potential.

There are other ways to organize that also hold promise. The purpose of organizing into larger groups is to achieve economies of scale, and to have some traction in negotiating contracts (for reimbursement rates and fees) with managed care organizations and benefit plans. Many local leaders have been surprised and disappointed by the lackluster participation in the regional dental private practice association or “DPA”. This well-established model in medicine seems to be an obvious first step toward intelligent consolidation that could become more than just an alternative to other dental benefit organizations. In the medical model, independent practice associations partner solo and small group practices up to a size than can take advantages of the economies of scale in purchasing, administrative management, and negotiation of contracts with managed care organizations.

While there are some organizational and legal hurdles to overcome to assure such independent practice associations of dentists will be able to avoid anti-trust issues, the path is already well paved by medical organizations whose structures could be easily imitated.

Other organizations that have been widely used in medicine as alternatives to selling out to a hospital medical group include foundation medical groups, and management services organizations, which are back office management organizations that provide centralized business leadership, management, and support services for a group of practices that each maintain some independence. Both foundations and MSOs hold promise as potential new structures for dentists that would provide for fully engaged dentist leadership, quality evidence-based patient care, comprehensive monitoring of patient and provider outcomes, shared record keeping and data, and the power to influence the revenue side of the equation through negotiated reimbursements.

The mission of any new form of dental group must be quality and value. Declining reimbursements will make it impossible for most dentists to practice in a small, independent, solo practice setting. Costs are already too high for current reimbursement rates to keep up. We have seen the first wave of corporate dental practice, and clearly, they are not the answer. Poor quality, undertrained and under qualified practitioners, and urgent “up selling” of unnecessary dental care are not good for the public. So dentists are going to have to get creative with their organizations and business structures very soon to continue their mission of providing quality dental services to the patients of our communities in a business model that is sustainable.

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