As we step into 2024, five trends are emerging that may impact dental transitions significantly. From economic shifts and persistent staffing challenges to the evolving dynamics of Dental Service Organizations (DSOs) and doctor-to-doctor transitions, these trends are set to shape the course of the dental industry in the coming year.
Additionally, we’ll explore the challenges associated with PPO (Preferred Provider Organization) participation and highlight the increasing importance of having a knowledgeable advisory team in place.
Let’s dive into the top five trends that will define dental practice transitions in 2024 and influence decision-making for both buyers and sellers across the dental practice market.
All indicators point to the economy remaining stagnant in the first half of 2024, and then potentially starting to rebound in the second half of the year. That could change, however, considering the election in November.
What impact will this have on dental practice transitions?
Interest rates may remain in the 6-7% range, and we may never see rates as low as 3% again. This should not deter young dentists from buying a practice.
Dental practice ownership remains the best way to pay off student debt and secure financial stability later in life.
The default rate for dental practices is well below 3%, and frankly, lenders would not continue to finance practices aggressively if they felt the economy was going to have a negative impact on the industry.
After the 2008-2009 recession and 2020 COVID pandemic, the dental industry has often been referred to as ‘recession-proof.’ Earl Douglass of ADS South in Florida, an ADS Dental Transitions member did an analysis that showed a dentist who owned their practice could retire after 30 years with $14,000,000 more in earnings than a dentist working as an associate doing the same amount of work. That alone is a compelling argument to consider buying a dental practice in 2024.
One of the most common comments we hear from dentists is staffing is the biggest issue they face as dental practice owners. Staffing issues are expected to persist through 2024.
In most dental practice transitions, the staff in the practice is more important than the dentist. More specifically, patients interact with the front desk and typically see the hygienist twice a year for 20-30 minutes, while they may see the dentist for a few minutes at each visit.
Buyers need to understand and be comfortable with the fact that, to retain staff, related costs (salaries and benefits) have increased in the past few years because of the shortage, and staffing costs represent a higher percentage of expenses in dental practices than in previous years.
Buyers should also be cautious when considering any significant changes to the practice in the first six to 12 months after closing.
Sellers need to understand that retaining staff during a dental transition is extremely important to maintain goodwill, and therefore, the timing of when you tell staff that the practice has been sold is important to consider.
Offering staff a bonus to remain on for at least the first three to six months of a dental practice transition is one strategy that has worked for some sellers to help maintain the staff-generated goodwill in the transition.
Dental Service Organizations (DSOs) will continue to look for good investments, but they have also been impacted by economic conditions. Most DSOs are funded by private equity and their investors are not immune to rising interest rates.
They may even pull back and be even more selective when searching for dental practices that are a good fit for their model, leaving more high value practices available for individual dentists to purchase. This could increase the opportunities for doctor-to-doctor transitions.
Another dental industry trend we’ll see in 2024 to impact dental practice transitions is decreased PPO participation. Insurance reimbursement rates and hurdles are common complaints among dentists. Many insurance companies have lowered fees and slowed the reimbursement process. A prime example is Delta Dental (which ironically was formed by dentists), which no longer allows dentists to credential under the Premier plan. This means when dentists credential at a new location, they are forced into the lower fee PPO plan.
As a result, dentists have begun dropping participation with PPOs, many of whom have reported less stress and higher collection numbers.
Dropping PPO plans can’t be done overnight. A key to success is clear communication with patients explaining why their PPO has been dropped, how they can still take advantage of their dental benefits, and how the office can assist.
Many dentists fear this will result in patients leaving their practice, and some percentage of patients may do just that. But patients of record who have been visiting the same dentist for many years will find it more convenient to remain with the practice, maintain the relationship, and continue to receive quality care from someone they have come to trust.
Not participating with PPOs is something that dentists should consider when buying a dental practice, as not having to go through the credentialing process can significantly speed up the transition process, which typically takes 30-90 days to complete.
This is an area of opportunity that causes quite a bit of delay in transactions. There has been no indication that insurance companies plan to make the credentialing process easier any time soon and taking that piece out of the transition equation can benefit both buyer and seller.
One thing that will become even more important in the coming year is having a solid team of advisors that can help you plan for the future. Even if you aren’t thinking of selling your dental practice in 2024, it is a good idea to have an appraisal done so that you know the current value.
When thinking about your team, whether you are buying or selling, you should have the following experts at your disposal: an attorney, an accountant, a financial planner, at least two, if not a few more, lenders, and a dental practice transitions expert, all of whom should be familiar with the dental industry.
Your regional ADS Dental Transitions Broker has contacts in all these areas and is also familiar with all the topics covered in this article.
For more information, search for a dental broker in your area on the ADS website.
In 2017 Kevin joined his father at American Practice Consultants and became owner in 2023. Kevin has has assisted dentists with over fifty dental transitions, written articles for ADS Dental Transitions and serves on the ADS Marketing Committee. Kevin knows firsthand that practice transitions can be complicated, and the ins and outs of practice sales often exceed the dentist’s training. American Practice Consultants is qualified to help you with every step of the journey, including valuing your practice, marketing, negotiation, drafting contracts, arranging financing (often 100%), and planning for staff and patients through a practice transition.
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