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Professional News Articles : : ON PRACTICE MANAGEMENT by Janyce Hamilton : 2008-09 economic outlook for dentistry: Income, expenses and patients’ discretionary spending decisions

2008-09 economic outlook for dentistry: Income, expenses and patients’ discretionary spending decisions

October 1, 2008

While lawmakers in Washington, DC, have been discussing the U.S. banking bailout and economic safeguard options this fall, dentists are wondering about the health of their profession. Questions on the minds of dentists and dental students alike include: “Is income keeping up with expenses, including debt incurred, of operating a dental practice?” and “With all the economic uncertainty, will people keep seeing their dentist as frequently as in the past?”

To address these questions, I looked at economic survey data from recent years produced by the Chicago-based American Dental Association. To assist in this endeavor, John Luther, DDS, Senior Vice President, ADA Division of Dental Practice/Professional Affairs, and Wayne Wendling, PhD, Managing Vice President, Health Policy Resources Center, sat down to talk with me this month. Dr. Luther earned his dental degree from Northwestern University Dental School, and also owned and operated a general dentistry practice in Orange County, CA, for 18 years.

Aside from his various publications and teaching experience, Dr. Wendling’s more recent professional activities encompass the Healthcare Administration Simplification Coalition, the National Association for Business Economists and the Pension Research Council at The Wharton School at the University of Pennsylvania. Dr. Wendling holds a PhD in Economics from the University of Wisconsin-Milwaukee.
Income and billing trends

In the figures below, the trend from 2001-2005 in net income (unadjusted for inflation) appears to show increases for all, except specialists whose income dropped slightly. However, according to Dr. Luther, “From 2001 to 2005 in real dollars (adjusted for inflation), the average net income of all dentists in private practice has remained relatively flat. For employee dentists [data not shown], however, it has grown modestly.”

Drs. Luther and Wendling explained that while gross billings of all dentists in private practice (unadjusted for inflation) rose 19 percent from 2001 to 2005, net income grew substantially less because expenses also grew.
So how does this increase in income compare with expense trends during the same period?

Expense trends

Dental practice expenses have increased from 2001 to 2005, based on survey results from the ADA’s Survey of Dental Practice—the five most recent years for which the ADA has published data.

When one reads above that there was 19 percent increase in gross billings, it paints a rather rosy picture. “But don’t be fooled by the gross billings graph, because it doesn’t reflect the rise in expenses,” Dr. Wendling said.

Pointed out Dr. Luther: “For all dentists, unadjusted practices expense grew by 22.3 percent and real practice expenses per owner dentist (adjusted for inflation) rose 10.8 percent during 2001 to 2005.”
When gross billings, expenses, and net income are adjusted for inflation, dentists real net incomes have risen just under 1 percent per year between 2001 and 2005.

Debt incurred, economic uncertainties

There are two problems compounding the situation of flat income (increases balanced by expenses) over the 2001 to 2005 period: escalating dentist debt and consumer economic worries.

New dentists’ debt. According to Drs. Luther and Wendling, educational debt for recent dental school grads has increased greatly from 2002 to 2006—a 35.3 percent increase during this time period. Educational debt averaged $158,104 for 2006 grads. When other debts (home mortgage, auto loan, consumer credit) are included, the average total debt faced by 2006 grads was $246,903. This does not include the cost of establishing a new practice—which is estimated to be $250,000 in 2008, according to Dr. Wendling.

Said Dr. Luther: “So new dentists are half a million in debt when they open the door of their practice. The dentist today assumes a huge financial risk, much more so than in times past.”

2008-2009 predicted economic downturn and patients’ discretionary expenditure decisions. Any assessment of the trends in dental practice economics would not be worth its salt without a discussion of the economic situation in 2008-2009. Explained Dr. Luther: “In 2005, there was a 5.1 percent U.S. unemployment and at last count in 2008 there was 6.1 percent unemployment. As unemployment increases, more people are likely to lose their benefits including dental benefits, and will be less likely to receive preventive dental care.”

Drs. Luther and Wendling agreed that dentists may want to think about encouraging employed patients with dental benefits to learn about their benefits (for example, identifying remaining unused dollars by type of service and how to continue coverage if employment status changes). This benefits review will prepare the patient in the event they lose their coverage.

An increasingly uninsured public is a concern for dentists who are worried about their own patients’ oral health. Patients may be forced to make health care choices.

The prices of basic necessities such as food and gas have all increased during 2008. “Dentists are very concerned not only about their own patients’ ability to afford needed dental care, but also the general public’s ability to access care as jobs and associated insurance benefits are lost, home equity shrinks and consumers are forced to cut back,” Dr. Luther said.

For those who lose their job and its associated benefits – and might also be at risk of losing their homes - even dental care essentials may become the things that consumers forego.

Dr. Luther theorized that plastic surgery procedures may be put on hold by image conscious public whose personal budgets are tightening. As this occurs, so too could cosmetic dental procedures be delayed. “Those dentists who rely mainly on cosmetic procedures could be hard-hit in a down market.”

Conclusion  

Access to dental care of in terms of incomes and expenses will continue to be studied by the ADA Survey Center, which collects data with regard to how dentists are faring. Efforts by the ADA to collect current economic data and make them available are ongoing.

The ADA, Illinois State Dental Society, Chicago Dental Society and other organized dental organizations are putting effort toward ensuring access to dental care continues for the public. “But in these times, we don’t expect things to turn around overnight. This is a problem for all Americans and for all of health care,” Dr. Luther said.

Does this mean there is the chance that more patients in the coming year paying by credit cards at checkout will hear “Your card is denied”? Hopefully not. But dentists might start thinking about ways to help their patients finance much-needed dental care.

Biographies

As senior vice president of the ADA’s Division of Dental Practice/Professional Affairs, Dr. John R. Luther oversees and manages the ADA’s Council on Dental Benefit Programs, Council on Dental Practice, Council on Access, Prevention and Interprofessional Relations, Department of Dental Informatics and the Health Policy Resources Center. During the past several years, Dr. Luther has also served on a variety of ADA task forces and has actively participated in strategic sessions dealing with such topics as universal health coverage, dental and medical tourism, and the emergence of electronic health records. Prior to assuming his current responsibilities in 2006, Dr. Luther was the director of the Council on Dental Practice for a brief period of time. He also worked in the dental benefits industry for eight years where he gained significant experience in network development, quality assessment, and education program development for dentists.

Wayne R. Wendling, PhD, is the managing vice president, Health Policy Resources Center in the Division of Dental Practice/Professional Affairs. His most recent position was Second Vice President, Research, for Traveler’s Insurance Company where he directed a staff responsible for conducting research on medical and health care financing, medical inflation and opinion research. Prior to that, Dr. Wendling was the senior director, Research and Information Services, for International Foundation of Employee Benefit Plans, where he established their research strategy and generated research funding with multiple academic institutions as well as the U.S. Department of Labor. He has also previously served as a Senior Economist at the Upjohn Institute.

References

Figures reproduced from 2006 Survey of Dental Practice Reports. © 2006 American Dental Association, Chicago. Reprinted with permission. All rights reserved.

Janyce Hamilton is an award-winning Chicagoland freelance dental writer and editor. Send suggestions for topics to be covered, or any comments on this column, to review@cds.org.

© 2008, Chicago Dental Society