What makes the group practice model successful?
There are many reasons for the success of large group practices.
First, they thrive on efficiencies of scale and significant marketing. These practices can negotiate volume discounts with suppliers and laboratories and possibly reimbursement rates with insurance companies. Large group practices with multiple dentists at one location can maximize patient care hours at the facility. The economy is having an impact, too. A down commercial real estate market could mean greater opportunities for corporations to purchase or build at a low price.
In just two years the number of large dental group practices grew by 25 percent, and many predict it will continue to expand.
The McGill Advisory newsletter, a dental business publication, has followed the growth of DSOs, which the company also refers to as dental management companies.
Dental practice values are on the rise now, and one of the main factors is the “growing imbalance between the number of practice sellers and potential buyers,” said Jonathan Martin, CPA, in the December 2011 McGill Advisory. Since the 2008 stock and real estate markets declined, fewer dentists are selling their practices to pay for retirement, but the number of potential buyers continues to grow.
“Aided by equity market funding,” said Mr. Martin, “these rapidly growing dental management companies are aggressively pursuing the purchase of dental practices nationwide.”
Things were different when the first wave of dental management companies came and went fueled by the stock market craze in the 1990s. In its February 2011 issue, McGill cites six factors behind the recent growth of the dental management companies—factors that were not present 10 years ago:
- a large pool of venture capital available for investment;
- an expanding supply of practices for sale over the next five years;
- a growing supply of low-cost professional labor;
- an ample supply of lower cost dental staff labor;
- growth in expanded function staff allowing for increased leveraging;
- growth in managed care penetration.
“Accordingly, the impact of this phenomenon will be significantly greater than that of 10 years ago,” according to McGill.