Since the Covid-19 pandemic started closing businesses and entire cities, few industries have not felt an impact and dental care is no exception. Many medical practitioners have been considering whether to return to their practice at all or instead accelerate their practice’s transition plan.
There are more than thirty thousand active dentists that are over the age of 65. The vast majority of this group are solo practitioners. Since Covid-19 poses a direct threat to the older population, along with the increased cost of personal protective equipment, it’s not hard to understand why so many dentists from this particular age group are taking immediate action.
A majority of these doctors will not be going back to their practices long term. A survey conducted by the American Dental Association’s Health Policy Institute posed the question “Do you intend to do any of the following in the next six months?”. Among 5,675 respondents, 13% said they would sell their practice, 16% planned to retire and about 5% said they would be filing for bankruptcy. Those who are thinking about returning, but aren’t certain, may choose to sell since it is an easier option. But in the middle of such a large number of doctors leaning towards this option, what happens to the patients? They will all be in need of a new dentist.
This situation opens up the opportunity for active dentists and pushes them in the direction of enriching their businesses and, if possible, enhancing their transition plans. The most logical way to capture this group of clients is by buying patient lists. After acquiring a patient list, there is no guarantee these patients will choose you as their next dentist nor that they will contribute significantly to your practice’s income. Additionally, retiring dentists are unlikely to part with the data of their hard-earned patients for free.
There are two options to be considered that can mitigate the mentioned scenarios that will allow Selling Dentists to get a fair return for their career’s efforts (the patient list) while assuring a risk-averse way for the buying side to obtain new patients for their practices.
The Production (Revenue) Acquisition Method
The first step in this method would be to determine the value of the patient list which is basically a ratio of the most recent year’s gross receipts. When calculated, the result should be in the higher range than for an all-cash patient list purchase, since the Seller is expecting transaction risk.
A down payment is usually required in this case, along with the payment of % of receipts guaranteed from the Seller’s patient who will join the new practice in an agreed period of time. Once the patient transfer has been successful and the sale price has been paid off, no further financial obligations are inflicted upon Purchaser.
The Individual Patient Record Acquisition Method
The second option.
This is often accomplished by determining the active patient’s count of these patients who visited the practice over a 12 to 18-month period. Once the dimensions of the active patient base are decided, calculate the type of the Seller’s total practice receipts over the last three year period and divide those average receipts by the number of active patients.
This may provide a private patient record fee. Typically, the payment of the patient record fee is formed on the second patient visit and is paid out over a predetermined time-frame. Both options are fair to all or any parties concerned and may provide a positive outcome for both the vendor and therefore the Purchaser.
What will dental practice recovery look like?
We truly live in extraordinary times.
Even in times of uncertainty, like we’re experiencing at the moment, experience allows us to draw reasonable conclusions and expect what the impact of the pandemic will be like on our businesses.
Since we’re in a recession, let’s turn to history to see how the situation will, most likely, unfold.
The recession we went through in 2008/9 was the biggest one after the Great Depression, by measures. But how did it affect dental practices?
For most practices, it had a moderately negative impact on revenue and profit. Of course, there were exceptions but dentistry has proven itself to be very resilient in times of economic crisis.
History has taught us that recessions will have significantly less impact on the dental industry than other businesses but doesn’t mean it will go unharmed and unchanged in any way. The exact impact will be formed by the magnitude and duration of the recession alongside regional factors. Many buyers remain confident that the impact will be moderate and levels of revenue will return to normal soon.
Noone can deny the challenges dental practices are facing since March, and the sacrifices that had to be made. As we work through the coronavirus caused impediments, patients’ needs should stay in focus and be attended to.
As you continue to work around that focus, the historic data is on your side, and you will most likely keep your practices’ value strong and if you do decide to sell – the market will be ready.