The Independent Practice's Survival Guide (Part 1)

Editor's Note: This is the first in a two-part series. Check back next Monday for Part 2.

The survival of the independent dental practice is in jeopardy; you’re not likely to get many arguments about that. But understanding the forces working against that survival is key to reversing the trend.

Donna Galante, DDS (left), is a practicing orthodontist with more than 30 years of experience. She is also a clinical educator, marketing expert, speaker and author who, in 2008, saw her practice lose 30% of its revenue within a 12-month period.

“And we didn’t have a whole lot of money to invest in marketing because we could barely make payroll,” she recalls.

But her practice survived. And in this first of a two-part series Galante shares her experience and thoughts on the forces that independent dental practices are challenged today to overcome.

Too Much Debt

Galante says that one of the first challenges independent dental practices face is that student debt is “pretty much out of control.” Dental school graduates, she says, are coming into the workforce as much as $500,000 in debt—or higher, depending on how much college debt existed before entering dental school.

“That’s a big, big note to deal with fresh out of school,” Galante says. “You’re looking at paying back $5,000 or $6,000 a month out of the gate, depending on your loan indebtedness.”

That level of debt, combined with the likelihood that the dental school graduate does not yet own a house and has little other backing, it’s unlikely any bank will loan money for a startup business. And even if a bank was willing to take a chance, it’s extremely difficult to obtain financing for the full practice purchase.

“Banks aren’t willing to lend 100%,” Galante says. “Maybe they’ll lend 80% and then the potential buyer has to come up with the remaining 20%.”

Operating Costs

For established independent practices there’s the cost of running a practice, which Galante says has exploded in recent years. When she opened her first practice in King of Prussia, PA in 1988 her practice overhead was about 40%.

“I was able to take home 60% of my gross income, and my overhead was much more manageable,” she recalls.

Today, it’s not uncommon for a dental practice to have a 70% overhead. And because overhead has risen but fees haven’t kept up with inflation, dentists are working harder but taking home less.

As an example, Galante says that when she opened her first office in 1988, most patients who had orthodontic coverage had wither a $1,000 or $1,500 lifetime maximum. Today, patients are still coming to her office with the same benefit, but the fees are considerably higher.

“The dentist is out there trying to pay this larger overhead and wants to raise fees, but there’s push back from the insurance companies, especially in general dentistry,” Galante explains. “A lot of the fees are set, especially if you subscribe to certain companies and you can only charge so much.”

Then the question is, do you sign up for that insurance program or not? And that, Galante says, is up to each individual dentist to decide if they want those patients.

Big Corporate

One of the growing challenges facing independent dental practitioners in recent years, Galante says, is that corporate America has seen dentistry as a big moneymaker. Dentists are coming out of school, in debt and needing a job, so corporate America—and major hospitals and other entities as well—have seen this as an excellent opportunity to own dental practices and give investors a solid return on their money.

This has led to an increase in group-purchasing power, where corporate dental practices can “work out deals behind closed doors” that private, independent dentists cannot.

“HMOs can give the corporate dentist 10,000 patients, and lump X amount of money into their pocket as part of the plan,” Galante says. “And if you offer orthodontic services, there are fees I’ve seen as low as $1,800. And it works because of volume and scaled due to some other negotiations they’ve set up. But in the private practice, where the cost is between $5,000 and $6,000, you can’t do it because you’d be losing money.”

As a private practice owner, Galante says she sees patients weekly who have HMO plans and want her to match the fees, which she can’t. As a result, she estimates more than half end up going with the lower price, which means less revenue for her practice, fewer patients, and more challenges paying bills.

Fighting back? Galante explains several key strategies in Part 2 of this series next week.