The dental industry’s economics look nothing like they did in 2019. For many practice leaders, the more pressing question isn’t when things will return to normal, but whether they ever will.
In the past few years, labor costs have increased significantly. Insurance reimbursements are flat or falling. Patient case acceptance has dropped. These two CEOs say these aren’t cycles — they’re the new normal for the industry.
Note: Responses were lightly edited for clarity and length.
Question: Over the past three to five years, what has fundamentally changed about the economics of running a dental organization and which of those changes do you believe are structural rather than temporary?
Geith Kallas, DDS. CEO of Smile Maker’s Dental Center (Tysons Corner, Va.): Over the last few years, four things fundamentally broke. Three of them are permanent to a degree, unless the laws governing the practice of dentistry change.
First is that labor costs are structural and not going back anytime soon. What changed?
In 2019, we had leverage. Hygienists were at $38 per hour, dental assistants were at $17 per hour, and there were plenty of applicants. Now, hygienists are at $55 to $75 per hour plus a sign-on bonus, and dental assistants are at $24 to $28 per hour, with multiple offers. Hygiene school enrollment is down 30%, and 40% of hygienists left during COVID-19 and never came back. About 12,000 hygienists retire every year but only 6,000 graduate. There is no pipeline for hygienists or assistants. This is nursing shortage 2.0, but no one is talking about it. Some states are passing new laws allowing foreign-trained dentists and expanded-function dental assistants to obtain a hygienist license. That may provide some relief, but not for 18 to 24 months.
PPO reimbursements have also changed structurally. In 2019, PPO fees went up 3% to 4% per year. You could be 90% PPO and still make 18% EBITDA. Between 2023 and 2026, fees are flat or down 2% after “processing policies.” Dental insurance companies now bundle, downgrade and deny more. Real net collection per crown dropped from $1,100 to $850.
It’s structural because payers are now owned by private equity. Their fiduciary duty is to pay less, not more. Employers are buying cheaper plans with lower reimbursements to save money. The insurance company is no longer your partner — it is your competitor. At the same time, we have more patients with dental insurance and more patients covered by government support programs. This drives more visits for basic procedures, and some of those patients will convert to high-end procedures. That means office protocols need to change to accommodate this new patient mix.
Changes in patient affordability are also structural. In 2019, a patient with a $1,500 treatment plan would put it on CareCredit and move forward. Credit was cheap. Today, that same patient has $7,000 in credit card debt at 24% interest, rent is up 30% and groceries are up 22%. They literally cannot afford dentistry. Case acceptance has dropped from 62% to 44% industry-wide. Middle-class purchasing power is permanently lower. Dental is deferrable, unlike medical. Dentistry is first to be affected by economic changes. Dental offices need to be creative with patient financing by partnering with financial institutions that approve low credit scores. If you don’t have same-day approval for patients with 580+ credit, you are losing 50% of your diagnosed treatment. The patient who needs financing is now your best patient, not your worst.
The cost of capital and growth is cyclical, but on a longer cycle. From 2019 to 2021, money was free. There were 4% loans and 15x EBITDA multiples. You could buy a practice, do nothing and make money on arbitrage. From 2023 to 2026, debt is at 9.5% to 11% and multiples at 6x to 8x. De novos cost 40% more to build. Interest rates will come down to 6% to 7% eventually, and multiples will recover. There is still the structural consequence: The era of “buy any practice and grow” is over for now. Only operators who can create EBITDA, not just buy it, will survive. A number of DSOs that grew on cheap debt will go bankrupt in the next 18 months.
While everything is cyclical to some degree, some of these economic shifts are here to stay and need to be studied and analyzed carefully. The impact varies from a small private practice to a large DSO. The DSOs that still run the 2019 playbook that includes high PPO volume, low wages, monthly P&L, are running at 6% to 8% EBITDA and are feeling the impact the most.
Len Schiavone. CEO of Cordental Group (Cincinnati): What has been structural and likely not going to change in the future is the continued escalation of labor costs, which is most of the cost internally for a practice. Unfortunately, revenue through insurance rate increases has not kept pace with the escalation of labor costs. Additionally, inflationary pressures seem to be here to stay, at least for the foreseeable future.
At the Becker's 5th Annual Future of Dentistry Roundtable, taking place September 14-15 in Chicago, dental leaders and executives will gain insights into emerging technologies, practice growth strategies and the evolving landscape of dental care delivery, with a focus on innovation, patient experience and operational excellence. Apply for complimentary registration now.
