Are corporate dental offices "to good to be true?"

 I have been practicing in my own private office since 1984 and the business has not changed that much with the exception that it seems that insurance companies are facilitating a race to the bottom. New dentists signing up for a plan are told they must accept lower reimbursement schedules. Although dentists are not allowed by the law to set their billing rates with each other, insurance companies can in effect force lower rates for dentists signing up for the first time. Its seems to be a reverse type of "price fixing" scheme. 

This has the effect of lowering the net profits for dental practices, since after all the overhead bills are paid, what is left over is "profit" that goes to the owner. Traditionally in an owner operated dental office the dentist ended up being paid a percentage of billings. While it used to be common for fee for service dentists to be paid about 40 percent of their profits, most practices have seen the owner / operator's percentage shrink. This is probably due to the increase in salaries, rents and other bills while our overall billings may be diminishing due to increase competition from practices that accept most insurance plans . 

Meanwhile there seems to be an increase in the number of "corporate dental offices" that are buying existing practices and hiring young associates at high salaries. I suspect that these practices are operating on slim or nonexistent profit margins. Could it be that they are operating similarly to how Amazon started out. Amazon didn't make a profit for many years but was able to drive most competitors out of business. 

In fact many businesses have been started by owners whose primary plan is to build up their billings to a high enough level that they can arrange for a profitable IPO on a stock exchange, whether or not their company makes a profit. The founders then can cash out with a tidy profit and the new management is left with the chore of seeing that their new purchase can start generating a health return on their investment.

It really alludes me how a practice that pays their associates extremely well, but accepts lower fee insurance plans, can generate a 10-15% return for their investors after all the bills are taken care of. To me this seems a little reminiscent of Ponzi scheme. If I was thinking of investing in one of these corporate dental offices, I would carefully examine the books to see if it was indeed too good to be true.



from Ask Dr. Spindel - http://lspindelnycdds.blogspot.com/2022/03/are-corporate-dental-offices-to-good-to.html - http://lspindelnycdds.blogspot.com/

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