The Ontario Dental Association’s annual economic survey – an impressive yearly commitment – provides much valuable information for members regarding practice management. Each year I review that survey to confirm or bring into question my own theories and opinions about the economics of dental practice.
In the 2003 Annual Economic Survey, prepared for the ODA by R. K. House & Associates (the consulting firm that carries out this survey), I recently found this very bold and interesting statement:
“The associate-principal relationship is a complicated one…. in many cases it ‘is actually costing the principal to have an associate…. there are many examples where a principal is subsidizing an associate and would be better off without such a relationship.”
I agree completely. I have long maintained that the average associate does not generate a meaningful profit for the average principal dentist. But I don’t know of anyone else in the practice management field who has ever published such a statement. In the past, in fact, both dentists and consultants who serve the profession have frequently criticized my statements on this controversial issue. (There are many experts who advise the profession; while we don’t always agree, I do exchange view with some of these colleagues, and their opinions do matter.) It is gratifying to have R.K. House confirming what I have been saying for years.
Likely factors contributing to the ODA survey’s findings include the hidden costs of bringing an associate into a practice and the non-revenue time put in by the principal while an associate works towards full productivity. Most principals admit that they cut back their own patient load somewhat to build an associate’s schedule in the early months – or sometimes years – thus reducing their income hours and annual earnings. Add to this the increase in wages payable and the cost of additional materials and equipment. True, some fixed costs, such as rent, rarely change with the addition of an associate, but most costs in a modern dental practice are variable or semi-variable. The theory of overhead analysis suggests that any increase in hours worked by a dentist or hygienist will automatically increase all of the practice’s variable costs and most of the semi-variable ones.
The ODA survey states that partnerships allow principal dentists to retain a higher portion of their revenues than sole practitioners, but here I disagree. Using data gathered in the normal course of my appraisal business, I have found that the average dentist in a partnership earns less than the average solo practitioner. Supporting rationales include the tendency for partnerships to have larger facilities, therefore paying higher rents, and to purchase more equipment to support dentists working the same hours. They also tend to pay higher office manager salaries and more legal and accounting fees.
On the plus side, dentists who employ associates or have partners report, among other benefits, more immediate professional camaraderie, lighter patient loads, more holidays and more peace of mind while they’re away. As well, sharing a panoramic X-ray, for example, can represent a real cost saving. But that can be deceiving. With other major items of equipment, such as a compressor or suction, the tendency in offices with partners or associates is to buy larger, costlier systems to support more operators, greatly reducing or even eliminating any theoretical economies of scale.
There are exceptions to the rule. Canada has roughly 12,000 dental practices, and each city, province and region is unique, which can affect the data. In general, though, the ODA survey regarding associates holds true.
My company has more than 3,250 dental practice appraisals in its archive, dating back to the early 1970’s. That archive is one of our most valuable proprietary assets. New files arrive weekly containing economic performance data otherwise unavailable to such agencies as the CDA, ODA, or R.K. House. Responding to their surveys is voluntary, and many dentists who approach us for an appraisal admit they have never before completed a survey. I believe that my company’s constant feed of current national information provides us with a more accurate source of true performance data in Canadian dental practice.
As well, the data gathered by the various associations for other purposes, such as the suggested fee guide, is not always normalized and adjusted as it would be by an appraiser. Therefore, we often come to different conclusions. To R.K. House’s credit, the 490 Ontario dentists who did respond to the ODA survey represented about ten percent of all practices in the province – a very good sample.
In many of my previous 75 columns, I’ve proposed theories that have, over time, proven either right or wrong. In this case, however, on the subject of associates and partners, I’m certain in my opinions. R.K. House’s analysis of the ODA survey data only confirms those opinions. But I welcome a debate and encourage you to share your views.