Ep. 36: Overlooked Growth Opportunities in Dentistry in the Coming Years
The way the dental industry is trending over the next few years is creating incredible opportunities for smart private practice dentists. Many of our clients have taken advantage of this to see tremendous growth—often adding five, six, or even ten additional locations with great profitability. In this episode, Jeff will cover these industry trends and how you can take advantage.
Topics:
1:03 – Eye-opening statistics about practice ownership and supply of dentists
9:51 – Easy opportunities for private dentists to expand
17:25 – Navigating partnerships for additional practices
Links:
ADA Survey – https://bit.ly/3ySPtie
Inflation calculator –https://www.bls.gov/data/inflation_calculator.htm
Learn more about MGE - https://www.mgeonline.com
The MGE New Patient Workshop - https://newpatients.net
Call us at (800) 640-1140 for a free consultation
Listen to full episode :
Have a question for Jeff?
Fill out the form and he will get back to you.
Questions From This Episode
How much has practice ownership among dentists actually declined, and where is that decline concentrated?
ADA Health Policy Institute data shows overall practice ownership among private practice dentists dropped from 84.7 percent in 2005 to 73 percent in 2021, but that decline is heavily concentrated among younger dentists specifically. Ownership among dentists under 30 fell from 25.4 percent to 9.5 percent over that period, and among dentists 30 to 34 it fell from 55 percent to 34.2 percent, while ownership among dentists 55 and older barely moved at all.
Why are fewer young dentists buying practices right now?
Mostly two reasons that come up repeatedly in conversations with newer graduates: wanting real clinical experience before taking on ownership, and the sheer size of dental school debt today. The total cost of a dental education, tuition plus living expenses and interest, now runs anywhere from roughly $320,000 at a lower cost in-state program to $700,000 or more at a school like NYU, compared to roughly $40,000 in total student debt for a dentist graduating in 1981, only about $128,000 in today's dollars.
What's the actual growth opportunity this creates for private practice dentists?
A wave of practices coming onto the market over the next decade or so, as dentists 55 and older, who still own the overwhelming majority of practices in that age range, retire or sell. Roughly 27,000 practices are owned by dentists 65 and older alone, and most of these are too small to interest a DSO or corporate buyer, since corporate targets typically want practices already doing at least $100,000 a month.
What kind of practice should someone actually be looking to acquire under this strategy?
A smaller practice, generally three to five operatories doing somewhere in the $200,000 to $500,000 range annually, valued using the standard formula of roughly 70 percent of the prior year's collections. A smaller acquisition keeps the added overhead manageable, so a rough month at the new location is a setback rather than a genuine financial threat to the practice as a whole.
How should a potential future partnership with an associate placed in a satellite office actually be structured?
Spell out the timeline and the terms before the associate ever starts, rather than leaving it as a vague someday conversation, which is where most associate partnership arrangements tend to break down. One reasonable approach is splitting the difference between the original purchase price and the practice's new, higher value once the associate has grown it, so both sides benefit from the improvement rather than the associate paying full price for growth they personally created.
Episode Transcript
-
Beyond expanding your own office, are there any really significant, potentially overlooked growth opportunities for private dentists over the next ten years or so? Yes, there are, and that's what I want to talk about in this week's episode of Dental Business Rx. I firmly believe that if you take advantage of what's currently happening in the industry, and act on it relatively quickly, you can build a genuinely great future for yourself, your family, and your team. And this doesn't just apply to doctors who already own a practice, if you're an associate, this information applies just as directly to building your own future. My name is Jeff Blumberg, and I'm your host.
To properly explain this opportunity, I need to set the scene on what's actually happening in dentistry right now, starting with some statistics and demographics, specifically around what isn't growing: practice ownership. According to the ADA Health Policy Institute's analysis of the Distribution of Dentists Survey and the Survey of Dental School Graduates, practice ownership among dentists in private practice has been declining steadily, from 84.7 percent in 2005 down to 73 percent in 2021. So over sixteen years, overall practice ownership dropped by more than 10 percentage points.
But where exactly is this decline concentrated? I'll walk through some of the numbers here, and I know statistics don't always translate perfectly to a podcast, but they matter, so bear with me. I covered a version of this recently at our annual owners conference using a graph breaking down practice ownership by age group from 2005 to 2021, and I'll put the source links on the episode webpage.
Let's start at the youngest end. Dentists under 30: in 2005, 25.4 percent of dentists under 30 owned a dental practice, roughly a quarter of them. By 2021, that number had dropped to 9.5 percent, less than one in ten, a decline of over 15 percentage points. For dentists 30 to 34 years old, the numbers were even more dramatic in absolute terms: 55 percent owned a practice in 2005, over half, dropping to 34.2 percent by 2021, a 20 point decline.
Now compare that to the upper end of the age range, and you'll see why this matters. Dentists 65 and older: ownership went from 85 percent in 2005 to 84.4 percent in 2021, essentially unchanged. Dentists 55 to 64: 93.4 percent owned a practice in 2005, and 90.1 percent in 2021, again barely moved. So the vast majority of dentists 55 and older still own their practices, while ownership among younger dentists has fallen off sharply, and that 10 point overall decline is really a story about the younger cohorts specifically.
Why is this happening? I don't have a formal survey of 20,000 new graduates to point to, but based on conversations with newer graduates, two reasons come up consistently. First, wanting real clinical experience before taking on ownership. Second, and probably the bigger factor, debt. A lot of new dentists are carrying enormous student debt and understandably aren't eager to take on an additional three, four, or five hundred thousand dollar loan to buy a practice on top of it.
To put actual numbers to this: if you graduated a decade or more ago, you may not be fully aware of what dental school costs today. I pulled some of these figures recently, and they're genuinely striking. For NYU, the class of 2023 can expect to spend roughly $673,000 total on their education, tuition around $400,000, with the remainder covering living expenses, interest, and so on. For the class of 2024, that figure rises to almost $706,000. That's NYU specifically, but let's look at a couple other schools. Tufts estimates, directly from their own site, roughly $555,000 for a complete dental education. Indiana University estimates $320,000 for an in-state student, and about $525,000 for an out-of-state student. So depending on where you attend, you're looking at a minimum of roughly half a million dollars for a dental education today, often considerably more.
As a point of comparison, Dr. Winteregg, a former partner here at the company, whom many of you may remember, graduated from Indiana University in 1981 with total student debt, undergraduate and dental school combined, of $40,000. Adjusting that 1981 figure for inflation using the Bureau of Labor Statistics inflation calculator, I'll link it if you want to play with it yourself, comes out to roughly $127,000 to $128,000 in today's dollars. That's a considerable difference from the $350,000 to $700,000 or more that new graduates are dealing with today, and it's likely one of the bigger reasons taking on additional debt to buy a practice right out of school doesn't feel especially appealing to a new graduate.
So what are most of these newer doctors doing instead? Many go associate, either for a private practice or increasingly for a DSO, a trend that's been building steadily. The most recent ADA figures we have on this are from 2019, but between 2015 and 2019, the percentage of dentists affiliated with a DSO rose from 8.8 percent to 10.4 percent. More striking is a 2020 survey of dental school seniors specifically: in 2015, 12 percent of dental students planned to join a DSO after graduating, and by 2020 that number had jumped to 30 percent, which isn't hugely surprising given how aggressively DSOs recruit directly on dental school campuses, especially since they need a steady supply of dentists to staff their growth.
To be clear, I'm not here to trash DSOs specifically, there are people in that industry I genuinely respect, and others I don't have much time for, same as any industry. But I don't believe it's a successful long-term model for dentistry as a whole. I think private practice remains the more successful model long term, and there will always be a real market for private dentists, and frankly for dentists generally. As something of an aside, the total number of practicing dentists in the US only grew by 810 between 2021 and 2022, from roughly 201,117 to 201,927. Over that same period, the US population grew by 2.6 million people. If every one of those new residents needed a dentist, that would work out to roughly 3,200 new potential patients per existing dentist. So there isn't some overwhelming flood of new dentists hitting the market, whatever the ADA may project further out. The profession itself is here to stay, the real question is simply which model you want to practice under.
Here's the opportunity, one we've actually been discussing with clients since around 2013, when we first started digging into these numbers and saw where things were heading. We've just established that fewer young dentists own practices, and that the profession isn't adding a large volume of new dentists. That combination creates a real opening, and the opportunity specifically is acquiring and scaling multiple offices. I know that's not a groundbreaking concept on its own, you've likely heard some version of it before, but there's a specific way to approach it right now that can be genuinely successful, and the stars are currently aligning for it, which I'll explain, though how you actually execute it matters enormously.
Let's go back to the demographic numbers for a moment, specifically dentists 65 and older. There are currently 32,106 practicing dentists in the United States in that age bracket. The average retirement age for a dentist, according to the ADA, is 67.9, essentially 68 years old. Of those 32,106 dentists, 84.4 percent own a practice, which works out to roughly 27,000 practices. Some of these owners may practice another decade, others are actively looking to phase out and sell. The 55 to 64 age bracket tells a similar story, some will retire early, others will keep working for another twenty years, entirely their own call, but roughly 90 percent of that bracket's roughly 40,000 dentists own a practice, meaning about 36,000 more practices sit in that group. Put together, a substantial number of practices are going to filter into the market over the next five, ten, or fifteen years.
You might assume corporate dentistry will simply absorb all of these, but that's not accurate. We track this closely, and the average corporate acquisition target is doing at least $100,000 a month in production. Corporates generally aren't interested in a $30,000 or $40,000 a month practice, they want a larger office already generating meaningful volume, often $2 million, $3 million, or $4 million annually, since their operating model isn't built around scaling up a small office, it's built around acquiring larger ones and adding specialties to keep growing revenue. So out of those roughly 27,000 practices owned by dentists 65 and older, I'd guarantee the majority simply aren't corporate acquisition targets.
So who's actually going to buy these practices? This is exactly what we've been telling clients: you should. Build multiple offices. There are going to be a substantial number of these smaller practices available, but the key is knowing how to scale. If you haven't successfully scaled your own primary office yet, adding a second or third practice is going to be genuinely difficult. This is where the average MGE client already has a real advantage, and I recognize this might sound a bit self-assured, but it's simply the reality: our clients have already proven they know how to scale, since they've done exactly that with their own practice, going from $30,000 to $300,000 a month, or $45,000 to $130,000, whatever the specific numbers. They already know how to market, sell, manage, and find good staff. Scaling a second office isn't unfamiliar territory for them, it's simply doing the same thing again.
Learning how to do this isn't actually difficult, which I'll touch on shortly. But if you're specifically looking for practices to acquire, and this applies whether or not you're already an MGE client, what kind of practice should you be targeting? Not one that competes directly with corporate dentistry. Trying to compete with a corporate buyer for a $2 million practice would be a significant mistake. What you want instead is a smaller practice, generally three to five operatories, doing somewhere in the $200,000 to $500,000 range annually.
Here's why that size makes sense. There's substantial upside available: buy a practice doing $300,000 a year from a doctor who's easing toward retirement, maybe only working two or three days a week, and there's real, immediate room to scale it up. And it won't cost you much relative to the upside. The standard dental practice valuation formula has long been roughly 70 percent of the prior year's collections, sometimes a bit less if the equipment is older, a bit more if it's newer. So a practice collecting $500,000 last year would typically run around $350,000 to acquire, covering everything. That can shift somewhat depending on the specific practice. Once you get into much larger practices, four or five million dollars and up, an entirely different valuation approach applies, the kind DSOs use, but that's not the target here, we're specifically looking at smaller practices.
There's another advantage worth mentioning: your primary office is your home base, built up to whatever level, $200,000, $300,000, $400,000, or $500,000 a month. When you acquire a second location, a satellite office, you don't want it carrying enormous overhead that puts you at real risk if things go sideways. Say your satellite practice averages $35,000 to $40,000 a month and has a genuinely rough month at $25,000, that's a real but manageable $10,000 to $15,000 shortfall, not catastrophic. Compare that to a scenario where your primary $500,000 a month office has a $200,000 shortfall, that would be genuinely catastrophic. Targeting smaller acquisitions specifically avoids that kind of exposure, and the reality is that the majority of practices coming onto the market over the coming years fall squarely into this smaller category.
This isn't theoretical, we're already seeing it play out. Just this past weekend at our owners conference, one client shared that his primary office does roughly $600,000 a month, and he'd acquired a second practice averaging around $30,000 a month. He placed an associate he'd trained in his own practice into that new location, and in month one alone, that second office jumped from averaging $30,000 to producing $103,000 to $105,000. That's what rapid, effective scaling looks like. Just this past weekend I also handed graduation certificates to two clients finishing the MGE Power Program who now own five offices apiece, having started with just one when they first came to us. We have another client locally who owns nine offices, having started this strategy only five or six years ago after relocating and beginning to acquire practices.
So how does this connect back to the fact that younger dentists aren't buying practices at the rate they used to? Fewer than 10 percent of dentists under 30 own a practice, and roughly a third of those 30 to 34 do, meaning two thirds don't. That doesn't necessarily mean these dentists don't want to own a practice eventually, they simply haven't yet. That's exactly the opportunity: rather than these associates going to work for a DSO, they could be working toward ownership with you instead.
How you actually structure this depends on the situation and on the associate's specific skill level, whether they're a newer graduate or someone with a few years of experience already, and it's worth verifying how they actually practice clinically before bringing them in. But generally, what I'd recommend, and what we've been advising clients to do, is bringing a younger doctor into your primary office first, essentially a mentorship arrangement, with the understanding that there's potential for future partnership in a satellite location down the road. That gives the younger doctor a genuine path toward ownership.
There's one detail here worth flagging directly, since it's probably the most avoidable mistake I've seen repeatedly blow up otherwise promising associate relationships. It typically plays out like this: an owner brings on an associate with the vague idea that partnership could happen eventually, wouldn't it be great if things worked out that way, but nothing specific ever gets discussed or put in writing. Six months later, the associate feels ready and brings up the partnership conversation, but the owner was thinking more like a year out. Since none of it was ever spelled out clearly, things get uncomfortable fast, and I've seen a number of otherwise promising associateships collapse entirely over exactly this kind of mismatch, with the associate eventually leaving for somewhere else.
So if you're bringing someone in with partnership as a genuine future possibility, spell out the terms up front. That doesn't mean making them a partner immediately, but rather establishing clearly: we'll work together for a defined period, say six months or a year, and at the end of that period we'll sit down and decide together whether to move forward, with the option to end things earlier if it's genuinely not working out. Say six months pass and it's clearly going well, this person is solid and doing great work, that's when the actual partnership conversation begins, and those terms should also be established clearly in advance.
Here's a scenario worth thinking through directly, since I've seen it handled multiple ways. Say you bought a satellite practice for $300,000, placed your associate there, and after a year they've grown it to $1 million in annual production. Under the standard valuation formula, that practice is now worth roughly $700,000, up from the $300,000 you originally paid. If that associate wants to buy 50 percent, buying in at the new $700,000 valuation means paying $350,000, versus $150,000 if they bought in at your original $300,000 purchase price. My own take is that having them pay only half of what you originally paid feels unfair, since you carried all the risk of the original purchase, but I'd also lean toward splitting the difference rather than making them pay the full increased value. The practice gained $400,000 in value largely through their effort, so treat the practice as worth roughly $500,000 for purposes of this transaction, meaning they'd pay $250,000 for their half. That way, you've effectively recovered nearly what you originally paid for the entire practice while retaining half of it, and you've gained a genuine partner in the process, someone you've already spent a year working alongside and know you get along with well.
To be clear, none of this needs to be spelled out exactly this way, but establishing the framework before the associate ever starts matters enormously. Lay out that this conversation will happen after a defined period, and roughly how the numbers will work if a purchase does move forward. Some might worry this discourages an associate from growing the numbers since it means paying more, but if they're not actually growing the practice, they likely won't make it through the initial trial period at all, you'll simply move on to a different associate. I've seen this handled multiple different ways, but this split-the-difference approach strikes a reasonable balance: the associate benefits from the growth they created, and you benefit financially while retaining half ownership of a practice that can now run largely without your direct daily involvement, and this entire model can then be repeated again and again.
The key is being selective about who you bring in for this specifically, you're not looking for someone content to work for someone else indefinitely, that person can simply stay with a corporate group or remain an associate elsewhere. You're looking specifically for someone who genuinely wants to own a practice eventually. There are plenty of dentists out there who fit that description, they simply haven't yet been given the actual opportunity to do it.
When we brief MGE clients on this exact strategy, they generally don't struggle with the scaling piece, since they're already organized, and already know how to sell and market effectively. If you're not currently a client, this is genuinely something worth learning, because if you're already having difficulty with your first location, adding a second one probably doesn't sound appealing, why take on a second headache. The good news is that learning how to scale effectively doesn't actually take very long.
If you're an existing MGE client and missed the live version of this, since I covered considerably more detail during the actual presentation at this past week's owners conference, reach out to Chris or Sabri and they can help get you started on this. If you're not yet a client, we're happy to help as well, there's a link on the episode webpage for a free consultation and expansion plan to get things moving.
Ultimately, we're looking at a genuine window of opportunity here. I can't predict the future with certainty, but I believe this window is likely open for at least the next decade, possibly ten to twelve years, where private practitioners can take real advantage of these current industry trends. If this is something you genuinely want to pursue, I'd recommend acting on it.
That's everything I have for you this week, I know it was a lot to cover. If you enjoyed this episode and want to know when new ones come out, make sure to subscribe or follow wherever you're listening. And if you need help with this or anything else in your practice, you can always reach us at MGE at (800) 640-1140, or find us online at mgeonline.com. Thanks for listening, I genuinely appreciate the feedback, and we'll talk to you next week.