Ep 87: Why There’s Never Been a Better Time Economically to be a Dentist!
In this episode, Jeff covers several eye-opening dental industry statistics that open the door to tremendous opportunity for smart practice owners over the next 5-10 years. This is a fascinating listen for any dentist—but particularly if you’re a growth-minded owner or a considering buying an office in the future, this is a must-listen episode!
Links:
Dental Industry Statistics - https://mgeonline.com/2023-dental-industry-statistics
Practice Acquisition Checklist - https://mgeonline.com/practice-acquisition-checklist-3
Free consultation - https://www.mgeonline.com/free-practice-analysis/
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Questions From This Episode
Is now really a good time to grow a dental practice, with inflation, PPO fee cuts, and staffing shortages?
Yes, and the reason is demographic, not economic. Roughly 35 percent of US dentists are 55 or older, and that group owns about 43 percent of practices in the country. Over the next five to eight years, a large share of them will retire, which means a wave of practices coming up for sale regardless of what inflation or the labor market are doing right now.
How many dental practices are likely to come up for sale in the next several years?
Based on ADA outflow data, dentists 55 to 64 have about a 19.5 percent exit rate over five years, and dentists 65 and over have a 54.5 percent exit rate over the same period. Applied to current ownership numbers, that works out to roughly 7,000 practices from the 55 to 64 group and close to 14,700 from the 65 and over group, around 21,000 to 22,000 practices potentially for sale over five years, though some will be partnerships rather than single-owner sales.
Are DSOs going to buy up all these retiring dentists' practices?
No. DSOs typically target practices already collecting at least 1 to 1.5 million dollars a year, since they buy at a multiple of EBITDA rather than the traditional valuation model. Most of the practices coming up for sale over the next several years are considerably smaller than that and simply are not on a DSO's radar, which leaves them open to individual dentists and associates instead.
What size of practice should I look for as a first purchase or an additional location?
Something smaller and scalable, at least three chairs, doing roughly 200,000 to 500,000 dollars a year. These practices typically sell for around 70 percent of the prior year's collections, cost far less to acquire, and a slow month during the transition will not threaten the practice financially the way it would with a larger acquisition.
Why are fewer young dentists buying practices right now?
Practice ownership among dentists under 30 has dropped from about 25 percent in 2005 to under 10 percent today, largely due to student debt and lower risk appetite for a large loan right after graduation. That does not mean they do not want ownership eventually. Structuring an associate role with a built-in path to a buy-in agreement is one way to bring a younger dentist into ownership without asking them to take on a full purchase on day one.
Episode Transcript
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There has never been a better time, at least economically, to be a dentist than right now. I say that having been in the profession for a little over thirty years, since the early 1990s. I've never seen a time where there was more opportunity for growth and expansion than right now.
This is it. There are a number of trends we've been monitoring over the years. I've talked a little bit about them here and there. They're all coming to a head. This is it, folks. And you may wonder when you hear me say that, Jeff, what are you talking about? We have DSOs, we have PPOs lowering fees, we have close to seventeen percent inflation over the last three years, and I can't find staff. How has there never been a better time? I'm telling you, there hasn't been.
What I want to do in this episode is show you how I came to this conclusion, give you some specific facts and figures, and then go over what these opportunities are so you can take advantage of them. Now, if you're a dental student, an associate, you just started your practice, or you've been in practice for twenty years, this applies to you. These opportunities are happening now, and they're going to keep happening over the next five to seven, maybe eight years.
This past week we've been presenting the MGE Owners Conference. To give you an idea of MGE, we service about 15,000 people per year. We have a 55,000 square foot office in Florida, in the Tampa Bay area, and a 6,000 square foot office in Anaheim. We hold our Owners Conference once a year. It's a graduate service, so if you graduated the program five years ago and want to stay connected, you come to the Owners Conference, see old friends, and recharge the batteries. It's usually our biggest seminar of the year, since we have both current and past clients coming back.
I normally start the Owners Conference with a state of things: state of the profession, what's happening economically, what's happening in the labor market with staff, and so on. This year our clients are fired up. We've been going over some of this material, because as I mentioned, these are trends that have been building for a while, and people are fired up right now. Some are already acting on it, others are ready to. This is something you're going to want to look at if you're ambitious or want to create growth.
So how did I come to this conclusion? I'm going to explain it in four parts. These parts do involve some numbers, sorry, I can't do it without the numbers, but I'll keep them simple enough to follow along even if you're listening in the car or on a walk. If you want to see all the numbers, charts, and everything that goes with this, I took slides from my talk at the Owners Conference and turned them into a PDF you can download. Just click the link on the episode webpage. This data comes from a number of sources, including the ADA and government organizations.
The four things I'm covering: the current supply of dentists and their age demographics, the projected future supply of dentists versus projected US population, what's happening with DSOs, and what we're projecting will happen as a result. This is the same messaging we share with our clients once a year: here are the opportunities, here's where you should be looking. And people are already acting on it. It's phenomenal.
Let's start with the first piece: how much is the profession growing? How many dentists are there in the United States, and is that number growing? In 2020, there were 201,117 doctors in the US. Twenty one percent of those are specialists, so about 160,000 general practitioners. In 2021, there were 201,927 dentists, growth of about 0.4 percent, an increase of about 810 doctors. From 2021 to 2022, we had 202,536 doctors, growth of roughly 600 doctors, or about 0.3 percent. The profession is not growing rapidly right now.
How does that break down by age? Dentists 55 and over currently make up about 35 percent of the profession. There are roughly 39,000 dentists between 55 and 64, and 32,000 who are 65 and over. The largest age group overall is dentists between 35 and 44, a little over 50,000, out of the full 202,000. I'm going over ages not to label anyone old or young, it just matters practically. If you're 55, you're probably not looking at another 30 years of practicing. If you're 27, you probably are, so this has real bearing on the numbers ahead.
Now, what does the future look like? Total US dental school enrollment for the 2021 to 2022 school year was 26,228, across all four years. The prior year, 2020 to 2021, it was 25,995. That's growth of about 0.9 percent, an increase of 233 students. First year enrollments were 6,317 in 2020 to 2021, and 6,358 the following year, growth of 41 students. Not meteoric growth by any measure. Also worth keeping in mind: the average US dentist retirement age is 67.9, based on 2021 data, the most recent we have. That number has bounced between roughly 68 and 69 in recent years.
So the profession itself isn't growing especially fast. What about population? In May of 2022, US population was about 333,300,000. As of this month, it's about 336,486,000, an increase of nearly 3.2 million people in a single year. Compare that to dentist growth: we added roughly 810 net dentists between 2021 and 2022, while the population grew by over 3 million in the last year alone. Population is growing considerably faster than the number of doctors.
Where is population projected to go? By 2027, roughly 341,700,000. By 2032, nearly 365 million. So we've gone from about 333 million last year to 336.5 million this year, projected to reach roughly 341.7 million by 2027, and nearly 365 million by 2032. The population keeps growing.
Using some of the ADA's numbers on dentists entering and leaving the profession, along with the trends we observe at MGE, I put together a projection. First, a quote from the ADA's Health Policy Institute, which I have for you in the PDF: their Dentists Workforce Model "projects that dentists per capita will be stable through 2025" and will then increase through 2040, meaning fewer patients per dentist by 2040. I don't fully agree with that projection, since it depends heavily on assumptions about future dental school enrollment and population growth that are hard to predict with confidence. But here's what we're projecting: from about 202,000 dentists now, to roughly 206,000 by 2027, and almost 212,000 by 2032.
You might wonder how, over nine years, we only add about 10,000 dentists when we currently have 26,000 students in dental school. Remember: 35 percent of the profession is over 55. Keep that number in mind, it becomes very relevant.
A few more data points. From the ADA, on solo practice: "Fewer dentists are working as solo practitioners. About 63 percent of private practice dentists were in solo practice in 1999. That proportion decreased to 46 percent in 2021." And on ownership: "Practice ownership among dentists in private practice has been declining over the years, dropping from 84.7 percent in 2005 to 73 percent in 2021."
Here's where this starts to feel more concrete. There's a chart, available in the download, breaking down practice ownership by age group from 2005 through 2021, the most recent year with this data. Back in 2005, if you were a dentist under 30, 25.4 percent of you owned a practice, about one in four. That number is now 9.5 percent, less than one in ten. For dentists between 30 and 34, ownership was 55 percent in 2005. In 2021, it was 34.2 percent. So out of a group of 100 dentists in that age range, 55 owned a practice in 2005, compared to 34 today. Younger dentists either aren't buying practices, or they're buying them later.
So who owns the 73 percent of practices that are owned? The highest ownership rate by age group is dentists 55 to 64, at 90 percent. The next highest is 45 to 54, close to 90 percent as well, and then 65 and over, at just over 84 percent. Two of the top three ownership demographics are 55 and older. The majority of ownership rests within roughly 35 percent of the profession.
Breaking that down by actual numbers using 2021 data, the most recent we have on ownership: out of 201,319 dentists that year, 147,383 owned practices. Within the 55 to 64 age bracket, there were 40,626 doctors, and 90 percent of them, about 36,604, owned a practice. That means 43.15 percent of all US dental practices are owned by doctors 55 and over.
Do you see where this is going? The traditional cycle used to be: a graduating student takes their boards, associates for a year or two, then buys a practice from a retiring dentist. That was the norm. Now, younger doctors aren't buying practices at the same rate, or they're waiting significantly longer.
This brings us to what we call the outflow rate, the percentage of dentists in a given age group who are no longer practicing five years later, based on ADA data. For dentists up to 54, that outflow rate ranges from 2.8 to 4.1 percent over five years, a very low exit rate. For dentists 55 to 64, it jumps to 19.5 percent. And for dentists 65 and over, it's 54.5 percent, meaning more than half of that group will no longer be practicing five years later.
Now put those two numbers together: a roughly 20 percent outflow rate for the 55 to 64 group, and 54.5 percent for 65 and over, and remember that combined group owns 43.15 percent of dental practices in the US. So who's going to buy all these practices, given that younger dentists aren't buying at the same rate current trends suggest?
Let's run the numbers over a five year period. In the 55 to 64 bracket, there were 40,626 doctors as of 2021, 90 percent of whom, about 36,604, owned practices. If 19.5 percent of that group exits over five years, that's roughly 7,137 practices potentially coming up for sale, some of which may be partnerships rather than single-owner sales. In the 65 and over bracket, there were 31,978 doctors, 84.4 percent of whom owned practices, about 26,989. At a 54.5 percent five year outflow rate, that's roughly 14,709 practices. Combined, that's somewhere around 21,000 to 22,000 practices potentially for sale over the next five years.
This tracks with something I covered a few weeks back on the labor market. Part of what's tightened the labor market is that a large share of the baby boomer generation has reached peak retirement age, a generation considerably larger than Generation X and closer in size to millennials. Right now there are more people in their late 50s in the United States than there are people age five to nine. The baby boom really was a boom, and those doctors are retiring, which is playing out in dentistry the same way it's playing out across the broader labor market.
So normally you'd expect these retiring doctors to bring in a young associate and sell them the practice. That's still happening in some cases, but most younger doctors simply aren't buying offices at the same rate. So where are all these practices going? You might assume DSOs will buy them all. They won't.
A couple of DSO statistics: back in 2017, 8.8 percent of US dentists worked for or were associated with a DSO. By 2019, that was up to 10.4 percent. I don't have a confirmed more recent figure, since corporate practices took a hit in 2020 in some cases and weren't always as resilient as private practices, but let's say it's around 10 percent of dentists today, roughly 20,000 doctors out of 200,000.
What about future doctors? Dental school seniors surveyed on their post-graduation plans show a steadily growing share planning to work for a DSO: 12 percent in 2015, 30 percent in 2020, and 35 percent in 2022. It's not hard to see why, DSOs recruit very heavily on campuses. If you're a dental student and you're one of that 35 percent, I'd say don't do it. You have a much better opportunity in private practice: associate with someone, mentor under them for a while, and then buy an office. If you're an associate who's been thinking about it, now is the time.
So DSOs aren't going to buy up all these retiring doctors' practices, and neither, based on current trends, are most new graduates. DSOs have a specific acquisition profile: generally a practice doing at least 1 to 1.2 million dollars a year, sometimes 1.5 or more. They're buying an already profitable practice, adding specialists and other services, and growing it further. This creates a real gap for larger practices in particular. We've seen this with our own clients doing 3, 5, even 8 to 10 million dollars a year. Even under the traditional dental valuation model of roughly 70 percent of last year's collections, a solo practitioner or associate simply cannot come up with 2 to 3 million dollars to buy an office that size, and a DSO paying a multiple of EBITDA can often offer one and a half to three times what a private buyer could ever put together. I've seen practices doing 4 million a year sell for 9 to 10 million dollars to a DSO. So larger practices tend to go to corporate buyers by default, not because private buyers wouldn't want them, but because they simply can't compete on price.
But most of the roughly 20,000 practices potentially coming up for sale over the next five years aren't doing anywhere near 1.2 million a year. Scaling a smaller practice from the ground up isn't corporate's business model, it's what our clients do. Corporate isn't interested in a practice doing 300,000 a year, even though that's exactly the kind of practice an ambitious dentist can grow substantially. I'd actually advise against trying to compete with a DSO for one of the larger practices. Why would you? Buy something smaller and scale it yourself.
So what's the opportunity? If you already have a practice and you're looking to grow, there are going to be a considerable number of additional locations coming to market over the next five to seven years. If you're an associate, now is the time to buy your first practice. If you're a dental student, some of these opportunities may still be available once you've graduated and passed your boards, after associating for a bit.
One caveat: if your current location isn't doing well, I wouldn't recommend taking on an additional location yet. Whatever problems exist at location one tend to follow you to location two. Make sure location one is solid first, our deputy chief operating officer, Sabri, whom you may remember from prior episodes, talks with clients about building what she calls a brick house rather than a straw or wood house, something that can thrive rather than merely survive through any economic condition. Get that in place before you expand.
Once that's true, though, the opportunities are real. At this weekend's Owners Conference alone, I spoke with a client who bought four offices in the last year, another who has six, another with eight. One client bought a second location doing 30,000 a month and had it doing 100,000 within a couple of months. These outcomes are happening regularly, assuming location one is in reasonably good shape.
So what should you actually be looking for? If you're an associate considering your first purchase, or an established doctor considering an additional location, buying an existing practice usually gives you more of a head start than building from scratch, even if it's not exactly configured the way you'd want. Look for something smaller: at least three chairs, ideally three to five, doing roughly 200,000 to 500,000 dollars a year.
There are real advantages to this size. It's mostly upside from there. It won't cost as much to acquire, since the standard dental valuation model of around 70 percent of the prior year's collections still applies to practices this size, nobody is offering a multiple of profit the way a DSO would. That percentage can shift some, lower if the equipment is old and needs replacing, higher if the practice is newer with updated equipment, but 70 percent has generally held as the benchmark since I entered the profession. If someone wants 100 percent of last year's collections for their practice, I wouldn't do that deal, it's too much.
This is exactly how our clients are acquiring these practices, and they're not competing with DSOs for them, because these practices simply aren't on a DSO's radar. There is some regional variation here too. Unlike residential real estate, dentistry doesn't have an equivalent to the MLS, the multiple listing service most home buyers are familiar with. Practice listings are fragmented across individual brokers, so it takes more legwork to find the right opportunity. Inventory varies by region. Here in Florida, which has drawn a lot of relocating dentists thanks to population growth and the obvious lifestyle appeal, practices moved quickly about a year ago as people relocated. Lately there's still inventory, but it's not moving quite as fast.
As for financing, interest rates are higher right now, but a loan doesn't have to take forever to pay off. In some cases, depending on the seller's circumstances, they may be willing to hold the note themselves, especially if there isn't a lot of competing interest in the practice. You put down a down payment and pay them over five years, sometimes at a better rate than a bank or practice financing company would offer, and without adding another loan to your balance sheet with a traditional lender.
There's another advantage to targeting a smaller practice: a slow month isn't catastrophic. If you buy a practice doing 150,000 a month and have a rough transition month at 100,000, that eats significantly into your working capital. If you buy a practice doing 30,000 and it dips to 25,000 the next month, that's manageable. And these opportunities are increasingly common. Our clients are acting on them regularly.
One more thing worth addressing: what about younger dentists who aren't buying practices right out of school because of debt or other circumstances? That doesn't necessarily mean they don't want to own a practice eventually, it may just not feel like the right time yet. Here's what we're encouraging clients to consider. When you buy a practice, sometimes the seller stays on for a while, and in other cases you need to bring in an associate fairly quickly. If you're the one hiring, and you bring on a younger dentist, that's an opportunity to work with someone who may become a future partner.
If a younger doctor works with you for a couple of years and wants an ownership stake but doesn't yet have the resources for it, you can structure an associate agreement, a buy-in agreement, and potentially even a buyout agreement if you're eventually looking to sell them the practice outright. If that partnership works well, you could go buy the next practice together. Over time you could end up with several doctors as partners across multiple practices, easier coverage when someone wants to take vacation, and a group of privately owned practices that keeps the tradition of private practice dentistry alive rather than consolidating into corporate ownership.
To summarize: US population is currently outpacing growth of the dental profession. Despite the profession skewing somewhat younger in raw numbers, dental school enrollment isn't necessarily keeping pace with attrition once retirements are factored in. Solo practice is declining. Thirty five percent of current dental students plan to join a DSO. And between declining overall practice ownership, fewer younger dentists buying practices, and 43 percent of US practices owned by doctors 55 and over, a substantial number of practices will become available over the next five to eight years.
I know this was a lot of numbers, I apologize for that, but I'm genuinely excited about this. I'm watching our clients act on it in real time, and it's been remarkable to see. Economies go up and down, and often when times get a little uncertain, people pull back and get cautious. But historically, this is exactly when prepared operators can grab opportunities that simply don't present themselves during easier times. When everything is going well, everyone does fine. When things are less certain, the people who are actually prepared are the ones who pull ahead.
If you have any questions about anything covered in this episode, you can email me directly at jeffb@mgeonline.com. Don't forget to download the PDF with all the slides and figures referenced here, it's on the episode webpage. If you need help of any kind, you can reach us at mgeonline.com or call 800-640-1140.
One more thing I meant to mention earlier: if a practice becomes available and you're evaluating it, we also have a practice acquisition checklist available as a download, so you can see whether it fits what you're looking for, and if you'd like help working through it, we can assist with that too.
But otherwise, folks, there's the opportunity. It's there, and it's there for the taking. I hope you take advantage of it. Let me know how it goes, and we'll see you at the next episode.