Simon Hughes considers the impact of NHS contract reform on dental practice prices, in his business bites column.

Much has been written about the forthcoming NHS contract reforms and the change that is likely to affect the provision of dental services in the UK. But what is the likely effect on the market for NHS practices, and what, if any, impact could the reforms have on dental practice prices?

To answer this, we need to consider what underpins dental goodwill prices and what we currently know about the proposed reforms.

Contract reform

There is a total of 79 ‘high street’ dental prototypes, of which 40 are blend A and 39 blend B. Dentists will receive their remuneration from a mixture of capitation and measured activity (ie, UDAs) but there will be a much greater emphasis on oral health assessment and the patient care pathway.

This is almost universally accepted as a positive principle compared to the current system. However, this extra chair time creates challenges as a result, in particular increased waiting lists through reduced patient access and potential contract performance issues. The integration of therapists into the operating model can be a challenge for existing working practices.

Positives from the prototypes so far are patient feedback and that staff feel more valued. In terms of the effect on the dental practice market, none of the above would automatically have a negative impact on demand. In fact, it might be argued that the greater emphasis on patient care and prevention makes NHS dentistry more attractive from a clinical perspective.

Goodwill

What underpins dental goodwill prices?

  • An imbalance of supply and demand – but could this change if more NHS providers decide to sell their practices? Possibly, but demand is so high that any increase in market liquidity is hardly likely to have a significant impact. As a guide, we estimate that there are currently some 3,000 ‘active’ dental purchasers in the market and only around 750 practices for sale annually
  • Banks lending to the industry – GDS contracts are effectively in perpetuity and offer ‘protected’ income. These two factors are fundamental in supporting the market and any move to time-limited contracts could have a detrimental effect on the security of income and therefore banks’ appetite to lend
  • UDA values – the rate that is paid per UDA has a direct impact on practice profitability and therefore goodwill values. An average UDA value is £25.20 in the UK but with the rising costs of running a practice, it’s clear that any reduction in UDA value would reduce profitability and therefore the potential asking price
  • Rising costs – other costs such as materials, labour or property maintenance costs, which erode profit margins, would have a negative impact on profit.

Although potentially only two or three years away, most NHS providers seem to be taking a pragmatic view that it’s ‘business as usual’. As the reforms become clearer and nearer, however, principals who are within five years of retirement would be well advised to consider the timing of an exit carefully in the context of any future market uncertainty.


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