Have corporate chains finally maximised profits from NHS dentistry, asks Neel Kothari.
Recently one of the largest corporate chains (I won’t say which one, but I’m sure many of you can guess) stopped purchasing new dental practices, allegedly as a result of facing large clawback amounts for underperformed UDAs.
For years, the equity market driven corporate sector has shown no sign of slowing down, so for many this has come as a bit of a surprise.
The uncertainty around both Brexit and contract reform may make purchasing a practice less appealing, but perhaps we are also seeing signs that corporate chains are finally reaching a peak and a certain degree of market saturation.
In the business world, there is a saying: ‘Gross is for vanity, net is for sanity’.
I would suggest that corporate chains may struggle to increase gross earnings above independent practices, but through mass purchasing power they are able to make huge cost savings compared with small and medium sized dental practices.
This means that a corporate purchase of an average dental practice with a modest annual turnover can transform this business into a cash cow by hammering down the costs of running a business in a way that individuals have no chance of competing with.
After the US Department of Defense, the Chinese Army, Walmart and Mcdonalds, the NHS is the fifth biggest employer in the world, with approximately 1.7 million employees.
Despite this, NHS dental practices receive very little collective bargaining power on the purchasing of overheads such as stock, equipment, laboratory costs, etc.
I’m sure many patients aren’t quite aware that a practice plastered with NHS logos and posters is actually independently funded and that an NHS crown is purely a crown made by another contractor to fit the NHS budget, which is often financially determined.
As such, for many years now the corporate model has been able to pick off this low hanging fruit and capitalise on what the NHS is currently looking for – ‘efficiency savings’.
But having hammered down costs to as low as possible, we are now in a situation that changes in the price of sterling and worries over how to source staff after we leave the EU will have a significant impact on costs and limit the ability to predict how much profit can be milked from the NHS dental system.
In addition, we are also seeing real-time reductions in government funding, which is likely to squeeze the margins and reduce the overall net figures further.
The more astute amongst you will notice I have focused solely on the NHS aspect of the corporate model.
The reason for this is simple: when people have a choice over where they want to spend their hard-earned money, they generally prefer going to a small family run restaurant rather than a large corporate chain.
For obvious reasons, I exclude Nando’s from this rule.