COVID-19 Implications in the United Kingdom
The British Dental Association recently surveyed dental practices to understand the financial implications of the COVID-19 crisis. The numbers are nothing short of shocking. The BDA, which represents over 12,000 dental practices, is warning that up to one in five practices could close permanently as a result of the COVID-19 crisis. Those one in five practices said they did not have enough cash to get them through the end of April. The survey was conducted with of 2,800 practices.
Access to care was already a challenge for many patients pre-COVID. A 2019 BDA survey found over one million patients were unable to schedule an appointment with a National Health System (NHS) dentist.
As in the United States and other parts of the world, PPE shortages are a huge issue for UK based practices. 54% of dentists in England say that PPE shortages are impacting treatment in urgent dental care hubs. Urgent dental care hubs are designed for emergency dental care treatment only and patients are referred there after a teledentistry consultation.
Dentistry in the UK
The United Kingdom has seen a structural change in the dental market since deregulation opened the doors to the corporate model. The number of practice owners in England has fallen by nearly two thirds since 2006. Practice ownership was once a realistic option for many young dentists. That no longer appears to be the case.
The drop reflects the consolidation of NHS contracts in a smaller number of hands, many being the large corporate chains. Corporate dental groups provide both NHS and private care.
Until the turn of the millennium, most graduates paid no tuition at all. Following recent hikes in tuition fees, a dental student in England faces around $100,000 of debt come graduation. Student loans repayments only begin once graduates hit a certain income threshold, so while it may impact long-term plans for practice ownership, it is unlikely this debt has much direct impact on moves into corporate practice. Rather it is the shape of the dental employment market impacting on the choices facing graduates. if a growing number of practices are run by corporate providers (ie: the market has changed from one previously dominated by small independent practices) you would expect to see more dentists working for them, a reflection of the laws of supply and demand.
An increasing number of younger dentists are recognizing the significant barriers to entry to practice ownership and considering other paths. These include working as a self-employed associate dentist within corporate or independent practice, specializing, or increasingly opting for a portfolio career covering two or more roles. Barriers are financial, and concern access to capital for a new business with tight margins and large overheads. A portfolio career might combine 2 days in general practice, with 2 days in specialist work, or even a non-clinical or non-dental role.
The NHS is a universal healthcare system, to use US language a ‘single-payer’ model paid for via taxation, but in the case of dentistry supplemented with additional revenues from charges. However, most of the dentists delivering services are contractors, not employees, and many are currently planning to reduce their NHS commitment – i.e.: to scale back or end their contracts. In fact, 59% of dental practitioners in England are planning to scale down or leave NHS work entirely in the next five years.
The cost of compliance for individual practices has risen by over 1000% in recent years, meaning individual dentists face significant barriers to entry, especially given larger providers greater access to capital and ability to achieve economies of scale.
The overwhelming majority of dentists are self-employed and are paid to work contracts to provide NHS services. These include practice owners and a much larger group of self-employed associate dentists. Most of these dentists operate within a mixed economy and provide a range of NHS and private services. A smaller number is employed directly by the NHS, within hospitals, community services or public health settings.
While NHS dentistry has limitations, it is continuing to offer better comprehensive coverage than the US system. A 2015 Harvard-University of London study, the first-ever systematic comparison of British and American smiles, concluded that US citizens don’t have better teeth – in fact, they were likely to be sporting a few more gaps. Today the average American is missing 7.31 teeth, significantly higher than the British figure of 6.97, but in Britain, while its older generations that usually have the worst teeth, stateside those most likely to have no teeth are working-age adults.
Britain has a ‘single-payer’ system for most NHS care, but dentistry has operated a system of charges, almost since its inception, largely to reduce demand. Around two-thirds of NHS dental patients pay these charges in full, which in England range from approximately $29 for a check-up, X-ray, scale and polish, etc to $78 for a filling or root canal and $339 for complex work such as crowns, dentures, and bridges.
By design, the charges actively discourage patients on low incomes, and revenues are not reinvested in improving services. Increasingly they are being used as cover for cuts in state contributions from taxation, and the BDA does not feel they are an appropriate or sustainable model for funding the service.
British Dental Association
Although the British Dental Association (BDA) does not embrace the corporate model, it does accept it. The BDA is a trade union and professional association for dentists. Their chief priority is to defend the interests of their members, whether they are working for corporates, independents or directly for the NHS.
Association of Dental Groups (ADG)
Similar to the United States, the UK has an association which represents group and corporate providers. It is called the Association of Dental Groups (ADG). ADG was founded in 2011 and has grown from an initial three group members to 20. The market share of the sector has grown from 8% of NHS dentistry in 2011 to nearly 25% today. The ADG is now recognized as the influential and constructive voice of the corporate and group sector by government, NHSE, regulators and sister organizations.
According to Christie & Co, a London-based specialist business property adviser, “While the market remains highly fragmented, continued market consolidation has signaled towards the emergence of a ‘mid-market,’ as companies such as Dentex, Dental Partners and Perfect Smile move towards, and in some instances surpass the 50-site mark. Christie & Co estimates that there are now in excess of 400 practice owners with 2+ sites in the UK, which marks a 50% increase on the number of multiple practice owners from 2015.”
Private equity continues to encourage the expansion of multi-location groups, and much like what is happening in the United States, small and mid-cap private equity has turned towards smaller platform opportunities to gain a foothold in the dental market. There have been several interesting deals, including G Square Capital’s investment in Dental Care Group and Apposite Capital’s investment in Riverdale and subsequent acquisition of Alpha Vitality.
Again, much like in the United States the challenge for new entrants and existing corporates will be the supply of quality practices coming to the market. Christie & Co estimates that some 800 – 900 practices are offered for sale every year, few of these are suitable for larger groups. Demand continues to outstrip supply, which is a significant factor in increased “quality” practice valuations. New entrants and existing groups may be looking increasingly to de novo locations.
As the costs of running practices increases, smaller practices run by corporate providers have become less economical to run due mainly to their larger central costs. A number of groups are selling smaller practices back to independent dentists.
In March 2019, Christie & Co sold Metamorphosis Dental, one of the UK’s largest and most successful private orthodontic practices, in Fulham, South West London to Bupa Dental Care. Metamorphosis Orthodontics generated significant interest from a number of prospective buyers, reinforcing the current demand for fully private dental practices.
Christie & Co also had two significant small group practice sales. Total Dental Care, a group of four practices in London and the South East was sold to Bupa Dental Care and the Houston Group, one of the longest established premium independent groups in the UK was sold to Alliance Dental Care. Both sales are examples of the demand for quality dental group practices as they attracted multiple offers from a range of dental companies and financial buyers.
Bupa Dental, one of the largest dental groups in the UK now owns and operates over 470 dental practices. They employ over 2,000 dentists and over 5,000 practice staff.
Chris Vowles, Head of Valuation Services – Medical at Christie & Co said, “With an unabated appetite from all lending institutions, the dental market remains buoyant, which is helping drive the continued demand from potential operators from both an acquisition and refinance perspective. With the continued emergence of private equity platforms and demand, prices achieved will continue to grow.”
Not all is rosy with multi-site dental groups in the UK. In February 2020, Finest Dental closed all nine of their locations abruptly and left patients without access to care.
With the Covid-19 crisis impacting and virtually eliminating all but emergent dental care short term, it remains to be seen whether consolidation will continue, and if so, what will that consolidation landscape look like.
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