The Dental Practice: Business Foundations The Economy and Dental Practice Dr. Dave Willis Dental Simulations

Microeconomics Macroeconomics How the individual buyer / seller makes decisions Macroeconomics How the entire economy acts and reacts

The Individual Firm / Business Microeconomics The Individual Firm / Business

Types of Economic Goods Public consumption goods Private consumption goods

Supply and Demand Economics Price Supply P0 Demand Q0 Quantity

Economics of Dental Care Supply of practitioners Factors affecting the supply of dental services Historical and projected supply trends Demand for dental services Factors affecting the demand for dental services Historical and projected demand trends

Supply of Dental Services Monopoly with steep barriers to entry Individual practitioners face a competitive marketplace Significant regulatory pressure exists to maintain existing supply patterns Education Licensure Practice Profitability Predominantly solo (75%) GP’s (87%)

Supply of Dental Services (2) Individual practitioner productivity varies greatly Age Educational currency Business / Interpersonal skills Personal tastes and desires Use of auxiliary personnel Use of new technologies

Change in Supply Price Supply 1 P0 Demand 1 Q0 Quantity

Change in Supply (Decrease) Price Supply 1 P1 P0 Demand 1 Q1 Q0 Dentists retire Dental schools close Fewer expanded functions Quantity

Change in Supply (Increase) Price Supply 1 Supply 3 P0 P2 Demand 1 Fewer dentist retirees More dental schools Midlevel practitioners Expanded functions Q0 Q2 Quantity

Change in Demand Price P1 P0 Demand 1 Q0 Q1 Quantity

Change in Demand (Increase) Price Supply P1 P0 Demand 2 Demand 1 More insurance Higher disposable income Incr. health awareness Targeted demand (esthetics) Q0 Q1 Quantity

Change in Demand (Decrease) Price Supply P0 P1 Demand 1 Demand 2 Less insurance Lower disposable income Poor economy Other discretionary demands Q0 Q1 Quantity

Demand for Dental Services Increase in educational level of population Increase in disposable income Two wage earner couples Increase in third party coverage Urban location Increased general health consciousness Fitness, diet Smoking and alcohol consumption Increased awareness of dental health

Demand for Dental Services (2) Increase in number of older Americans We are living longer More teeth at risk Increased income Low but growing utilization rate Increasing third party payments

Source: ADA News Jan 18,2010

Source: ADA News Jan 18,2010

Supply & Demand: The area of market equilibrium Price Demand Quantity

Supply & Demand: Insurance effects – increases demand Price With Insurance Without Insurance Quantity

Economic Future of Dental Practice Supply and demand considerations General economic outlook Employer benefit issues Increase in cafeteria style plans Decrease use of dental benefits as bargaining chip Possible elimination of tax deductibility of dental benefits Changing third party plans Increase in percentage of population covered Increase in managed care programs More programs More reasonable reimbursement

Economic Future of Dental Practice (2) Changing role of paraprofessionals Supply of auxiliary personnel Hygienists Dental therapists (mid level practitioner) Changing pattern of use Evolving two tiered system Tier 1 – Large efficient operations Tier 2 – Traditional cottage industry

Source: ADA News Dec 14, 2009

Macroeconomics The BIG Picture

Gross Domestic Product (GDP) GDP = C + I + G + NE C Consumption by individuals on durable and nondurable goods and services I Investment on inventory, plant, equipment and new houses G Gov’t spending (federal, state and local) NE Net Exports (Exports – Imports)

The Business Cycle Model of the general economy Characterizes typical phases of the business activity based on changing economic conditions Allows prediction of financial markets based on economic conditions

The Business Cycle GDP Time Recovery/ Expansion Peak Contraction/Recession GDP Expansion Trough Time

Fiscal Policy – Federal Gov’t Monetary Policy – Federal Reserve System Purpose: Maintain Full Employment Keep Prices Stable Continue Economic Growth

Fiscal Policy and Monetary Policy Issue Fiscal Policy Monetary Policy Who’s Responsible Congress and President Federal Reserve Board Authority Congress passes legislation; President signs it into law Fed acts independently and implements decisions Tools Available Changes in tax laws Change reserve requirements for banks Increase or decrease government spending Change the discount rate Finances deficits through borrowing by issuing new gov’t securities Conduct open market operations

The Dental Practice: Business Foundations The Economy and Dental Practice Dr. Dave Willis Dental Simulations