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

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

3. The Individual Firm / Business
Microeconomics
The Individual Firm / Business

4. Types of Economic Goods
Public consumption goods
Private consumption goods

5. Supply and Demand Economics
Price
Supply P0
Demand Q0
Quantity

6. 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

7. 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%)

8. 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

9. Change in Supply
Price
Supply 1 P0
Demand 1 Q0
Quantity

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

11. 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

12. Change in Demand
Price P1 P0
Demand 1 Q0 Q1
Quantity

13. 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

14. 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

15. 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

16. 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

17. Source: ADA News Jan 18,2010

18. Source: ADA News Jan 18,2010

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

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

21. 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

22. 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

23. Source: ADA News Dec 14, 2009

24. Macroeconomics
The BIG Picture

25. 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)

26. 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

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

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

29. 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

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