Inflation Affects Both Dentists and Patients: Prepare Your Practice Now
Recently, there has been much talk about the rise of overall prices (inflation) for goods and services, and dental care is not exempt from that rise. Unlike other economic influences in the economy, inflation is unique, as it is essentially a “hidden tax” on both professionals and consumers alike. It can lead to lesser demand for dental care from consumers due to competing items in their budgets as well as lower profitability for dental offices due to the higher cost of doing business.
There are different types of inflation, and, in this article, we will deal with these two main types: demand-pull inflation and cost-push inflation.
- Demand-pull inflation occurs when the total demand for goods and services in an economy rises more rapidly than the economy's capacity to produce it. A good example of this type of inflation is the rise in demand of poultry and meat products, whose production was slowed down this year due to a rise in COVID-19 among workers and a ransomware attack on some facilities across the United States.
- Cost-push inflation occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials. A good example of this type of inflation is restaurant food prices; owners have had to increase employee wages at all levels, and food items restaurants purchase have risen as well.
The news media has begun to pay more attention to inflation, as it has affected all parts of the economy, and the amount of money that has been injected into our economy due to COVID-19 helps fuel the threat of inflation and affects our way of life.
Dental students are not immune from the effects of inflation while they are attending dental school since their student loan rate is tied directly to the yield on the 10-year Treasury Note, and is adjusted regularly by the Department of Education. Potentially, the dental school graduate may face higher financing costs for practice and equipment purchases or consumer items such as a car or a home.
The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services and is used by the government to track inflation and make adjustments. The data is compiled monthly and used by the Federal Reserve Board at its meetings to control potential inflation by raising interest rates.
Fortunately, dentists can take preventive steps to ensure that rising inflation does not affect their overall productivity. Here are some simple steps that can ensure your practice will be minimally affected by rising inflation:
- Raise your fees. Over a quarter of all dentists have raised their fees, and the amount should be across the board for all fees. The American Dental Association publishes a survey of dental fees.
- Perform a staff salary review. Examine what you pay each staff member, and determine if it is competitive with competing dental offices. The cost of retraining staff is expensive, and it is much easier to retain staff. Review nontaxable benefits as a way of retaining employees, such as a 401(k) plan, health savings/childcare account, and other options that benefit staff members without increasing their tax liability.
- Talk to your dental supply and dental lab representatives to see if you can cut costs. Often, dental supply and dental lab companies will provide discounts on items if they have a large portion of your business. Negotiating discounts can produce some significant savings.
- Renegotiate loan rates with your financial institutions. While interest rates are still relatively low, now is the time to meet with your banking professional to lock in favorable interest rates and save significant interest costs over the course of your business loans.
- Get your financial advisers involved. Your certified professional accountant should be able to review your profit and loss statement to compare this year to last and make recommendations at this halfway mark in the fiscal year.
With a little review time, dentists can make sure that the effect of rising inflation is minimized in their practices, and steps taken at this point of the year can go a long way in ensuring practice success.
Richard A. Huot, DDS, FAGD, is the founder of Beachside Dental Consultants Inc. He was a private practice owner from 1985 to 2008 and still practices clinical dentistry.