The Pros and Cons of Working With Large Practices
Posted Sep 04, 2013, Published 2013-09-01
The number of large dental practices has risen 25% in just two years, according to the ADA, and although many of them have their own on-site laboratories, they often work with independent laboratories as well. In fact, nearly one-quarter of respondents to an LMT survey say they work with at least one of these large practices.
Although the technical day-to-day routine of working with large practices isn't much different than working with smaller practices, there are some differences from a business standpoint. For example, while members of a group practice sometimes contract with one laboratory, other times it's up to the individual doctors to choose their own laboratory and this can be a valuable source of referrals for laboratories.
"It's almost like free advertising when we start working with one of these dentists; word of mouth spreads through the practice and we end up getting more work from others in the group," says Eric Bone, AAA Dental Studio, Omaha, NE. "As the office grows, more dentists get exposed to our work. And these doctors don't always stay with the same practice, so if they leave, it often gives us an 'in' at a new practice, too."
On the other hand, there's always the risk of losing an established customer when he joins a large group. "I once had a client who was starting to think about retirement and sold to a large practice. I lost his business because the new practice wasn't interested in changing its laboratory affiliation," says Tim Wright, Wright's Dental Laboratory, Apalachin, NY. "It's become very popular for the aging dentists in our area to sell to one of these large practices, whereas it used to be more common to take in a young associate who would eventually buy them out. This leaves me looking for new accounts every time someone retires."
Laboratory owners also worry that the growth of large group practices will increase pricing pressure, since some of these large groups negotiate for volume discounts or even send work offshore to get the best prices. "The growth of these large practices means laboratories are competing for fewer dental practices; this puts the practices in the driver's seat and they expect lower fees," says Greg Thayer, Owner, Thayer Dental Laboratory, Mechanicsburg, PA.
Laboratory Owner Mark Frichtel offers a word of advice for those labs working with very large practices: be careful when they're running up large balances. Frichtel, Co-Owner of Jesse and Frichtel in Pittsburgh, speaks from experience. After never missing a payment in five years, his biggest client—a chain of dental clinics—had amassed a balance of $225,000 during 2010. The chain was going to be bought by a venture capital investor and, though payment was promised as soon as the deal was completed, it fell through and the lab never got paid. "We still work with some group practices, but do we want to work with 60 or 70 offices from one practice again? Probably not. It took us two years to come back from that," he says. "And we watch payment very carefully because—as with any client—it can go south quickly."
23% of laboratory respondents work with large group practices (more than 20 dentists). If you're among that percentage, please share your thoughts on the pros and cons of working with large dental practices in the comment box below. Our readers would love to hear from you!
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Jim Thacker · Vice President at Utah Valley Dental Lab/UVDL
I would think that 23% is too high perhaps 23% of respondents? If the line in the sand is 20 dentists, there aren't many laboratories that can handle that kind of volume. You would need the technicians and the space to support the customer and you would face constant pricing pressures. Large practices aren't interested in relationships and cost is paramount buying power is why they became a large practice in the first place. Labs and other vendors would be hammered on price and the balance of power shifts heavily to the dentist. To me, it only makes sense for a lab to do work for a large group...See more practice if they are built to compete on price and have capacity. They also need to be able to react quickly and absorb the loss when the practice eventually leaves. It also de-values a business to have a single customer be a large percentage of the revenue.