NHS Goodwill at 100% - Time For a Re-think?

I have managed to gather my thoughts finally this month, after being all over the place. I hope you enjoy this newsletter, it contains some of my key thoughts of what is currently going on in dentistry. Your responses are always welcome.

Where is UK dentistry going?

A few weeks back I attended the ADI conference in Birmingham with Sarah and Maneesha where we met with new and old clients of ours. It was a great turn out and we all enjoyed the event immensely. The event got me thinking about the state of UK dentistry and where do I see it going. I have written previous newsletters on this subject but I am finding the dental industry is constantly changing month by month.

I have previously written about associate fees, pricing and the like, today I will write about the divergence occurring in UK dentistry plus goodwill, always a hot topic. The ADI highlighted to me that there is increasingly a divergence in dentistry, not only between private and NHS practitioners but also between the skills of practitioners.

Implants...is it the real growth story we believe?

Implant companies are strongly encouraging dentists to train as implantologists and then sell their implants. No doubt the penetration of implant take up is much lower in the UK compared to the rest of the Western World (and even some of the developing world) but one must consider is the UK public ready for implants, most of the UK market are still getting used to the idea of being private patients, let alone paying £2000 plus for an implant. I still feel there is still some growth in the UK market for implants, but with so many courses, from weekend courses to 4 year courses could we not see a complete saturation of "implant" dentists in the UK. I know a lot of you will disagree with me here, but what really highlighted this to me was that there were a lot of successful implant guys who had been doing implants for many years successfully. I managed to speak to one of my clients and he is on average doing 6-8 implants a week, and he has a lot of postgraduate letters after his name, not a short course or two. This has taken him many years to get to this level. In addition, as more people offer implants the price of implants will no doubt reduce. Prices across Eastern Europe range from £350 upwards (yes I know it is Eastern Europe but that will put pressure on UK prices) but more importantly prices in developed markets such as the USA have fallen over time. In New York City you can now get an implant for around US$1200 upwards (around £600 in the UK), this has fallen greatly over time. I think it was Gordon Christiansen who expects implant prices to fall to around US$700 in the US market over the next few years. Yes, we are way behind in terms of penetration, but could this be a sign of things to come? Is it time to think about what is the next big thing in dentistry?

NHS Goodwill reaches 100% of turnover - absurdity hits the UK market

On a separate point, is goodwill valuation. The market is awash with dentists paying a lot of money for goodwill. Private goodwill in the south east is now being valued by some practitioners at over 100% by certain valuers, but much more interesting is NHS goodwill. Certain valuers are valuing goodwill for NHS practices again at over 100%. From my perspective this is absurd. Surely how can one justify borrowing a lot of money for goodwill when there is zero certainty that in 2009 you will even be able to re-commission with the PCT. It is business as usual at the banks, who are lending at highly beneficial rates to dentists. But surely they will soon change their minds, in respect of funding NHS goodwill purchase. The fundamental question really is that many of the banks are lending hundred's of thousands of pounds say over a 20 year period, but in true reality this could end up with many dentists not getting the contract they want in 2009. The banks are lending on a 20 year premise, but their may only be a 2 year contract remaining. What will happen to dentists who purchase NHS goodwill now? And then don't get a contract in 2009. I don't think I have to tell you the answer here.

"When one leading bank manager says he would not invest his own money into paying 100% of turnover for NHS goodwill surely this is telling us something"

I regularly speak to the main banks in the dental sector, and I asked one of main guys out there whether he would personally invest his own money into an NHS practice paying around 100% for goodwill. His answer was quite clearly NO, despite his bank's lending stance being that they will currently lend. I personally don't think banks will continue lending for NHS goodwill at 100%, it is only a matter of time, just before April 2009, before it all turns ugly for banks, but more importantly for NHS dentists who have paid around 100% of turnover for goodwill since April 2006. Remember it was only just over a year ago when NHS goodwill was in the region of 30-35% of turnover. Things do change in dentistry, but the over inflation of goodwill prices by some valuers is in my opinion truly irresponsible.

Now if you don't agree with my thoughts, take a look at my next article. Some of you may have seen something like this already, but we have had access to some PCT commissioning information from one particular PCT. In the link below you will see that this is the current criteria for NHS dentistry re-commissioning, I reckon this will be further refined as we get nearer to 2009 by the Department of Health.

PCT Recommissioning

Basically the PCT states it is looking for a Dentist who will ensure provision of mandatory services to areas of need and help them monitor this.

I have summarised the criteria for re-commissioning, so if you want to read it click here, it's a bullet point summary of the points. Make of it what you wish, but it highlights to me that it isn't going to be an easy ride to get the right NHS contract. Now ask yourself is NHS goodwill really worth 100%?

Souks, Wembley and some personal business improvement thoughts!

I have just come back from a break to Marrakech, which I truly adore. It's only 3 hours away from London, but you really are in a different world. The souks, the people, the riads (beautiful converted houses), the shopping, the weather....

Have you defined your dental niche?

Now for those of you that have not been to Marrakech I thought I would mention it's souks. Although they are a lot of fun to visit, they got me thinking in respect of marketing businesses. In the souks there are 1000's of small businesses, selling lamps, leathers, carpets, shoes etc. On my first visit, which was over 5 years ago we bought many items for our home, however this time around we were much more selective in our shopping. As you maze yourself through the souks the prices of the goods do get cheaper as you get further away from the main touristy area, however, the products sold are exactly the same, or they appear to be. As you go from shop to shop it is expected by the owner that you will bargain, since the shop next door is usually selling the same or similar product. Basically, many of the shops are all trying to sell the same product - they have not identified a niche market! That's why so many of the shops are bereft of tourists wanting to buy. Once you have seen one leather puff, or a Moroccan plate, you have really seen them all in this souk.

What got me thinking was that now if they positioned themselves differently in the marketplace, selling products that differ from their neighbours then surely they would not need to heavily discount their products and make little profit. The stores that stand out in the souk are the one's that have different products, and I am sure they make the most money. One store sold old Moroccan doors from £3000 upwards, this store was quite busy.

So what is the point of this rant, well the same applies to dentistry. We see many dental practices across the UK. NHS practices that do well are typically those that have a captive audience seeking out NHS treatment. The private practices that do well are those that have carved themselves a niche in respect of getting the patients they desire, and their niche satisfies the patients it attracts. A niche is not necessarily specialist treatment, but also how the practice is perceived by the public. Is it heavily cosmetic? Or does it appeal to a certain segment of the community? I feel a common misconception, particularly those in NHS dentistry, is that they have to be everything to everyone. Well from our experience the practices that do best are the one's that stick to their niche and deliver it really well.

Leadership styles from Wembley

I was lucky enough to attend the FA cup final last Saturday finally at the new Wembley stadium. Over 1 year late, a contractor going bust but very much worth every penny. It really is an engineering marvel - the design and the sheer scale of the venue makes it the world's premier stadium.

The UK's two top teams (some debate to be had here) were playing, Chelsea and Manchester United, which was a pretty disappointing match, but the marvel of the stadium made up for the lack of exciting play. Oh yes, Chelsea won 1-0 during extra time. Anyway, why am I writing about this topic? Well, a lot of Man Utd's success is down to Alex Ferguson, the manager for the last 18 years who in the mid 90's developed young players, including Beckham (now off to the US), Scholes and the like to provide the platform for their success in mid/late 90's. By identifying young raw talent, and then developing them into football stars provided the perfect platform for Man Utd to be in such a strong position in today's market. Man Utd have won a plethora of all the major football titles.

Contrast this with Chelsea, who up until only a few years back, before Jose Mourinho had joined, had only ever won one title. This has changed significantly since Jose joined, his leadership and management skills have always been questioned (he is not a footballer himself) but since he has been with Chelsea he has lead the team to many a win in important matches (OK Chelsea's owner has very deep pockets to buy star players, but Mourinho knows how to lead the players to win).

The success of both teams comes from these managers. Will they always win? No, but their commitment, passion and ability to lead their teams in good and bad times is essential in their desire to win. The analogy to business must be made here, to succeed in business does require strong leadership, making tough decisions, going out on a limb and getting your team to follow you. None of this can occur without a committed team, and you only get a committed team when you show them what your goal is in the first place! Does your team know your goal or mission? Have you communicated it to your team members?

Finally, I am sure you have had enough of reading this newsletter, but as ever we always do welcome your comments, thoughts and opinions, and of course if we can help you with your business in anyway please let us know.

Best regards,

Arun Mehra ACA

Managing Director

"Helping Dentists Build Better Businesses"