Nonetheless, dentistry functions within the general economy of the United States and its health care system, and it is influenced directly by conditions operating in those sectors. It is important for all—from health planners to individual practitioners—to understand dentistry’s economic relationship to the general economy and the health care system, as well as how changes in both sectors are reflected in changes in the dental care system at all levels.

Dental costs incurred in the system are a function of the price charged for services and the volume of services provided. There are other factors involved that are relatively minor in dentistry, so I have not included them in this discussion for the sake of simplicity.

	ANNUAL PRICE INCREASES

TOP ABSTRACT ANNUAL PRICE INCREASES PROFITS FROM DENTAL PRACTICE CONCLUSION REFERENCES

 
Changes in the prices for goods and services are measured each month throughout the year by the U.S. Department of Labor using a sample of typical goods and services a consumer might purchase. A series of indexes known as a consumer price index (CPI) is constructed and published periodically. In Table 1² and Figure 1² (page 359), the relatively recent history (1970–2001) and the relationship of the three indexes—the CPI for all items, the CPI for physician services and the CPI for dental services (CPI-dental)—to each other are demonstrated.

View this table: [in this window] [in a new window]   TABLE 1 CONSUMER PRICE INDEX, ALL URBAN CONSUMERS, U.S. CITY AVERAGES FOR SELECTED INDEXES.*

View larger version (41K): [in this window] [in a new window]   Figure 1. Percentage increase from previous year of consumer price index (CPI) of all items, CPI of physician services, and CPI of dental services, 1970 to 2001. Source: Bureau of Labor Statistics, U.S. Department of Labor.2

– diagnostic—12 procedures;

– preventive—six procedures;

– restorative—31 procedures;

– endodontic—four procedures;

– periodontic—eight procedures;

– prosthodontic (removable)—11 procedures;

– prosthodontic (fixed)—11 procedures;

– implant services—two procedures;

– oral and maxillofacial surgery—nine procedures;

– orthodontic—nine procedures;

– adjunctive services—two procedures.

The fact that the CPI-dental is a component of the overall CPI can complicate comparisons. However, the CPI-dental is not a significant determining factor in the CPI, so comparisons should be valid.

There are several interesting things to note about the "behavior" of these indexes over the 30-year span (Figure 1):

– the first one-half of this period can be described best as turbulent, with significant fluctuations in all three indexes;

– during the first 10 years of this period, the general tendency was for the degree of price changes to increase, though not smoothly;

– in the early 1980s, an abrupt change occurred in the general tendency for increasing levels of price increases to a significant trend toward decreasing levels of price increases in all three indexes;

– the last one-half of this period showed a more pacific behavior of the indexes, without the wide fluctuations seen during the first one-half of this period;

– the general tendency of the health indexes during the last one-half of this period was toward decreasing rates of price increases;

– all three indexes moved in tandem.

The relationship between the track of the general CPI and that of the CPI-dental was not totally anticipated. While the trend (that is, when general prices increase, dental prices [fees] will increase) was not a surprise, the timing was. The CPI-dental moved concurrently with the general CPI. It was expected that there would be a time lag of 12 to 18 months between increases in general costs and dental costs, primarily due to the dampening effect on fees exerted by maximum fee levels enforced by dental benefits administrators. Dental practices may have more flexibility in setting fees than anticipated.

That flexibility may be because only about 50 percent of dental patients are covered by dental benefit plans and that few dental services are completely paid for in dental plans. When constrained in increasing fees for patients with dental insurance in the face of increasing operating costs, dentists may have increased the fees they charged to paying patients without coverage to a level that compensated for the reduced flexibility with covered patients. In addition, the out-of-pocket costs for patients with dental insurance may have increased.

Although all three indexes experienced an abrupt trend reversal toward decreasing rates of increase in prices in the early 1980s, their progress was not uniform. There was a 54.1 percent decrease in the general CPI and a 36.2 percent drop in CPI-dental. From 1982 through 2001, both indexes tracked in a roughly parallel fashion. The difference in the levels of these two indexes is becoming smaller over time, with an approximately 25 percent reduction in the differential seen through 2001.

As with the general economy, the rate of increase in dental costs has practically stabilized, though at a level higher than seen for price increases in the general economy.

These conclusions are observational only, and I make no attempt to establish any technical economic relationships between the indexes. Prices for goods and services are determined by the interaction of supply and demand in individual markets.⁴ As these factors change from market to market, even at the same time, prices will change. The indexes reflect national averages from which only general observations can be made.

	PROFITS FROM DENTAL PRACTICE

TOP ABSTRACT ANNUAL PRICE INCREASES PROFITS FROM DENTAL PRACTICE CONCLUSION REFERENCES

 
In discussing profits from the practice of dentistry, I depart from the traditional simple economic definition of "profit"—that is, the excess of revenues over the total costs of producing goods or services.⁵ In most cases, the costs of the dentist’s labor in providing dental care is not considered by the dentist to be a cost to the practice, but is considered to be the profit from the operations of the practice. Therefore, although it is not exactly true, I use the dentist’s income as a surrogate for profits from the operation of the dental practice in this discussion for simplicity.

In Figure 2, all of the curves slope upward to the right, reflecting an annual increase in office production, the costs of providing dental care in a dental office and the net income for the average dentist from the dental practice.⁶ The scale is in nominal dollars. The green line on the graph indicates the dentist’s net income adjusted for inflation, using the 1982 value as a base.

View larger version (48K): [in this window] [in a new window]   Figure 2. Financial data from dental practice, 1982 to 2000. Source: ADA Survey Center.6

– except for one year, the net income of dentists has increased each year, though at an uneven rate;

– the costs of operating a dental practice have risen each year;

– the office expenses and income lines are divergent on the right side of the graph, indicating a greater increase in the costs of operating a dental practice than in the net income of the dentist;

– there is a significant divergence to the right of the gross billings line and office expenses and income lines, indicating a greater growth in the output of the average dental office than in the operating costs of a practice or the net income of the dentist;

– dentists’ real income has experienced growth throughout the period;

– the rate of growth of the factors depicted (the upward slope of each line) varies significantly.

In the face of increasing costs of operating a dental practice and a decrease in the ability to increase fees, dentists have relied on increasing office production to sustain net income growth. A 3.78-fold increase in office production was required to generate a 3.07-fold increase in nominal net income; this was an approximately 6.5 percent annual increase in office production. Other data have shown that dental office productivity (production per unit of time) has been increasing at a rate of approximately 1.5 percent per year.⁷

The data for Figure 3 are from successive American Dental Association surveys of dental practice.⁶ A graph of nominal net income (scale at the right of the graph) was superimposed on an office schedule graph (scale at the left of the graph).

View larger version (49K): [in this window] [in a new window]   Figure 3. Dental office schedule and net income, 1982 to 2002. Source: ADA Survey Center.6

The ability of dentists to increase office production in the future as a means to maintain or expand their net income will depend on an increasing demand for dental care by people with resources to pay for that care. The downward pressure on the utilization of services in dental benefit programs will make growth in the demand for dental care more difficult. Once viewed as an effective stimulus for the demand for dental services, dental benefit plans may be seen by some as becoming a less effective stimulus because of the downward pressure they exert on utilization and fees and the stagnation in the maximum annual benefit level over the years.

Unmet dental needs have been identified in certain segments of the population. Effective multifaceted programs that include education of the public and funding sufficient to ensure adequate participation by providers could increase the effective demand for dental care in those population groups.

	CONCLUSION

TOP ABSTRACT ANNUAL PRICE INCREASES PROFITS FROM DENTAL PRACTICE CONCLUSION REFERENCES

 
Dental practices have been able to respond to changes in the overall national economy in a timely manner. Adjustments in the fees dentists have charged have been parallel to changes in the overall costs of goods and services in the nation. Dentists’ incomes have increased steadily, as have the costs of operating a dental practice. The most significant means dentists have used to maintain growth of their net incomes has been to expand dental office production.