September 13, 2023

Economies of scale begin to bite in dentistry and allied health

This article first appeared in the Australian Financial Review.

Industry experts agree it’s important a range of business models operate across the healthcare sector, with different ways of providing healthcare suitable to different patient scenarios.

A corporate structure is often useful when co-locating health services. In other cases, for example some dentists, an individual practice model works. What’s important is to choose a model that suits the practice and its patients.

Dr Jason Condello, a dental surgeon with Smile Forever Dental in West Perth, says there’s scope for both corporate and smaller practices.

“For people who can afford treatment and who are experienced consumers of dental services, their preference will always be for smaller practice,” says Condello.

“But, like all markets, there is a segment that is price driven and just having access to a dental professional is adequate.”

Many dental practices in Australia are owned by an individual dentist or a group of dentists, who work in and run the practice.

“This model works well because the dentists typically remain in the practice for many years and get to know their patients over time,” he says.

“Given the nature of the work, patients have a great deal of anxiety with dental treatment. Central to reducing anxiety is forming a trusting and long-term relationship with the patients, which typically occurs in smaller practices.”

“There is only so much systematising that can take place in some healthcare businesses, because the delivery of care to each patient is so unique and individualised. Smaller practices can deliver this and are nimble and responsive to patient needs.”

Condello says there is a growing trend towards corporatisation of dental services. But to be successful, corporate dental businesses need to minimise costs and raise revenues. They can do this by offering a broad range of dental services and by setting revenue targets.

“Although good dentistry takes time and it is important working more quickly to meet targets does not lead to poorer treatment outcomes.”

He acknowledges the benefits of a corporate model particularly when it comes to negotiating the price of consumables, laboratory fees, marketing and for the capital outlay to set up a practice. But he says it is vital to balance efficiency gains with providing exceptional patient care.

“Most of the running costs of a dental practice are staff. So a consideration is not putting so much downward pressure on remuneration or increasing production targets that it leads to unhappy staff or poorer treatment outcomes.”

For Henry Bateman, managing director and founder of Cornerstone Health, a corporate model supports practitioners to deliver primary care when patients need it.

It’s an approach he has lived and breathed his whole life. His father, the late Ed Bateman, who founded Primary Health Care, now called Healius, was a pioneer of the corporate healthcare model.

In the Cornerstone approach, GPs are co-located with a pharmacy, radiology, allied health and specialists under one roof, providing a one-stop-shop for patients. Healthcare providers are independent contractors, while Cornerstone operates the business.

“Doctors spend so much time training, they should be supported to deliver the best possible service. We do that by providing professional management,” says Bateman.

Cornerstone’s 13 centres are based across the eastern seaboard. More than 250 healthcare professionals provide care through these facilities, in addition to 190 nurses and admin staff. This model provides economy of scale advantages.

Patients, who are largely bulk billed, at least for GP services, also benefit from access to cost-effective medical care when they need it, given the centres are open long hours every day of the year. The success of the model is reflected in growing patient numbers, which are rising by 25 per cent each year.

Bateman says the corporate healthcare model is still in its infancy and small practices are “still the norm”.

This leaves potential for plenty more GP rollups, with the ensuing benefits to both patients and practitioners.

Brett Moore, executive, specialised industries business for NAB, explains the corporate model brings scale to a practice, which allows healthcare workers to do what they do well: provide high quality patient care.

“It also gives practices confidence they are meeting regulatory requirements and the business is being properly managed,” says Moore.

“It’s an attractive proposition for some healthcare businesses. The benefits of scale provide great capacity to meet patient needs and increase efficiencies by standardising the administrative responsibilities of running the business.

“But many of our clients are also traditional, small practices. And as a consumer, the business model is secondary to the care you receive as a patient.”

There will always be pros and cons for both corporate medical care and care provided by individual practices, say sector experts.

The access to comprehensive resources, cutting-edge technology and collaborative expertise enables corporations to provide high-quality healthcare services on a larger scale.