November 6, 2020
It is without doubt that in the ten plus years that I have specialised in the sales and acquisitions of dental practices, that there has not been a year anywhere close to the scale of 2020.
Whilst my knowledge of the dental and healthcare sectors is perhaps greater than those of other areas of business, there are issues that have faced every commercial entity. The impact of Covid-19 has been felt to different extremes by different businesses. Some have had the huge expectation that the FCA test case on Business Interruption Insurance would be successful and it now appears that some insurers will start to payout. Others have been in the fortunate position of being able to treat any such payments as a bonus.
Within dentistry, whilst the majority of practitioners have been extremely grateful to NHS England for the guarantees made in March that they would continue to honour the 1/12 monthly contract payments, enabling the practices to remain as trading entities, some dental principals saw this as a means to profit from the NHS’s “generosity” and did not transmit pay to receptionists, nurses, hygienists, therapists and associates as they were advised.
Fortunately, this “wrong” was “righted” in July when sanctions were set in place to attempt to ensure compliance and to penalise those principals who failed to declare a “windfall profit” threatening to return their contract to the UDA system.
A requirement was put in place for 20% of patient care activity as a minimum and it is likely that as I write, this will be increased to 40% from November. That should not present too onus of a burden on NHS practices.
“Fallow time” has had a major impact. To have to wait 60 minutes for a surgery to be thoroughly cleaned and disinfected after each AGP has influenced the type of work undertaken and the number of patient appointments both NHS and private practitioners can complete. There is talk currently that fallow time will be reduced but at the time of writing, nothing concrete has been decided.
The Care Quality Commission is also looking at modifying their procedures. Prior to Covid-19, a practice would undergo a face to face inspection by a CQC inspector and a Clinician, lasting 1 day (and longer in some cases). Now the CQC are looking at the possibilities of remote inspections and undertaking more compliance checks on a similar basis. Not only will this tackle the “fear factor” of attendance at a practice for dentists, staff and patients alike but may also make the CQC more streamlined in its approach. They are also considering a rating system for dental practices similar to NHS Choices in the GP sector.
As for the transactional market, you would have expected to see this slowdown and for goodwill values to become depressed. You would also have expected the approach taken by the banks to become much more risk-averse.
Yes, it is the case that the lenders are requesting more financial due diligence but in the main, this is to reassure them that they are making the right offers of finance and that the serviceability of the loans is not hindered.
What has actually happened in relation to practice sales and acquisitions is perhaps unsurprising. NHS practice values have held up in part due to the continued support provided by NHS England. Private practice values have also not taken as big a hit as expected as with the reduction in NHS appointments due to Covid, patients are seeking out private dental treatment and income provided by Plan has also helped many practices escape the worst impacts of being unable to trade.
The demand for practices currently is outstripping the supply. In part, this is down to Associates now believing that this is the right time to venture into practice ownership, but the simple fact being that there are not sufficient practices on the market to service that need.
The current market comprises 85% independent practices and 15% corporate groups. Given what has been mentioned previously, you would expect to see corporate operators disposing of non-performing assets in order to account for lost income and higher costs. What is actually happening is that dental groups across the country are not looking to reduce numbers, but on the contrary, remain acquisitive.
The dental profession as a whole is clearly of the belief that whilst Covid -19 has been a major problem, it is not one that is insurmountable and certainly not catastrophic to any extent. There will need to be a remodelling of how NHS dentistry operates in the months to come and possibly a stronger interaction between the NHS and private sectors.
We at Prosperity Law believe that we are at a “new dawn”. Yes, the dental profession will not be the same as it was prior to March 2020 but the opportunities for practices both in the independent and corporate sectors to push on is clearly there. For some, this will have been a significant crossroads and represented a time to consider retirement. For others, it will signal a restructuring of their businesses and careers.
For us, as specialist dental lawyers, we remain glass half-full and confident that the “new dental landscape” will in some respects be better than the old one.
This feature was written by Johnathan Jacobs, Jonathan is a commercial lawyer with over 20 years’ experience as a Solicitor. He specialises in advising practitioners in the healthcare professions including dentists, doctors, pharmacists, opticians and also veterinary surgeons.
For any advice or assistance, you can contact Johnathan on firstname.lastname@example.org.