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The Dental Practice SaleEducation for Dental Practice Sellers, Buyers, and Brokers. Author: A Practice Orbit Podcast
Dentistry, as a business, is in a period of flux today. Retiring dentists want to maximize the sale value and aren't sure where to find a strong buyer. Mid-career dentists want to grow beyond the traditional single office practice. Associates seeking financial predictability aren't sure if private practice will provide it. And Institutional dentistry (DSOs, DPOs) are driving up valuations, but often with complex deal terms. Amid this landscape, the Dental Practice Sale podcast is intended to provide it's listeners with (1) education and seller stories and (2) insights into how the www.practiceorbit.com platform can help these various parties operate more effectively together in it's online marketplace. Language: en Genres: Business, Education, How To, Management Contact email: Get it Feed URL: Get it iTunes ID: Get it Trailer: |
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The Affect of Delta Premier on Dental Practice Valuations
Episode 36
Tuesday, 17 December, 2024
**If you are a Delta Premier provider and receive Delta Premier reimbursement rates, congratulations! ** You’re a seasoned dental practitioner who has been around a while! For those who might not know, Delta Premier is a grandfathered level of billing which Delta no longer offers to new dentists or to new owners of dental practices. The current top level of Delta billing, at least for those without Premier status, is Delta PPO.So, what happens if you’re a Delta Premier provider and are considering the sale of your dental practice? Does it affect your value? And, if so, how?The short answer is that it most likely will negatively affect the value. Let’s dig a little deeper.Let’s first note that if you are a buyer considering the purchase of a dental practice where the dentist is a Delta Premier provider, then you should take great care in understanding the financial impact to you after you become the owner. I am aware of a practice that was purchased for nearly $2,000,000 which went bankrupt in just over a year because of this issue. Buyer beware! It sounds ominous, but it’s not that bad if you understand it and plan for it. To really explain the effect of Delta Premier on practice value, we’ll look at it from the seller’s perspective.The heart of the issue is that Delta Premier rates of reimbursement will be reduced to Delta PPO rates of reimbursement when the new dentist gets credentialed. As sellers, you can expect savvy brokers, bankers, and buyers to estimate this reduction and subtract it from your collections. As we know, collections play a major role in the net operating income (NOI) of the dental practice. In other words, the higher the collections, the higher the NOI and the higher the practice value. The same is true when collections move the other way. In the case of Delta Premier rates, practices that have a heavy premier patient base will see higher offsets to their collections. That being said, calculating this reduction can be tedious and challenging. A listing broker should do their best to estimate this reduction; ultimately, however, the responsibility falls upon the buyer and the buyer’s consultants to determine the true effect of Premier billing. A rough estimate to calculate the premier reduction is to assume that 15% of the total collections come from Delta. Of those collections, 30% are rated as premier, so the math looks like this:Total Collections x 15% x 30% = Delta Premier ReductionIn the case of a practice collecting $1,000,000 and using this formula, the reduction would be $45,000. However, it would not be accurate to say that the value of the dental practice was reduced by $45,000. Reducing the collections and the NOI by $45,000 could mean $100,000 swing in value to the banks based on their underwriting standards.Of course, the formula above is just an estimate. A seller can show that the reduction might be negligible. For example, they might be able to prove that only 20 of 2,000 patients are rated as Delta Premier in their practice. In this case, the broker might not make a reduction and would just disclose in their marketing materials that the seller is a Delta Premier provider but that premier accounted for 1% or less of total collections.To sum up, both buyers and sellers should take time and care to understand the effect of Delta Premier billing on the value of a dental practice. Doing so will ensure a fair trade for both parties and protect against very unfortunate surprises.
