DENTAL PRACTICE MANAGEMENT

OVERVIEW
November 2014

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DENTAL CARE MARKET OVERVIEW
Dental care is a $100+ billion, non-cyclical market, with strong underlying fundamentals
driving continued robust growth.
 Dental care expenditures are expected to reach $122 billion in 2014E, representing an annual
average growth rate of 5.8% since 1990, despite the impact of two recessions during this time.
• National dental care expenditures have only experienced one year of negative growth since 1990

 Expenditures are expected to expand by 5.7% annually through 2022P, reaching $191 billion, as a
result of:
• Favorable demographic trends
• Expansion of dental insurance coverage
• Escalating demand for cosmetic and elective dentistry

U.S. DENTAL CARE EXPENDITURES

For the Years Ended and Ending December 31, 1990 to 2022P
($ in billions) ’14E – ’22P CAGR: 5.7%
$200

$180
’90 – ’14E CAGR: 5.8%
$160

$140 Recession
$120

$100

$80

$60

$40

$20

$0

Source: Centers for Medicare & Medicaid Services (“CMS”).

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MARKET GROWTH DRIVER:
FAVORABLE DEMOGRAPHIC TRENDS
Growth in dental care expenditures will be supported by population and spending trends
in key demographics.
 The aging of the U.S. population is a well-documented phenomenon, with seniors over 65 years of
age expected to account for over 19% of the population by 2030P, compared with 13% in 2010.
 Seniors have the highest per-patient dental care expenditures of any age group:
• As patients age, they tend to require more expensive dental services
• Seniors are increasingly willing to undergo procedures to maintain oral health

SENIORS ARE A GROWING SEGMENT OF THE POPULATION SENIORS LEAD PER-PATIENT DENTAL EXPENDITURES

20% 19.3% $780 $767

18% $760
16.1%
16% $740
14% 12.6% 12.4% 13.0%
11.3% $720
12%
$700
10%
8% $680

6% $660 $645 $649

4% $640
2% $620
0%
$600
1980 1990 2000 2010 2020P 2030P
$580
Age 65-74 Age 75-84 Age 85 and older Children 0-20 Adults 21-64 Adults 65+

Source: U.S. Census Bureau, Medical Expenditure Panel Survey, and Agency for Healthcare Research and Quality.
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MARKET GROWTH DRIVER:
EXPANSION OF DENTAL INSURANCE COVERAGE IN THE U.S.
The expansion of commercial insurance and Medicaid coverage in the U.S. represents a
powerful tailwind for growth in the dental care market.
 Dental insurance coverage is the largest driver of STEADY PROPORTION OF INDIVIDUALS WITH DENTAL
dental care utilization, as nearly 80% of INSURANCE…
individuals with dental insurance visit the dentist For the Years Ended December 31, 2000 to 2010
each year, compared to 54% of those without. 60%

 The Patient Protection and Affordable Care Act 50%

(“ACA”) of 2010 is expected to increase the 40%
number of individuals with dental benefits by 27 30%
million by 2018P. 20%
• 9 million children and 18 million adults 10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Wall Street Research.

…FURTHER ACCELERATED BY ACA PROVISIONS… …DRIVES MORE FREQUENT DENTAL VISITS

(individuals in millions)
27 million incremental 90%
lives covered 77%

% of Respondents Visiting Dentist

80%
20 70%
18
18
1 60%
16 54%
14 50%
12 40%
40%
10 9
8 17 30%
21%
6 6 20%
4
10%
2 3
0 0%
Children Adults Over a Year Ago Within Last Year

Medicaid Dental Benefits Gained Commercial Dental Benefits Gained Have Dental Benefits Lack Dental Benefits
Source: Milliman, Inc. analysis commissioned by the ADA with analysis
by the ADA Health Policy Resources Center. Source: National Association of Dental Plans Report.
Note: 2010 to 2018P. 3
MARKET GROWTH DRIVER:
ESCALATING DEMAND FOR COSMETIC AND ELECTIVE DENTISTRY
Increased focus on personal appearance and improvements in technology, materials,
and methods are spurring demand for cosmetic and elective dental services.
 Improved procedures, technology, and greater availability are making cosmetic dentistry more
appealing to patients:
• Cosmetic dentistry equipment has followed the broader trend towards minimally invasive technologies
• Availability of more advanced materials resulting in more life-like dental implants

 Over 90% of dentists expect 2014 procedure volume across all surveyed services to remain stable
or increase.

POSITIVE DENTIST EXPECTATIONS FOR COSMETIC PROCEDURE GROWTH IN 2014

100%

80%

60%

40%

20%

0%
Bleaching / Crown / Direct Implant Inlay / Veneer Other
Whitening Bridge Work Bonding Procedures Onlay Procedures Cosmetic
Procedures Procedures
Decrease Remain Stable or Increase

Source: American Academy of Cosmetic Dentistry (“AACD”).

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OVERVIEW OF DENTAL CARE REIMBURSEMENT
Dental care providers benefit from an attractive reimbursement mix comprised primarily
of commercial and out-of-pocket payors.
 About 90% of dental expenditures are paid by commercial dental insurance or by patients out-of-
pocket.
 The annual per-patient dental expenditure is significantly higher for patients paying through
commercial dental insurance or out-of-pocket, than it is from government sources.

DENTAL CARE PAYOR MIX ANNUAL SPEND BY PAY SOURCE PER PATIENT
For the Year Ended December 31, 2013

Other Health
Insurance and
Third Party Payors 2 $800
3% $720
Medicaid
7% $700

$600 $576

$500
$406
$400
Commerical Health
Insurance 1
48% $300
Cash Pay / Out-of-
Pocket
42% $200

$100

$0
Commercial Cash Pay / Out-of-PocketGovernment Reimbursed

Source: U.S. Census and the Centers for Medicare & Medicaid Services (“CMS”), the American Dental Association, and IBIS World.
1) Commercial and managed care dental insurance programs.
2) Children's Health Insurance Program (Titles XIX and XXI), Department of Defense, and Department of Veterans' Affairs, worksite health care, other commercial insurance,
Indian Health Service, workers' compensation, general assistance, maternal and child health, vocational rehabilitation, and other federal and local programs. 5
DENTAL PRACTICE MANAGEMENT MARKET OVERVIEW
DPM companies provide a wide range of administrative and support functions to
affiliated and owned practices and present a highly attractive option to individual
providers.
 Dental practice management companies combine the benefits of a traditional group dental
practice management model with the advantages of a privately owned practice.
KEY VALUE PROPOSITION OF DPM COMPANIES

Administrative Dedicated administrative staff handle non-clinical functions including HR,

Support accounting, budgeting, and IT, allowing dentists to focus on core dental care.

Scale Enhanced purchasing leverage with suppliers makes equipment and services
Advantages available to dentists at lower cost.

Career Provides dentists a choice of career options in various locations, along with
Options formalized training and development.

Marketing Centralized marketing function helps dentists attract more patients with a cohesive
Leverage branding strategy and lower cost.

Multi-Specialty Provides general dentists with access to specialists that are trained to perform
Offering specific, advanced procedures, enabling the dentist to focus on general dentistry.

Access to improved IT and reporting systems, enabling more data-driven

Robust Systems
management of operations.

Capital Lower financing costs and better access to capital.

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DPM DRIVER:
STUDENT DEBT AND WORK-LIFE BALANCE
DPMs offer dentists the benefits of practice ownership together with improved work-life
balance and lower start-up costs and risks.
 DPMs offer a 15-20% cost saving for dentists compared to sole practitioner managed offices.
HIGH LEVELS OF AVERAGE GRADUATING DENTAL STUDENT DEBT…

For the Year Ended December 31, 1996 to 2012

(actual $) $250,000
$200,000

$150,000

$100,000

$50,000

$0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: American Dental Education Association.

…COUPLED WITH INCREASED DESIRE FOR WORK-LIFE BALANCE… …LEADS TO INCREASED PROPORTION OF DENTISTS AS EMPLOYEES
% of Women Entering the Dental Workforce For the Years Ended December 31, 1989 and 2008

As the proportion of female dentists have grown, work-life

balance has become an increasingly important 100%
8%
consideration for new dentists entering the work force 20%
80% 18%

60% 55% 31%

60%
50% 47%

40% 40% 74%

30% 49%
20%
20%
10% 0%
0% 1989 2008
Last 20 Years Last 10 Years Began Career as Partner / Other Began Career as Sole Owner
Began Career as Employee

Source: GE Healthcare Industry Sector Analysis. Source: American Dental Association.

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DPM DRIVER:
HIGHLY FRAGMENTED MARKET
The universe of dental providers is highly fragmented, presenting attractive consolidation
opportunities for DPMs of scale.
 Of the estimated more than 170,000 U.S. dental offices, the 50 largest only generate
approximately 5% of total industry revenue.
 Large number of sole dental practitioners and older dentists offer a wealth of potential acquisition
targets to players of scale.
• 69% of dental providers are sole practitioners
• 38% of active dentists are over 55 years old

HIGHLY FRAGMENTED DENTAL PROVIDERS AGING POOL OF DENTISTS

40%

12% 35%

30%
19%
25%

20%
69%
15%

10%

5%

Sole Practioners 2 Dentists 3+ Dentists 0%

Under 35 35-44 45-54 55+

Source: American Dental Association, GE Healthcare Industry Sector Analysis, Source: Northcoast Research Survey, American Dental Association.
and IBIS World.
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