September 9, 2019
Over the last decade, the number of dental labs in the United States fell by fifty percent, while the percentage of cases sent to offshore labs rose steadily. According to the FDA, $1.32 billion of dental laboratory orders are now being completed offshore, which makes up around 38% of dental restorations. The domestic market is estimated about $6 billion and is largely dominated by family owned laboratories who employ less than 10 technicians on average. These statistics have left many dentists to ponder why this shift is occurring, and how it will impact their business; with the right guidance, the resurgence of offshore dental labs can help your practice become more profitable.
The rapid increase in dental technology has given high production labs large advantages in the markets. These high production labs are typical offshore, and dentists can find restorations for up to fifty percent cheaper than in the United States; while the restorations may not be up to par with American labs, most dentists consider the work to be acceptable enough when considering the massive price reduction in services.
There are three main reasons why offshore labs have been having such a steady revenue increase over the last decade. First, over time the advances in digital technology and large-scale globalization has allowed for offshore restorations to be comparable to domestic restorations. Second, is the increase of DSO’s throughout the domestic market. With a sharp money driven focus, DSO’s typically offshore their work to increase profits. Lastly, is the influence of insurance companies over the distribution of dental patients. It is estimated that insurance companies control up to 75% percent of dental patients, which has forced 90% of dentists to join PPO’s and establish set fees. This reduces the amount of revenue for most parties in the dental industry and has greatly influenced their desires to cut costs in other areas, i.e., lab fees.
Moreover, the proposed higher tariffs on imported medical devices convinced many dentists that there would be an equalization in the market, but this is not true. While these imported dental restorations may be subjected to tariffs, that will not greatly increase the price of the products, and they will remain significantly cheaper than domestic restorations. In addition, most of the medical materials used by domestic laboratories are imported and will be subject to the same tariffs; making this a lose-lose situation to domestic dental laboratories.
While many dental practices choose to cut costs and use offshore dental labs, many still chose to work with domestic labs. Even though the growth in technology has allowed for instant world communication, there are elements of the laboratory and practice relationship that are strained by large amounts of distance. Domestic laboratories market their customer service and advertise their treatment plans and consulting services, giving them a competitive edge over offshore dental labs.
Offshore laboratories have and will continue to have a large impact on the dental industry. As a practice owner, you have the choice to participate in this trend or not. While offshore laboratories may be a way for you to efficiently cut down costs of your practice, there are many possible downfalls. It may be more convenient for you to work with a domestic lab that will tailor their services to your client’s specific needs and can provide you with more efficient customer service. The choice is up to you. However, as the saying goes, “you get what you pay for.”
Attorneys: William Barrett, CEO and Casey Gocel
Category: Practice Purchases