Economics of
Dental Practice Improve
in the 1990s
A review of governmental and ADA reports confirms positive projections about the economics of dentistry. By H. Barry Waldman, BA, DDS, MPH, PhD
 |
A review of Internal Revenue Service, Health Care Financing Administration, Bureau of the Census, and ADA reports for the mid 1990s confirms earlier projections that the economic trend in the practice of dentistry would be favorable. |
Article copyright 1998 Journal of the California Dental Association.
Photographs copyright of the authors.
"From an overall perspective through the year 2000, the economic future of the (dental)
profession appears to be far more positive than many might believe."1
This was the conclusion of a presentation written in the early 1990s, based upon an analysis
of development during the late 1980s affecting the dental profession, including a "slimming
down" in the number of graduates from dental schools, the increasing size of the general
population, and per capita expenditures for dental services at rates "well in excess of the
amounts spent in (the) 1970(s)."1
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Overall National Health Expenditures
By the mid 1990s, almost $1 trillion ($988.5 billion) was expended for national health costs
($957.8 billion for health services and $30.4 billion for research and construction). While
health expenditures have continued to increase during the 1990s -- because of increases in the
population, effects of inflation, and the use of expensive care modalities -- the rate of
increase as measured by its share of the gross domestic produce (GDP) has slowed. In 1980,
health expenditures represented 8.9 percent of the GDP, 12.1 percent in 1990, and between
13.4 and 13.6 percent in each year from 1992 to 1995. Managed care, in its many forms,
has played a role in slowing the expenditure rates for health care services.3
National Dental Expenditures
Although dental service expenditures increased from $31.6 billion in 1990 to $45.8 billion in
1995, dental service spending represented a somewhat smaller share of national health
expenditures in the 1990s than in the 1980s (approximately 4.5 percent in the 1990s, vs.
approximately 5.6 percent in the 1980s) -- reflecting both limited changes in the extent of
dental insurance coverage and increased spending for other services. Increases in the
proportionate share of health expenditures were reported for nursing home care, home health
services, and services by other than physician and dentist health personnel. However, the
annual rate of change in dental service expenditures increased in 1992, 1994, and 1995 at
rates faster than expenditures for the overall category for personal health care costs, hospital
care costs, physician costs, and health personnel costs other than those for physician and
dentist health personnel.3,7
Per Capita Dental Expenditures
From 1990 to 1995, per capita dental expenditures increased progressively from $121.53 to
$167.77. However, in terms of constant dollars (i.e., removing the effects of inflation), there
was a decrease in per capita expenditures (between the early 1980s and the immediate years
after the 1990 recession) followed by a rebound during the mid 1990s -- but as yet not
reaching per capita constant dollar levels reported for most of the 1980s (Table 2).3,7-11 Thus,
compared to the 1980s, the improving economics of dentistry during the 1990s (detailed
below) reflects a combination of a continued slimming down in the growth of the numbers of
practitioners, an increasing population size, and, to some extent, a rebounding of per capita
expenditures for dental services.
| Table 2 Expenditures for dental services in 1970, 1982, 1987, 1990, 1991, 1993, ad 1995. (3,7-11)
| |||||||
| 1970 | 1982 | 1987 | 1990 | 1991 | 1993 | 1995 | |
| National expenditures for dentistry (in billions) | $4.7 | $19.5 | $27.1 | $31.6 | $33.3 | $39.2 | $45.8 |
| Population (in millions)* | 215.1 | 240.2 | 251.8 | 260.0 | 262.8 | 267.9 | 273.0 |
| Current dollars per capita dental expenditures | $21.85 | $81.18 | $107.63 | $121.53 | $126.77 | $146.32 | $167.77 |
| Consumer Price Index for dental services** (1982 - 1984 = 100) | 39.2 | 93.1 | 128.8 | 155.8 | 167.4 | 188.1 | 206.8 |
| Constant dollar national dental expenditures (in billions) | $11.9 | $20.9 | $21.0 | $20.3 | $19.8 | $20.8 | $22.1 |
| Constant dollar per capita dental expenditures | $55.74 | $87.99 | $83.56 | $78.00 | $75.75 | $77.79 | $81.12 |
| * July 1 Social Security area population estimates. ** The dental component of the Consumer Price Index increased at a faster rate than the general CPI. Bewteen 1990 and 1995, the dental component approximately doubled the increasing rate of the general CPI. | |||||||
Practitioner Income Reports
American Dental Association
The American Dental Association's annual Survey of Dental Practice provides a detailed
picture of the evolving conditions of dental practice, including the economic situations of the
many practice arrangements. For example, the results from the latest survey were reported in
the ADA News, indicating that, "Average net income among U.S. independent dentists in
1994 topped $127,000 -- up 10.5 percent over the previous year."11 Independent practitioners
include sole proprietors or partners in incorporated or unincorporated practices.
Throughout the 1990s, ADA has reported annual increases in generalist and specialist
practitioner incomes reaching $117,600 in both areas in 1994. In terms of constant dollars,
except for 1991 (the period immediately following the last recession), practitioner income has
increased annually, far exceeding the practitioner income during the 1980s (Table 3).12,13
| Table 3 ADA Reports: Indepedent general and specialist primary practice mean net income in 1981, 1985, 1990, 1991, 1992, 1993, and 1994. (12,13) | |||||
| Current Dollars | CPI | Constant Dollars |
|||
| Year | General Dentist |
Specialist Dentist |
1982-84 = 100) | General Dentist |
Specialist Dentist |
| 1981 | $53.0 | $77.5 | 90.9 | $58.3 | $85.2 |
| 1985 | 64.1 | 103.4 | 107.6 | 59.6 | 96.1 |
| 1990 | 88.5 | 142.9 | 130.7 | 67.7 | 109.3 |
| 1991 | 92.0 | 143.2 | 136.2 | 67.6 | 105.1 |
| 1992 | 98.1 | 153.4 | 140.3 | 69.9 | 109.3 |
| 1993 | 107.8 | 159.7 | 144.5 | 74.6 | 110.5 |
| 1994 | 117.6 | 177.6 | 148.2 | 79.4 | 119.8 |
| Note: Dollars are in thousands | |||||
The increases in practitioner income occurred despite a slightly lower average number of
people per private practicing dentist during the 1990s, as compared to the 1980s (Table
4).3,7,8,14 (Note: National survey data for the 1990s are not available for the proportion of the
population with a dental visit in a year and the number of visits per year -- critical
information that would be needed to develop a comprehensive analysis of the evolving
economics of practice.)
| Table 4 Population per private practicing dentist in 1982, 1987, 1991, and 1995. ( 3,7,8,14) | ||||
| 1982 | 1987 | 1991 | 1995 | |
| Population (in millions) | 236.2 | 251.8 | 262.8 | 273.0 |
| Private practitioners | 116,208 | 126,357 | 138,094 | 141,396 |
| Population per private practitioner | 2,032 | 1,993 | 1,903 | 1,931 |
Internal Revenue Service
A somewhat underused approach to considering developments in practitioner income is the
use of Internal Revenue Service annual reports on income tax collections. Realistically,
creative accounting techniques may be used to limit income tax payments, but probably no
more frequently than individual practitioners tend to enhance their incomes at cocktail party
discussions. However, reviewing IRS data over time, to some extent, may limit the effects of
creative accounting in any particular year and provide an overview of the general changes in
practitioner income.
With these limitations in mind, the following picture of improving dental economics was
developed from IRS national income tax reports during the past 15 years.
A continuing increase (from 1980 to 1994) in practice average gross business receipts
reached almost $226,000 for sole proprietors and $229,000 per partner (Table 5).15-17 The
ADA survey reported almost $363,000 in gross receipts for independent practitioners in
1994.12
| Table 5 IRS reports: current dollar dental practice tax return business receipts in 1980, 1985, 1990, and 1994. (15-17*) | |||||
| Sole Proprietor | Partnerships | ||||
| Year | Number | Business receipts per tax return | Number | Number partners | Business receipts per partner |
| 1980 | 82,265 | $85,768 | 3,609 | 8,722 | 87,657 |
| 1985 | 83,657 | 115,755 | 8,298 | 20,090 | 99,938 |
| 1990 | 100,526 | 155,811 | 5,898 | 14,963 | 121,297 |
| 1994 | 96,415 | 225,775 | 3,915 | 8,568 | 228,731 |
| * Personal communication: IRS Statistics of Income (SOI) data gathering department, March 1997. Note: Since 1989, SOI published partnership tables do not list dental practices as a separate category. | |||||
During the 15-year period, sole proprietors reported that average net income (before taxes)
increased from approximately $36,000 to $84,000. Per partner net income increased from
approximately $28,000 to $64,000. (As noted above, the ADA reported a net income of
more than $127,000 for 1994.)
In terms of constant dollars, sole proprietor and per partner net income increased at a rate
faster than the rate of inflation (Table 6).14-16
| Table 6 IRS Reports: current and constant dollar dental practice net income in 1980, 1985, 1990, and 1994. (14-16) | |||||
| Current dollar | CPI Index | Constant dollar | |||
| 1980 | $35,827 | $28,352 | 53.8 | $43,479 | $34,407 |
| 1985 | 39,549 | 37,095 | 82.4 | 36,755 | 34,474 |
| 1990 | 57,782 | 42,991 | 107.6 | 44,209 | 39,954 |
| 1994 | 84,238 | 63,709 | 148.2 | 56,840 | 42,988 |
The annual report by the Health Care Financing Administration (HCFA) provides a broad
view of the evolving economic picture of the health care system. The combination of HCFA
economic data and ADA reports on the number of private practicing dentists and
professionally active dentists (which includes any dentist in a dental related occupation, e.g.
research, administration, education) provides a confirming picture of improving economics of
dental practice. By the mid 1990s, current and constant dollar net income for private practice
increased to levels above those for the 1980s (Table 7).2,3,7-12,14
| Table 7 Dentist income based on national expenditures: 1982, 1987, 1991, 1995 (2,3,7-12,14) | ||||
| 1982 | 1987 | 1991 | 1995 | |
| Number of Dentists | ||||
| Private practitioners | 116,208 | 126,3357 | 138,094 | 141,396 |
| Professionally active dentists* | 126,985 | 137,817 | 150,762 | 153,346 |
| Nation expenditures for dentistry (in billions) | $19.5 | $27.1 | $33.3 | $45.8 |
| Expenditures per | ||||
| Private practitioner | $167.8 | $214.5 | $241.1 | $323.9 |
| Professionally active dentist | $153.6 | $196.6 | $220.9 | $298.7 |
| Net income as a percent of gross receipts** | 40.9% | 35.3% | 33.2% | 35.1% |
| Current dollar net income | ||||
| Private practitioners | $68.6 | $75.7 | $80.1 | $113.6 |
| Professionally active dentists | $62.8 | $69.4 | $73.3 | $104.8 |
| Consumer price index (1982-84=00) | 96.5 | 113.6 | 136.2 | 152.4 |
| Constant dollar net income | ||||
| Private practitioners | $71.1 | $66.6 | $58.8 | $74.6 |
| Professionally active dentists | $65.1 | $61.1 | $53.8 | $68.8 |
| Note: Expenditures per dentist and net income are in thousands. * To a varying extent, some dentists employed in administrative positions, research and education provide dental services to patients. While expenditures and income calculations per private practitioners would be decreased by including these part-time practicing dentists (whose major income may be derived from nonpractice services), it does reinforce the general finding of a favorable trend in the income of dentists. ** Percentages are for all independent dentists.(13) | ||||
Overview
No dental practice is average, and gross receipt and net income data vary from location to
location, with some practitioners experiencing difficulties as the economies of their
communities do not keep pace with the national economy. Nevertheless, despite the wide
range of income levels reported by different federal agencies (including the Internal Revenue
Service) and the American Dental Association, the trend in each of the reports indicates that
the projections at the end of the 1980s have been borne out -- the economics of the practice
of dentistry have continued to improve in the mid 1990s.
But these figures should not inspire over confidence. Efforts in Washington to balance the
budget could result in placing "caps" or limits on tax-free deductions for fringe benefits.
Such an effort could have a profound impact on dental insurance coverage (which currently
accounts for approximately one-half of dental expenditures3).
The traditional primary emphasis on hospital and physician insurance coverage could
overshadow concerns for dental insurance as employers and unions negotiate for reduced
funds for fringe benefits in an era of taxes on formally tax-free benefits. We must keep these
realities in mind as the budget debate heats up in the Congress.
But as of the mid 1990s, the changes that were made in restricting the production of dentists
for a growing general population (together with a rebounding in per capita expenditures for
dental services) have continued the favorable predicted trend in the economics of dental
practice.
Author/H. Barry Waldman, BA, DDS, MPH, PhD, is a professor of Dental Health Services
at the State University of New York School of Dental Medicine.
References
1. Waldman HB, What about dental economics for the 1990s? J Cal Dent Assoc 21(5):20-3,
1993.
2. Levit KR, Lazenby HC et al, National health expenditures, 1990. Health Care Financing
Review 13:29-54, fall 1991.
3. Levit KR, Lazenby HC et al, National health expenditures, 1995. Health Care Financing
Review 18:175-214, fall 1996.
4. Council on Dental Education, Trend Analysis: 1985/86; 1991/92 Annual Report on Dental
Education. American Dental Association, Chicago, 1986; 1992.
5. Survey Center, Trend Analysis: 1994/95 Survey of Predoctoral Dental Education
Institutions. American Dental Association, Chicago, 1995.
6. Survey Center, Academic Programs, Enrollment, and Graduates: 1995/96 Survey of
Predoctoral Dental Education Institutions. American Dental Association, Chicago, 1996.
7. Gibson RM, Waldo DR et al, National health expenditures, 1982. Health Care Financing
Review 5:1-31, fall 1983.
8. Waldo DR, Levit KR et al, National health expenditures, 1985. Health Care Financing
Review 8:1-21, fall 1986.
9. Office of National Cost Estimate. National health expenditures, 1988. Health Care
Financing Review 11:1-41, summer 1990.
10. Bureau of Economic and Behavioral Research. The Consumer Price Index and Dental
Practice. American Dental Association, Chicago, 1992.
11. Department of Labor, Bureau of Labor Statistics. CPI Detailed Report Jan 1993-1996.
12. Dental income survey shows upswing. ADS News 27:23-4, March 18, 1996.
13. Bureau of Economic and Behavioral Research, The 1982; 1986; 1993 Survey of Dental
Practice. American Dental Association, Chicago, 1983; 1986; 1994.
14. Distribution of dentists. ADS News 28:4, March 17, 1997.
15. Internal Revenue Service. Statistics of Income Source Book: Sole Proprietorship Returns,
1957-1984. Government Printing Office, Washington, DC, 1986.
16. Internal Revenue Service. Statistics of Income Source Book: Partnership Returns, 1957-1984. Government Printing Office, Washington, DC, 1985.
17. Sole proprietorship and partnership return information tables. SOI Bulletin, 6-16;
summer, fall 1984-1996.
To request a printed copy of this article, please contact/H. Barry Waldman, BA, DDS,
MPH, PhD, Department of General Dentistry, School of Dental Medicine, SUNY Stony
Brook, NY 11794-8706.
