Should We Charge Less?

For the foreseeable future, ADA research shows that there will continue to be an increase in the supply of dentists and  a decrease in the demand for our services by adults.  And yet we keep opening dental schools, but don’t get me started on that.

Anyway, if you are one of the many dentists who report a lack of busyness in your office, let me take a moment to go through a basic lesson in economics that we should have been taught in dental school.

Look at a basic supply and demand curve.

supply_and_demand

You can dig into the details here, but I’ll give you the gist.  The Laws of Supply and Demand essentially mean that as the price for a good goes up, the quantity demanded goes down but the supply of that good goes up.  You go out for sushi less when it gets too expensive, but the supply of sushi goes up because it’s a good business to be in.  If the demand gets too low then the sushi stores close and the price goes back down.  These competing forces on price typically reach an equilibrium point where the lines intersect (marked with the dotted line).

Now we agree that the supply of dentists is increasing because of slowing retirement and more dental schools opening, right?  Good.  That means the supply curve will shift to the right like this:

increase_supplyAn increase in the supply of dentists is an increase in the quantity of dentistry that can be performed.  If the demand for our services has not also increased, then that results in a surplus of our services, i.e. more empty chair time.  Note that the equilibrium point has sifted down.  We can improve the quantity of dentistry demanded by decreasing the cost.

 

 

Now everybody put your pitchforks down.  I’m not saying that charging less is a simple fix to the busyness problem.  And I’m not saying that dentistry costs too much.  But the public certainly seems to think that dentistry is too expensive.

It certainly hasn’t gotten any less expensive to run a dental practice, so it makes sense that we raise our fees annually as the cost of business increases.  But this is where dentistry fails to obey the Laws of Supply and Demand.  A surplus is supposed to drive the price down yet dentists are reluctant to reduce their fees.

It’s worth taking a look at your fees.  A fee-for-service practice that is slow may see value in taking on some PPO plans, which is one strategy to lower price and increase demand.  Another option is to offer your own discount plan.  Or maybe just lower your fees for certain procedures.  If we fail to respond to the current economic forces at play, we can’t be surprised when the market fails us.

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