With the federal government investing $13 billion over five years — starting in the 2023 fiscal year — and $4.4 billion annually thereafter into the Canadian Dental Care Plan (CDCP), some dentists might assume practice values are poised to rise.
The reasoning is straightforward: more people will seek treatment, and those who previously paid out of pocket will now have coverage, potentially boosting revenue. But experts caution that only dentists who manage the program well — particularly through balance billing and co-pay collection — will see lasting gains.
[You can read more about balance billing in part 1 of the series: Can you still profit while accepting CDCP patients?]
“When you’ve got the government spending $4.4 billion on 20 per cent of the population in an industry that only does $22 billion in revenue a year, there’s bound to be a significant increase,” said Bill Henderson, broker and senior transition sales consultant at Tier Three Brokerage.
“Dentists who accept CDCP patients and balance bill to their normal fees should see an increase in overall practice profits, and potentially an increase in profits relative to revenue. If by profitability you mean profits divided by revenue, then as revenue goes up — so long as some fixed costs remain constant — there should be an improvement in the bottom line.”
A practice’s value is largely based on profits and cash flow, often referred to by the technical term EBITDA — earnings before interest, taxes, depreciation and amortization.
“It’s a multiple of that EBITDA, and broadly speaking across Canada, that multiple, depending on the buyer, can range from four to eight times,” said Bernard Dolansky, senior national partner, transition consultant and salesperson at Tier Three Brokerage.
“So, what that means is every dollar of cash flow or profit you lose — let’s use six as a middle number — is essentially worth $6 in practice value. If you’re not balance billing, or worse, not collecting all of the co-pay, every dollar lost will reduce your profit and, on average, reduce your practice value by about six times that amount.”
Read related story: The Canada Dental Care Plan: Missing pieces – A commentary on the national dental program
Related story: The CDCP and data: You don’t improve it if you don’t measure it
How buyers think
Buyers are also wary of practices that don’t balance bill, Dolansky said.
“If a buyer sees that a portion of your patients are used to not being balance billed, they’re going to be cautious,” he said. “It’s hard to change patient behaviour after a sale. The buyer may lose that patient — and feel like they paid for a practice with unstable earnings.”
With an estimated 200 to 250 dentists retiring in Ontario each year, failing to balance bill can make selling a practice more difficult and reduce its value.
“You can’t fake profitability,” Henderson said. “If a clinic is undercharging CDCP patients or not collecting co-pays, that will be obvious in the numbers. Buyers know what to look for.”
Still, there are bright spots.
“Practices that offer high-quality care and stick to the provincial fee guides, while balance billing and collecting co-pays, are well-positioned to benefit from CDCP,” Henderson said.
For dentists deciding whether to accept new CDCP patients, Henderson said it depends on their practice model. “If your schedule is full and your practice is thriving without the CDCP, maybe you hold off. But most dentists aren’t in that position. Refusing to accept CDCP could mean losing existing patients.”
Dolansky agreed: “Patients may not understand why their dentist isn’t accepting a plan that covers part or all of their treatment. That could lead to attrition — which hurts your bottom line and your valuation.”
When asked whether CDCP could increase a clinic’s value, Chief Operating Officer Jackie Joachim of ROI Corporation Brokerage said it could — but only if cash flow benefits.
“CDCP will allow patients to come to the clinic who otherwise wouldn’t have been able to before,” she said. “For the most part, investors seem to embrace it. Remember, investors are businesspeople. If this provides access to more patients, then from a business model, why would they not want to embrace it? From the buyers we have spoken to who would be looking at an office to own and operate, most have been very positive. Perhaps they are keen given the size of loan they will need to take on to acquire the office.”
LISTEN: What Needs to Change for the CDCP to Work
CDCP boosts Dentalcorp’s Q2 standing
The impact of CDCP on practice growth is already evident among large dental networks.
Citing continued growth through acquisitions and increased patient volumes under the federal plan, Dentalcorp Holdings Ltd. recently reported record-high adjusted free cash flow in its second quarter. The company, considered Canada’s largest and one of North America’s fastest-growing networks of dental practices, said it delivered care to more than 125,000 patients under CDCP during the quarter, with 95 per cent of its clinics now serving eligible patients.
“Ultimately, deliver exceptional service to every person who walks into the office,” Joachim said. “Making people feel valued and appreciated is key.”
(This is part two of a two-part series on the CDCP from a practice management perspective. Part 1: Can you still profit while accepting CDCP patients?)