Inflation is not increasing cost of dental care in America

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Lagging inflation rate for US dental services squeezing clinic profits and dentist incomes

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The annual inflation rate for US dental services is trailing the overall inflation rate, meaning that increases in the cost of running a dental clinic are not being matched by increases in income. (Image: Andrey_Popov/Shutterstock)

CHICAGO, US: The annual inflation rate for dental services has dipped well below the rate of overall inflation in the US. This key development reverses a 25-year trend and is putting pressure on the profit margins of dental clinics, according to industry insiders and the American Dental Association’s (ADA) Health Policy Institute (HPI).

The trend was revealed in an October webinar that provided a third-quarter update on the state of the dental economy using fresh data from HPI and the Bureau of Economic Analysis (BEA).

BEA data sets concerning the dental and health sectors from 2000 to 2022 showed gradual climbs cut short by chasmic pandemic-induced falls in early 2020. In most cases, data values had not fully recovered from the falls and remained below pre-pandemic levels.

Spending on US dental services in August (adjusted for inflation and seasonally adjusted to an annualised rate) showed an annual spend of US$113.4 billion (€114.9 billion), which represented an increase of 6.4% from last year and a decrease of 9.0% compared with pre-pandemic levels. In early 2020, before the pandemic affected western dental markets, US dental spending peaked at US$124.2 billion.

Dental spending was also shown to be lagging behind other healthcare spending. In August, dental spending was equivalent to 91.4% of what it was in February 2020. Spending on physician services, however, stood at 97.8% and spending on overall healthcare services had returned to 100% of pre-pandemic levels. “Spending on dental services has been flat for the past six months,” Bradley Munson, senior research analyst at HPI, pointed out.

Of greater concern to the panel, however, were data concerning annual inflation rates. Data from the Consumer Price Index for August showed that the annual inflation rate for dental services was 4.7%. This figure is based on the price paid for dental services by patients and insurers and is well below the US inflation rate for all items, which stands at 8.2%. In effect, this means that increases in the cost of running dental clinics are not being matched by increases in income. HPI polling data confirmed that the majority of US dentists who participate in insurance networks reported that insurance reimbursement rates have stayed roughly the same for the past 12 months.

Munson explained that this represented an unusual moment in how these trends compare: “For the past year, dental services inflation has remained well below inflation overall, whereas for the past 25 years prior to 2021, dental services inflation was usually higher than overall inflation.”

“We are not seeing an increase in fees. It is a real challenge, and we are definitely having massive margin compression this year.” Stephen Thorne, CEO, Pacific Dental Services

According to Munson, increases in operating costs at dental clinics, combined with stagnating reimbursement rates from insurers, are likely to be putting pressure on dental clinics’ profits and on the net income of dentists.

On the panel was Stephen Thorne, founder and CEO of major US dental support organisation (DSO) Pacific Dental Services. Thorne said that the DSO was experiencing not only huge patient volumes but also significant margin pressures. Citing factors such as inflation, the war in Ukraine and spikes in SARS-CoV-2 infection, he commented that 2022 had so far been more challenging than 2021. “We are not seeing an increase in fees. It is a real challenge, and we are definitely having massive margin compression this year. It is very difficult,” Thorne acknowledged.

Panel member Dr Krishna Aravamudhan, vice president of the ADA Practice Institute, said that the trailing dental services inflation rate was the biggest story currently in US dental economics. Speaking about the lack of adjustments made by insurance payers, she said: “I’m sorry I am the bearer of bad news, but I think this is going to be financially challenging. I think [the insurance] industry, they are well aware of the data but we are not really seeing the market step up and say, ‘Let’s raise rates.’” Dr Aravamudhan said there had been increases of 1%–2% in insurance rates in certain parts of the US, as well as related incentives and loyalty programme initiatives from some providers.

According to Thorne, the problem may not be endemic to dental care. He explained: “It is a challenge in healthcare, in all of healthcare, because the cycle for pricing changes in healthcare isn’t weeks or months. Sometimes it is not even years, it is multiple years, because of the payer system and how it works. The payers are the employers and they have to be willing to invest some money.”

The webinar is available to view on demand on the ADA website.

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