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Howard Speaks: How Will Inflation Affect Dentistry? by Dr. Howard Farran

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Categories: Financial Planning and Investments; Practice Management, HR and Accounting;
Howard Speaks: How Will Inflation Affect Dentistry 

by Howard Farran, DDS, MBA, publisher, Dentaltown magazine

I’m old enough that I’ve lived through the previous era of real inflation in the United States: 1970–1982.

When I was a kid, my father owned a slew of Sonic drive-in restaurants, and one of my jobs was to scrape prices off the menu boards with a razor blade and replace them with new, higher prices. Every week, things would creep up a nickel. As a consumer during those times, inflation got so bad that it felt like if you got paid on a Friday, you needed to go cash that check ASAP and buy whatever you needed that same day, because the price was going to go up Saturday, Sunday or Monday.

In the late 1970s, in an attempt to crush that surge of inflation, U.S. Federal Reserve chairman Paul Volcker raised the federal interest rate into double digits—sometimes up to 20%!—in his attempt to crush that surge of inflation. And it worked. Anyone who grew up during the next 40 years or so hasn’t lived through a period of true inflation.


Exercise caution …

Earlier this year, current Fed chairman Jerome Powell raised the federal funds interest rate another 0.75%, to a benchmark of 2.25%–2.5%, and while that rate mostly affects what banks charge each other for long-term loans, it also affects consumer products like adjustable mortgages and credit cards. The halcyon days when auto dealers were offering 0% financing for purchases are mostly over, for now.

There’s a chance the Fed could raise the interest rate more over the next year, too. So it’s important to make sure all your loans are fixed-rate ones; the people I know who got wiped out the worst during the earlier inflationary period had floating interest rates.

This is also not a time to be picking up extra “toys”; if it flies or floats, you don’t buy it, you sell it. Take a good look at how you’ve been living: It may be time to downsize that lifestyle to match what you see going on in the practice that funds that lifestyle.

Earlier this year, for example, I realized I was an empty-nester in a giant house, most of which I never spent time in. I sold it a few months ago and moved to a smaller place—and the timing couldn’t have been more perfect because real estate prices in Phoenix have begun to drop slightly, so I got out at what might’ve been the top of the market.


… but don’t panic just yet

Over the past few years, we’ve seen the airline and food service industries lay off staff members when times were tough but struggle to find employees willing to fill those same positions once business starts to pick up. Those employees found similar-paying jobs in other industries, which often included an enticing element like flexible scheduling.

Dental practices have already been having problems finding good people to fill available positions, so take into account that if you consider reducing the size of your team even further, you need to be comfortable with the idea that your practice will remain that small for a very long time.

I’ve been saying forever that general dentists shouldn’t rest their practices on a high-volume, low-margin model, and that’s particularly true now. PPO reimbursements don’t increase throughout the year just because the dentist’s costs do. So dentists who refer out high-margin work such as root canals and implants are denying themselves the opportunity to earn more. At that point, if you’re just doing general dentistry, why bother with the costs and stress related with an office? Go work at a DSO and save yourself the grief.


Conclusion

We don’t know for sure what’s going to happen next—anyone who says they do is a palm reader. But now more than ever, it’s time to reduce your costs and keep your cash! And please share your thoughts and suggestions for readers in the comments section under this article below.
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