Rising labor costs are exacerbating hiring challenges and increasing competition among DSOs, according to Barry Lyon, DDS.
Dr. Lyon is a chief dental officer for the division of orthodontics and pediatric dentistry at Sarasota, Fla.-based DSO Dental Care Alliance. He recently spoke with Becker's about rising labor costs in the dental industry and how they are affecting DSO operations.
Editor's note: This Q&A is part of a weekly series featuring Dr. Lyon focused on topics in the dental industry and DSO field. Responses were lightly edited for clarity and length.
Question: How is the rising cost of labor affecting DSOs?
Dr. Barry Lyon: Operational costs are universally rising, especially with labor, supplies and equipment. With few increases in reimbursement rates and/or increased fees, margin compression occurs. Practice operating profit as a percentage of collections is declining in many dental practices.
In some industries, wages are actually decreasing, as employees are looking for the best positions and not necessarily the highest pay. According to the Bureau of Labor Statistics, real average hourly earnings for all employees decreased by 1.7 percent from December 2021 to December 2022.
However, in the dental industry, we're seeing wage increases with dental assistants, dental hygienists and dentists. The average annual salary for dental assistants has risen in the last five years to the level of $42,510 in 2021. We're seeing similar wage increases for dental hygienists. According to an RDH Magazine survey, of those hygienists earning between $40,000 and $80,000, 33.5 percent earned $70,000 or more in 2020, but 43 percent earned more than $70,000 in 2021. The percentage of those hygienists earning over $80,000 went from 15.5 percent in 2020 to 21 percent in 2021.
The rising cost of labor in the DSO market is closely tied to the difficulty all DSOs are having recruiting, hiring and retaining personnel. When it comes to hiring dentists, competition for providers requires DSOs to think outside the box. Most often we're seeing candidates being offered signing bonuses in the range of $20,000 to $100,000. Keep in mind, these bonuses are being paid over time and not in full when the dentist signs their employment contracts. In addition to signing bonuses, dentists may be offered retention bonuses, paid on the anniversary of their hire date, as an incentive for the dentist to remain with the DSO. We're also seeing dentists being offered allowances for continuing education, relocation and travel.
Q: How much of an increase are dental professionals asking for in comparison to the wages being offered?
BL: As a result of the competition for providers, doctors are asking for and expecting 5 to 15 percent higher compensation in some markets.
Q: What dental positions are mostly seeking wage increases? Why do you think this is?
BL: I think the greatest increase in compensation is with dental hygienists.
Dental hygienists felt particularly vulnerable treating patients during the pandemic. According to the American Dental Association, less than half of the hygienists that left their jobs during the COVID-19 pandemic returned to work as of August 2021, and 1.6 percent no longer intended to work. This could represent a reduction of 3,300 hygienists. Naturally, a reduction in the number of available hygienists led to greater competition and higher wages.
Q: You mentioned that some industries are seeing wage decreases because employees are looking for the best positions and not necessarily higher pay. Why do you think this does not apply to the dental industry?
BL: There was significant pent-up demand for dental care during the pandemic. As more people became vaccinated and infection rates decreased, patients felt reasonably safe going to the dentist. Dental offices experienced "the great resignation" as did other industries, but the increased demand for care required dental offices to scramble to replace lost employees. Again, a labor shortage led to higher wages and if dental offices did not meet the demand for those higher wages, potential employees would have gone elsewhere.