Is the corporate bubble about to burst?
A recent report that Oasis was seeking to raise an additional £250 million to finance expansion raises the question of whether corporates are viable in the long term or will the bubble burst.
During the last 20 years, they have shown considerable growth. They have well over 800 practices, employ over 3,000 dentists and their market share is around 10%.
Since 2006, when the dental market was opened up, 11 new corporate groups have been set up. They have bought up many established practices and well as opening new ones.
Many of them have been successful in securing new NHS contracts.
There is certainly a ‘bubble’; why should it burst?
The answer is that, although corporates have significantly increased their turnover, they are not making profits. Indeed there is not, nor has there ever been, any profit in NHS dentistry.
The taxman calls the amount that self-employed dentists have left over once they have paid their expenses as profit. As far as a company is concerned, however, that is not profit.
Profit for a company is the amount left over after all costs have been met. including payment of their staff. This can then be paid to the owners or shareholders.
The NHS payment system was designed so that after expenses were paid, the dentist would have net earnings before tax of an amount decided by the Review Body.
If dentists collectively earned more than that amount, ie: if they made a profit, the government clawed it back in later years or cut fees as in 1992.
Most corporates appear to adopt a business plan which to quote the boss of Oasis is to pursue ‘aggressive expansion plans.’ Buy more practices increase turnover, then sell at a profit. But the question remains as to how long this merry-go-round can continue.
By all accounts corporates are trying to reduce their costs. But the days of the expansion in the NHS, which they have taken advantage of in recent years, appear to be over. The dental corporate bubble could be ready to burst.