Starting in fiscal year 2023, the Canadian federal government will invest $13 billion over five years to support the Canada Dental Care Program (CDCP), with an annual investment of $4.4 billion thereafter.
Industry insiders believe this initiative may increase the value of some dental practices, as more patients who previously paid out-of-pocket will gain access to health insurance, leading to increased visits and revenue.
However, experts caution that this potential benefit is not automatic; practices must effectively manage billing and co-pay collection to ensure increased profits.
Bill Henderson, senior transition sales consultant at Tier Three Brokerage, noted, “When the government invests $4.4 billion to support 20% of the population, while the industry as a whole only generates $22 billion in annual revenue, the cost of care is bound to increase significantly. Dentists who can balance their billing will not only see increased revenue but also potentially higher profit margins.”
The value of a practice is typically determined by profitability and cash flow, measured by EBITDA (earnings before interest, taxes, depreciation, and amortization).
Bernard Dolansky, senior national partner at Tier Three Brokerage, said Canadian clinics typically trade at valuation multiples between 4 and 8 times EBITDA, with a median of 6.
“This means that for every dollar of lost cash flow, the clinic’s value could decrease by approximately $6. Failure to bill pro rata or missed co-payments can directly impact profits and valuations.”
He also warned that buyers should be wary of clinics with chronically imbalanced billing practices, as it can be difficult to change patient habits after a sale, potentially leading to patient churn and unstable revenue.
An estimated 200 to 250 dentists retire annually in Ontario. Improper accounting practices can affect both the difficulty and price of a clinic’s sale.
Henderson emphasized that clinics that adhere to provincial fee schedules, provide high-quality care, and strictly enforce co-pay collection are more likely to benefit from the CDCP. Whether or not to accept new plan patients depends on the clinic’s existing operations.
“If their schedules are full and their revenue is stable, they might hold off. However, most dentists risk losing existing patients if they refuse CDCPs.”
Dolansky agrees that patients often find it difficult to understand why a dentist would refuse a plan that covers their treatment, which can lead to customer churn and damage the practice’s value.
Jackie Joachim, COO of ROI Corporation Brokerage, is more positive: “CDCPs bring patients into the practice who might not have been able to see the clinic otherwise, creating a business opportunity for investors. Most potential buyers welcome this because it expands the patient base and increases operational stability.”
