The Affect of Delta Premier on Dental Practice Valuations

Hey, everyone. This is an AI conversation covering our recent personally authored blog post on our Practice Orbit website. Enjoy.

Hey, everybody, and welcome to another Deep dive with us.

Glad to be here.

Today we're going to be tackling something that's pretty important for anybody involved in dental practices, especially. Yeah, especially if you're thinking about buying or selling one.

Right.

We're going to be looking at Delta Premier and how it affects the valuation of dental practices.

This is a big one.

It really is. And you know, it's something that a lot of people don't even realize is a factor until it's too late.

Yeah, you can get caught off guard.

Exactly. Like imagine buying a practice for, you know, a couple million dollars, and then suddenly it's worth way less than you thought because of this Delta Premier thing.

That's the nightmare scenario, right?

It is.

And it's happened more often than you'd think.

So what exactly is Delta Premier for those who aren't familiar with all the ins and outs of dental insurance?

Well, it's kind of like the Platinum club of Delta dental plans.

Okay.

You know, back in the day, Delta used to offer these higher reimbursement rates to dentists, but they don't do that anymore.

Yeah. So it's like a grandfathered thing.

Exactly. It's grandfathered in. And the practices that still have it are hanging onto it for dear life.

Because it means they're getting more money for the same procedures.

Exactly. And that can make a huge difference in the profitability of a practice.

So what happens when a practice with this Delta Premier status is sold? Does the new owner automatically get to keep those higher rates?

That's the million dollar question.

Literally.

Often Delta will downgrade the reimbursement rate to the standard PPO level when ownership changes.

So basically, the new owner gets hit with a pay cut.

Essentially, yeah.

That doesn't seem fair.

Well, Delta's perspective is that those higher rates were meant for the original dentist who earned them.

I see.

And they don't want to just hand them out to anyone who buys a.

Practice that makes sense from their point of view.

Right. But it can create a real headache for buyers and sellers because the seller.

Might think their practice is worth more than it actually is.

Precisely. And if the buyer isn't aware of this potential downgrade, they could end up paying way too much and then potentially.

Go bankrupt, like you mentioned earlier.

Exactly. It's a huge risk.

So how can buyers protect themselves? I mean, how do they know if a practice's valuation is realistic considering this whole Delta Premier situation.

Due diligence is key.

Okay.

Buyers need to dig into the numbers and really understand where the practice's revenue is coming from.

So they need to find out what percentage of patients are on Delta Premier.

Absolutely. And they need to figure out how much of the practice's income is tied to those higher reimbursement rates, because that's.

The amount that's at risk of disappearing.

Right.

And savvy buyers, brokers and bankers, they know to factor this in when they're evaluating a practice.

They'll look at the practice's collections and then estimate how much of that is likely to be lost because of the Delta Premier downgrade.

So they basically subtract that amount to get a more realistic picture of the practice's income.

Exactly. And that adjusted income is what they use to determine the practice's value.

So it's not just about looking at the top line revenue.

No, it's about digging deeper and understanding the nuances of the business.

So let's say a practice is collecting a million dollars a year.

Okay.

And they estimate that they'll lose $45,000 because of the Delta Premier downgrade.

That's a significant chunk of change.

It is. So does that mean the practice is automatically worth $45,000 less?

Not necessarily. It's a little more complicated than that.

Okay.

You see, banks use what are called underwriting standards to assess risk when they're deciding how much money to lend for a practice purchase.

So these standards are like a set of rules.

Exactly. They help the bank determine how. How stable the practice's income is, and therefore how risky the loan is.

So if a practice's income looks shaky because of this Delta Premier downgrade, then.

The bank might not be willing to lend as much money.

And that could limit how much a buyer can afford to offer for the practice.

Exactly.

So that $45,000 reduction in collections could actually translate to a much bigger difference in the practice's valuation.

Absolutely. It could easily mean a difference of $100,000 or more.

Wow. So this is a pretty big deal.

It's huge.

And you mentioned earlier a practice that went bankrupt after being sold.

Yeah, that's a cautionary tale.

What happened there? Did the buyer just not realize what they were getting into?

It's likely they didn't fully grasp the financial ramifications of the Delta Premier downgrade.

So once those higher reimbursement rates went.

Away, the practice's profitability plummeted and they couldn't recover.

It's a stark reminder of why doing your homework is so important.

Absolutely. You can't just assume that everything will stay the after a sale.

But I'm guessing it's not always this dramatic. I mean, there must be some cases where the Delta Premier impact is pretty minimal.

Of course, you're right.

Okay, good.

Every practice is unique, right? And the impact of the Premier downgrade really depends on the specific circumstances.

So what would be an example of a situation where it wouldn't be a big deal?

Well, imagine a practice where only a tiny percentage of their patients are on Delta Premier plans. In that case, even if those patients are downgraded to the standard PPO rate.

The financial impact wouldn't be that significant.

Exactly. It might be a small dip in revenue, but nothing that would make or break the practice.

So it's all about understanding the numbers and knowing what questions to ask.

Precisely.

This has been incredibly insightful.

I'm glad to hear that.

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We've covered a lot of ground in this first part of our Deep Dive, but there's still so much more to explore.

There is.

We've mainly been talking about the seller side of things so far.

Right.

But what about the buyers? What questions should they be asking and how can they use this knowledge of Delta Premier to their advantage in negotiations?

Those are great questions.

We'll delve into those and more in part two of our Deep Dive. So be sure to join us then.

Looking forward to it.

See you there.

See you then.

All right, so we're back and we've talked about how tricky this Delta Premier situation can be for sellers, especially if.

They'Re not upfront about it.

Right. Like they might be tempted to kind of sweep it under the rug, hoping.

The buyer won't notice.

Exactly. So let's flip the script and talk about the buyer's perspective. Okay, what are some red flags that buyers should be looking out for?

Well, first and foremost, they shouldn't just take the seller's word for it.

Yeah. Trust but verify.

Exactly. Buyers need to be proactive and do their own due diligence.

What does that look like in practice?

It starts with getting a clear understanding of the patient base.

Okay.

How many patients are on Delta Premier plans? What percentage of the practice's revenue is coming from those patients.

And if it's a small percentage, then maybe it's not a big deal.

Right. The impact of a downgrade might be.

Negligible, but what if it's a large chunk of the practice's revenue?

Then the buyer needs to proceed with.

Caution and potentially use that information to their advantage in negotiations.

Absolutely.

I mean, imagine walking into a negotiation knowing that the seller's asking price is inflated because they haven't fully accounted for this potential revenue loss.

That's a powerful position to be in.

It is. It could give the buyer some leverage to negotiate a better price. So it's not just about avoiding a bad deal.

It's also about potentially getting a great deal.

Right, but what if the seller tries to downplay the importance of Delta Premier?

Like, maybe they argue that their patients are super loyal and won't switch dentists just because of a change in insurance.

Right. They might say, oh, my patients love me. They'd never leave.

That's when a buyer needs to be.

Skeptical and look at the hard data.

Exactly. Don't just rely on anecdotal evidence, because.

Let'S face it, sellers are always going to try to paint their practice in the best possible light.

It's human nature.

It is. But as a buyer, you can't afford to be naive.

You got to be smart about it.

So what are some concrete steps buyers can take to protect themselves?

Well, for starters, they should demand to.

See the numbers, the actual financials of the practice.

They need to see the breakdown of revenue by insurance plan to verify what.

The seller is telling them.

Exactly. And they should also consult with experts.

Like who?

Financial advisors, experienced dental practice brokers, people who can help them analyze the numbers and understand the potential risks and opportunities.

So it's like getting a second opinion.

Precisely. You don't want to go into this blind.

And once they have all this information, what should buyers do with it?

Well, they can use it to make a more informed decision about whether or not to buy the practice.

And if they do decide to buy.

It, they can use this knowledge to negotiate a price that reflects the true.

Value of the practice, taking into account the potential impact of the Delta Premier downgrade.

Exactly.

This is all about empowering buyers, giving.

Them the tools they need to make.

Smart decisions so they don't end up in a situation where they overpay for.

A practice and potentially put their financial future at risk.

We've been focusing a lot on the financial aspects of this.

Right.

But there's also a human element to all of this.

There is. It's important to remember that we're not just talking about numbers here.

We're talking about people's livelihoods, the dentists.

The staff, the patients and how all.

Of this affects them.

That's a great point. And it's something we'll explore in more detail in the next part of our deep dive.

Stay tuned, because we'll be back with part three where we'll delve into the human side of this Delta Premier issue.

It's going to be interesting.

All right, so we're back for the final part of our Delta Premier deep dive.

Looking forward to wrapping this up.

Me too. And, you know, we've been talking a lot about the dollars and cents.

Right. The financial side of things, but like.

We mentioned at the end of the last part, there's a whole other dimension to this.

The human side.

Exactly. We're talking about real people's lives.

Absolutely.

Dentists who have built their practices over years, sometimes decades, staff members who rely on those practices for their income and.

Often form close bonds with the patients.

Right. It's like a family.

It really is, in many cases.

And then, of course, there are the.

Patients themselves who trust these dentists and staff with their health.

So how do we balance the financial realities with the human impact? Because it seems like those two things can sometimes be at odds.

Yeah, they can. And that's where things can get tricky.

So what's the solution? How can we make sure that everyone's interests are considered?

Well, I think communication is key.

Okay.

Buyers and sellers need to be upfront about their expectations.

So no hiding the ball.

Exactly. Everyone needs to be on the same.

Page, and they need to try to understand where the other person is coming.

From, put themselves in their shoes.

Because it's not just about getting the best, best deal for yourself.

It's about finding a solution that works.

For everyone, that benefits, all parties involved.

Right. And sometimes that might require some creativity.

Okay, I like that. Give me an example.

Well, let's say you have a seller who's built a really strong reputation in the community.

They've got that loyal patient base. We were talking about earlier.

Exactly. And maybe the buyer recognizes the value.

Of that, so they offer a slightly higher price to acknowledge that intangible goodwill.

It's like saying, hey, we know this practice is worth more, more than just the numbers on paper because there's a.

Human element that's hard to quantify. Or what about a situation where the seller agrees to stay on for a while after the sale?

Kind of like a transition period.

Exactly. To help with the handoff and ensure a smooth transition for the patients and the staff.

That could be really beneficial.

It provides some continuity and peace of mind for everyone involved.

And it allows the new owner to learn the ropes from someone who knows the practice inside and out.

It's a win win.

Absolutely.

So it's not just about the money.

No.

It's about people, their relationships, their livelihoods, their health.

And at the end of the day, that's what really matters.

This has been such an eye opening conversation.

I'm glad you found it helpful.

I really have, and I think our listeners will too.

I hope so.

We've covered so much ground in this.

Deep dive, from the financial complexities to the human element.

And we've learned that knowledge is power.

It really is.

The more you understand about this Delta Premier situation and how it can impact dental practice evaluations, the better equipped you'll.

Be to make informed decisions whether you're.

A buyer, a seller, or even a patient. So thanks again for joining us for this deep dive. It's been a pleasure and to our listeners. Be sure to stay tuned for more insightful conversations in the future.

We'll see you next time.