Talking point: should I hand back my NHS contract?

Is it all doom and gloom for NHS practices?

While there has been a softening in NHS earnings before interest, tax, depreciation, and amortisation (EBITDA) multiples, this certainly doesn’t spell the end for the NHS market. As we explored in our most recent Interim Goodwill Report, which covered sales completed between 1^st April 2022 and 30^th September 2022, smaller practices with space for private growth are favourable in the independent market, while those with larger contracts and less desirable conditions for private growth may consider holding for the time being. However, I would go so far as to say that the market for NHS practices remains where they can be a private upside. Remember, the bank still loves NHS income and, as far as we can tell, will continue to do so. Despite the softening, there are still some big players out there.

If you’re looking to sell your practice, the main question you may be asking yourself is whether now is the right time to do so. Timing is an important factor, alongside your motivations. If you are wanting to sell an NHS practice, you should consider the ways that the business’ run rate can be built upon and the practice’s value increased. Bear in mind that the market is a cycle, and knowing where you currently sit on that cycle is impossible to predict. Therefore, predictions must be made based on the information that is currently at hand.

Patient membership plans – supporting the transition

So, handing back contracts. Before doing so, it’s vital to ascertain where you are in your career and whether handing back contracts would be a viable option at this time – are the associates within the practice well-established? This may impact patient loyalty. Also, you must be self-critical of your own business, and consider whether there are competitors offering similar private services in your vicinity. It’s also paramount to ensure that your dental practice can generate sufficient private income. Helping your staff see the benefit of going private is also important. This includes everyone from the associates, dental hygienists, dental nurses to the receptionists, who must be able to appreciate the advantages of a private conversion so they can communicate these to patients. Some patients may have concerns that the team will need to tackle, which means having a united front is paramount.

Once you’ve handed back your NHS contract, what would happen if that contract was purchased by a principal who then opened a practice close by? You may experience patients switching practices with a preference for NHS – however, you may also find that patients, unable to get an appointment in a reasonable timeframe, will drift back to your business. You won’t be able to predict what the outcome will be so it’s a commercial gamble, but you do need to know your numbers beforehand so you know what you need to achieve to maintain your business value – for example, how much private gross do you need to replace the profit (not necessarily income) from 5,000 UDAs?

How can you help to ease the transition to private, if you’ve decided it’s the right time? Your practice may have already utilised patient membership plans – but, if not, it may be worth considering whether this could support the move to more private work. Leading patient membership plan providers may be able to help you plan more effectively for a private transition, offering analyses while determining your motivations and feasibility. Once the value of the NHS contract being handed back has been determined, they will help you supplement the contract value with recurring plan payments. The remaining income will then have to be made up by private income. A leading provider will take into consideration your available clinical hours and how that private income will be delivered in those hours. Additionally, they’ll take into account what’s going on in your local area, in terms of competition and other options for patients.

Are such methods of private conversion suitable for every practice? For businesses with a transitory patient base, or that are largely referral-based, plan memberships may not be entirely appropriate. However, for the majority of businesses, employing a membership plan scheme could help to make the switch to private more seamless.

Your choice

Ultimately, we’ve been hearing a lot about the NHS market, and it’s not all been good news. But, despite seeing a softening in the market, it’s certainly not over for NHS businesses. So, personally, I wouldn’t recommend handing back the entirety of your NHS contract in a hurry. Rather, plan and prepare so you, your staff and patients are ready for a potential switch in the future. As always, we shall have to see what changes unfold in the market over the coming months, especially following the recent announcements in the Autumn Statement.

For more information contact Dental Elite. Visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900

Author:

Luke Moore is one of the Founders and Directors of Dental Elite and has overseen well in excess of 750 practice sales and valuations. With over 19 years working in the dental industry, Luke has extensive knowledge in both dental practice transfers and recruitment and understands the complexities of NHS and Private practices.