Dentist economics of Denther

By January 22, 2019Economics
Here we will take a look at the economics of Denther from the perspective of rational provider – a dentist working independently. We will try to find net yield of Denther for a provider focused on providing only consultations. We hope this preliminary analysis will lead to better understanding and help us improve the protocol.
In separate posts we will analyze the economics of Denther from a perspective of clinicians and insurance providers.
Providers
  • Consultant (diagnosis, review, research)
  • Clinician (examination, treatment)
Following the findings of Christensen (The innovator’s dilemma, pg. 37.), make a distinction between providers based on their cost structures and value networks. There can be drawn a clean line between providers who specialize in clinical work, and those who specialize in consulting.
Clinical work requires provider to invest high amounts of money into equipment. These investments increase the gross margins providers need to have in order to be profitable. They also pose an entry barrier and lower the competition. This is shown in table 1.
Investment
Competition
Entry barrier
Gross margin
Consultant
Low
High
Low
Low
Clinician
High
Low
High
High
Table 1: Cost structures and value networks
We believe it is unsustainable for a provider to pursue both paths simultaneously and will continue this analysis with assumption that most of the providers will fall in only one of these categories.
Consultant
Any dental provider can become a consultant in Denther. There is one global market for consulting services. This means that there is an extremely high competition in dental consultation service market.
Initial investments (fixed costs):
  • Computer: €1000
  • Time: 100h (one month)
  • Internet access: 50€ (one month)
Consultant needs to own a computer to look up the cases and provide diagnosis or a review. The computer doesn’t have any special requirements so we assume that it can be purchased for a 1000€ (12’ Macbook 2016).
Consultant can’t expect to start getting paid for their work immediately unless there is an unexpectedly high demand. Even if it can be expected, we assume here the worst case scenario where it takes 100 hours of free consulting work to start getting paid. This is due to the expectation that only the best providers will be able to get paid cases, or that there are minimal experience/success threshold for a provider to become reliable enough to get paid cases.
The cost of time depends on the current salary of provider. If provider earns 2000€ monthly net, and works normal 40 hour weeks (168 hours per month), the cost per hour is 12€. For this provider, the initial time investment is worth 1200€.
Internet access costs are rounded to 50€ but they may differ slightly between countries.
Costs of work (flexible costs):
  • Time: 12€/hour (opportunity cost)
  • Internet access: 50€/month
Monthly, this provider’s costs amount to cca 2050€. In the first year, including the initial costs, this provider will have costs:
Total Annual Costs: 2.050×12+1.250= 25.850€
This is the break even amount. If the provider earns more than this on average every month, it will pay off for them. If the provider wants to achieve 20% profit, they would need to earn 5200€ more.

Leave a Reply