NHS DENTAL LABORATORY SECTOR IN CRISIS, May 2002

May 4, 2002

Press Release - 4TH MAY 2002

Issued on behalf of the UK Dental Laboratories Association and LCS International Consulting Ltd.

NHS DENTAL LABORATORY SECTOR IN CRISIS’

The UK Dental Laboratories Association (DLA) released today, their annual industry survey report. Major findings from the Report (prepared by healthcare specialists LCS International Consulting Ltd) are:-

· Volume growth in the last year in the UK (mirroring trends in Europe, North America and Pacific Rim countries) has derived in the main from new products such as Belleglass composite resin crowns, Fortress and non-precious bonded crowns, composite inlays (Artglass), composite/all-ceramic restorations, Targis Vectris, Empress 2, superior high-gold bonded work and ‘implants’. None of these products are available on the NHS.

· Fee inflation for NHS laboratories continues to be limited by the annual rises granted by the ‘Doctors and Dentists Annual Review Body’ recommendations. NHS laboratories often only distinguish their product on a price basis with very low weighting given to quality and reliability. Conversely, dental laboratories undertaking predominantly private work, have benefited from rising fee rates charged by private dentists. Throughout this period they have also gained from the patient trend away from capitation schemes to a ‘fee per item’ basis.

· Different trends in private and NHS laboratory fees are not set to change. Currently, the ratio for private dentists’ fees/dental laboratory costs are around 4.5-5.0 : 1, similar to numbers in Europe and North America. These relatively high margins for the dentists enable them to absorb higher laboratory charges for better quality work and still increase their own returns. In comparison, the ratio for dentists’ fees/dental laboratory costs re. NHS work is much lower - no higher in many instances than 2.0-2.5 : 1. Inevitably, the margin pressures on NHS dentists limits the scope for laboratories to benefit from any future increase in NHS reimbursement rates.

· Turnover per technician in NHS laboratories in the last year is in the range of £28,000 to £32,000 per annum. The comparative figure for laboratories with predominantly private work is £60,000 to £65,000 per annum. As a result :-

(1) Average wage rates for technicians in predominantly private laboratories is on average 30% higher than those in NHS laboratories

(2) NHS laboratories are experiencing increasing difficulties in hiring and retaining fully trained and/or experienced staff

(3) In most instances NHS laboratories cannot afford to take on trainees and educate them, nor invest in courses to train their technicians to work with new products and new materials

(4) NHS laboratories do not have access to capital (nor in many instances the inclination) to invest in new equipment that might improve the level of turnover per employee over the longer term

(5) There is increasing risk that NHS work in future will have to be undertaken by lesser skilled/inexperienced technicians

· The dental laboratory sector is very fragmented. The average size of firms remains small. Fewer firms, medium term will continue to provide a full range of services. Lab 2 Lab work will inevitably increase. Improving logistics will also accelerate the trend to relocate laboratories away from the more expensive parts of the country such as London and the South East.

· The greatest problem for all laboratories, NHS and private, is finding competent staff. Consequently premium rates for trained and experienced technicians are increasing. Mirroring trends in the US, highest premium rates are paid to crown and bridge specialists and ceramists. These trends are set to continue because there are insufficient numbers of trained technicians able to support the increasing volumes of private work. Medium term therefore, more importing is an inevitable consequence.

· The greatest technical challenges faced by laboratories in the UK are meeting production deadlines, and difficulties caused by dentists’ vague prescriptions and inadequate preparatory work. A smaller number experienced difficulties with new materials and equipment.

· One of the most surprising findings of the survey is that there is little difference in productivity in the UK, between private and NHS laboratories despite different levels of capital investment. Their productivity rates are also similar to those exhibited in other parts of the world. Laboratories in the UK which carry out predominantly private work and many larger laboratories in Europe and North America, accept the premise that in part lower productivity levels are a reasonable trade-off for higher quality product.

In summary any new investment in the sector is likely to be limited to laboratories that provide predominantly private work. Concerns over the quality of NHS product may well in due course undermine the confidence of the consumer/patient. The relatively ‘light’ level of regulation today is another important issue.

FOR FURTHER DETAILS PLEASE CONTACT:

William Courtney, Chief Executive, The UK Dental Laboratories Association,
0115 925 4888

Andrew Ball, Chairman, The UK Dental Laboratories Association,
01260 273274

Paul Saper, Director, LCS International Consulting Ltd
020 7009 0290

ADDITIONAL BACKGROUND INFORMATION FOR EDITORS

The UK Dental Laboratories Association has around 950 member laboratories who in total employ approximately 3,000 qualified dental technicians. The Association was founded in 1961 and has been undertaking annual industry surveys since 1995.

As at December 2001, LCS’s estimate of annualised turnover for the UK dentistry market is in the order of £3.05 – 3.15 billion. This represents an annual spend of only £60 per capita, less than 35% of the comparable level in the United States.

The largest element is the general dental practice sector, which LCS estimates at around £2.80-2.85 billion. The latter sector has been growing at around 5.5-6% per annum over the last five years, and is one of the faster growing sectors of the UK healthcare market, as dentists and patients have transferred from the NHS to higher quality private dental care. The size of the private sector at end 2001 on an annualised basis is over £900 million per annum.

UK dentistry employs in excess of 75,000 people in the UK, including the industry’s own best estimate of around 10,000 qualified and unqualified laboratory technicians. The number of dentists in the UK who are professionally active equates to approximately 1 dentist for every 2,000 heads of population, very similar to the USA but much less than comparative numbers in many countries in W Europe. In France, Germany and Italy the ratios are 1.35 per 2000, 1.63 per 2000 and 1.9 per 2000 respectively. The ratio of dentists to laboratory technicians in the UK and the US are also similar (circa 2.7:1). However, both again are out of line with ratios in France, Germany and Italy which are 1.9:1, 1.6:1 and 1.4:1 respectively.

The number of dental laboratory premises in the UK is circa 2700. Around one third, a little over 900 dental laboratories are affiliated to the DLA. Overall the UK sector remains very fragmented. The average size of laboratories is less than 4 technicians which is significantly smaller than the average size of laboratori The average size of laboratories is less than 4 technicians which is significantly smaller than the average size of laboratori The average size of laboratories is less than 4 technicians which is significantly smaller than the average size of laboratories in the US.

Estimated total size of the UK dental laboratory sector at the end of 2001 is approximately £285-290 million. Around £75-80 million, just over 25%, is predominantly private work. The most significant event that has impacted the sector in recent times was the overhaul of NHS prices in 1992 which not only reduced NHS fee rates to dentists, but also cut the level of fees paid to NHS laboratories.