Date: May 20, 2016
It is Too Quiet – Podcast
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Podcast 55: It’s Quiet. TOO Quiet!: When Demographics Shift or Not
Hello, this is Scott McDonald and welcome to the Perfect Place to Put a Practice podcast.
Today I have a topic that is important regarding fluctuations in the market. Unfortunately, it is a little difficult to describe adequately. Let me just share a call I received yesterday and it should be fairly clear what the issue is. A bright, middle aged dentist who had been practicing in a particular location on the East Coast for 15 years called and asked me the question: “My production is in decline and the calls for appointments are down. Is it because my demographics have shifted? I don’t think things are really different but I cannot tell what is happening. Why have things changed so quickly with no apparent reason?”
You might be surprised how often I get calls like this. The first suspicion is that there is a new practice in town that has recently opened and is grabbing all the patients. In my experience, this is rarely the case. Given a sufficiently large potential patient base, the scenario is outside the normal ebb and flow of patient activity. I know (as you do) that there are some natural seasonality to every market. For example, in some cities, July is down. In other places, August is awful. For some practice areas, November is either really good or really bad. The same is true of December. But what doesn’t change is the trend with the same area. That is why is makes so much sense to consider year-to-year versus month-to-month data in productions, collections, and new patients or clients.
What this particular dentist was describing was a trend that is real but it is not caused by a change in seasonality nor is a function of demographics. In this latter case, demographic shifts usually take a multi-year time frame to change the situation. Sure, it happens but it just takes a long-time to notice for most professionals. No, in this case, there are two factors that have to be considered. The first is government or regulatory change. The other is market confidence by consumers. Let’s look at these separately. Unfortunately, they can look very similar from inside the office.
Local regulations in the City or County can be dramatic and will have a very short time-frame. State changes can also have a similar impact. As an example, if the state decides that for someone to perform a particular procedure, they have to have an additional credential or certificate, this can have that kind of impact. We saw something like this when the Affordable Care Act was implemented. Within two months, it appeared as though the marketplace had shifted. Granted, professional practices are not going to be the targets of these changes most of the time but it can occur. When hygienists gained the ability to perform their services without being associated with a dentist, such a change occurred in several but not all states. Worker’s compensation and professional practice insurance, including things like the Americans with Disabilities act, had a similar influence that looked something like this. We note that city councils, state regulators like a medical board, or new legislation that is retroactive are the most likely culprits. They are not known for really studying out the impact of their actions. There is one such shift that we are expecting in California and New York. This is due to the increase in the Minimum Wage. In these two large states, it will jump in a short time to $15 per hour. The rate of increase is going to make many business owners pop their ears. Without getting into motivations, it will have the effect of becoming a very big increase in the cost of doing business for EVERY employer. Those who had been paying their employees at or above this threshold will have to increase what they are paying to everyone. Granted, the state and local governments that collect taxes will have a giant boon. But this will be offset in short order by a big round of layoffs. Those businesses that survive will down-size. Those businesses that cannot make the adjustment to their bottom lines will disappear or move. Experts predict that the natural response by government is to make it even more difficult to lay-off workers or to cut their benefits as they have in Europe. As so many studies have shown, this merely results in a hiring decline that forces businesses to shrink.
As a demographer, when these kinds of changes occur on a national level, I can predict that the national economy tanks as workforce demand shifts. But in this case, we are talking about state regulations that are not applied everywhere. States like Texas and Utah will not go along with supporting a nation wage increase (or similar mandate) which will tend to make the differences between neighboring states even more significant, benefiting some and hurting others. Keep in mind, the Federal Minimum Wage is only about $7.50. Doubling that in some locations makes the cost of doing business much higher than in others. Just as with the Right-to-Work laws that are found in about 26 states, they are the ONLY places where new jobs of any number will be found. It will increase the tendency to “vote with your feet” to where employment can be found. It is only AFTER a year or so that these trends will be noticed in the demographic shifts to new locations.
Therefore, while our friend may not notice any direct shifts in his demographic profile YET, there is a chill on consumer confidence. And that brings me to the second point.
While demographics won’t change quickly, when they do change, they are not likely to change back quickly. That is the point about migration changes. But the first step in the process is a change in attitude. In the city where our friend practices, there are not that many people looking for the exits. They are not fleeing as though Gozilla has just waded ashore in Tokyo Bay. But people are aware of higher taxes, fewer new jobs, increased cost of living (like going to the restaurant or finding an apartment with reasonable rent). No, the demographics aren’t different but the amount of money people have to spend on what they consider important is definitely going down. Now that their insurance is more expensive while offering less in the way of benefits, they will put off treatment. They will rethink their vacations. They won’t get non-urgent care. They will look for alternatives. At this moment, that is what he is noticing.
Now, don’t assume that I am cynical about the media but as a former newspaper reporter, I can say with confidence that most media people are not feeling these shifts. Oh, sure, the radio station has had some layoffs and salary cuts. The newspaper in town looks like it is going to close and go to an internet-only service. But reporters and news achors don’t own businesses. They don’t have to make a payroll. And for this reason, one should not look to them to see these trends coming. The very last people who will notice are those who are in education, employed by a university or research institution. No, YOU are the canary in the mine when it comes to the problems in the economy. Fortunately, professionals have the ability to make appropriate changes and to do so in a short-time frame. But it is not something that you want to wait to discover.
And that is what DoctorDemographics.com is here to help you determine as you plan for the future. This is Scott McDonald. Thanks so much for listening.