Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Dental Industry
Transcript
- Lucas: If you've been to the dentist lately, you've probably noticed your bill has gone up. Not just the copay — the whole thing. And there's a reason for that. Luna: I have noticed. My last cleaning came with a line item for 'infection control fee' that I'd never seen before. I assumed it was just my dentist. Lucas: It's not just yours. The dental industry is getting squeezed by stagflation in a pretty specific way. On one side, costs for materials, equipment, and labor are climbing fast. On the other, patients are cutting back on anything that isn't urgent. Luna: So more people are skipping the crown and just hoping the filling holds. Lucas: Exactly. And when you look at the macro numbers, it makes sense. Core inflation hit 3.4 percent in May — that's the highest since October 2023, according to the Fed's preferred gauge. Meanwhile, unemployment is at 4.3 percent, not spiking, but not low enough to give workers leverage. Luna: And wages are barely keeping up. Average hourly earnings in the private sector are 37.5 dollars, up just a few cents from last month. Lucas: Right. So households are making tough choices. Dental care is one of those things people put off. It's not like rent or groceries. You can delay a filling for six months, maybe a year. And a lot of people are doing exactly that. Luna: But the dentist still has fixed costs. The rent on the office, the salaries for the hygienist and the front desk, the equipment leases. Lucas: And those costs are going up. One big one is supplies. A lot of dental materials are petroleum-based — things like composite resins, impression materials, even some gloves. Oil prices have been volatile, and that flows through. Luna: So the dentist pays more for the stuff they need to do the work, but patients are coming in less often or choosing cheaper procedures. Lucas: Right. And there's another layer: labor. Dental hygienists and assistants are in short supply. A lot of people left the industry during the pandemic and didn't come back. So practices have to offer higher wages to attract and keep them. Luna: Which cuts into the margin even more if you can't raise prices enough to compensate. Lucas: Exactly. So what's happening is a wave of consolidation. Large dental service organizations — DSOs — are buying up independent practices. They can centralize purchasing, negotiate better rates with suppliers, and spread administrative costs across more offices. Luna: But isn't that the same pattern we've seen in veterinary medicine, optometry, even primary care? The corporatization of healthcare. Lucas: It is. And it's accelerating. According to industry data, DSOs now account for about 15 percent of dental practices in the U.S., but they're growing fast. Some analysts think that could double in five years. Luna: For the patient, does that mean lower prices or just more standardized billing? Lucas: Probably the latter. The DSO model isn't really about passing savings to patients. It's about keeping the practice profitable in a tough environment. So you might see more upselling — 'You could benefit from a night guard' — but also more consistent pricing across locations. Luna: I wonder if we'll see a shift toward cheaper materials too. Like, instead of a ceramic crown, maybe more practices offer the old-school metal ones. Lucas: That's already happening. Gold and silver have been rallying — gold futures are above 4,000 dollars an ounce, silver near sixty. But those are the raw materials for dental alloys. So the cost of the metal itself is pushing up the price of premium restorations. Luna: Wait, so if gold is more expensive, wouldn't that make metal crowns less attractive? They'd be pricier. Lucas: Right, it's counterintuitive. But the alternative — ceramic or zirconia — also uses energy-intensive manufacturing, so their prices are up too. It's a double squeeze. Practices have to pass on some of that cost, and patients feel it. Luna: I read somewhere that some insurers are starting to limit coverage on posterior crowns to the metal option only. Is that a thing? Lucas: It is. Insurance companies are trying to control their costs, so they're pushing patients toward the cheapest clinically acceptable option. That means metal in the back, where it's less visible. But if metal prices keep rising, even that might not save them much. Luna: So the patient ends up paying more out of pocket, or they delay treatment, which leads to bigger problems down the road. Lucas: And that bigger problem often ends up in an emergency room, which is way more expensive — and that cost gets socialized. So there's a public health angle here too. Luna: Right. A toothache that could have been a 200-dollar filling becomes a thousand-dollar ER visit. Lucas: Exactly. And in a stagflation environment, where real wages are flat and essentials cost more, people are making those trade-offs. The dental industry is a really clear lens for watching that play out. Luna: It's also a lens for seeing how businesses adapt. Do you think the DSO consolidation will eventually lead to a 'dental insurance' model where you pay a monthly fee for basic care? Lucas: Some practices are already doing that. It's called a dental membership plan. You pay, say, 30 dollars a month, and that covers two cleanings, exams, and a discount on other procedures. It's a way to lock in recurring revenue and make care more predictable for patients. Luna: That feels like a smart hedge against stagflation. Steady subscription income for the practice, lower barriers for the patient. Lucas: It is. And it's growing. I've seen data that membership plans are up about 20 percent year-over-year among independent practices. It's a creative response to a hard environment. Luna: Before we go further, I want to mention something that's on my mind. Shows like this one — we deliberately don't run ads. No sponsors, no commercial breaks. It's a choice we made because we think the conversation is better without them. Lucas: Absolutely. And that means listener support is what keeps it going. If you've gotten something out of walking through the economy with us, there's a simple way to help: buy me a coffee dot com slash fexingo. No pressure, just an option. Luna: And it genuinely makes a difference. We hear from listeners who say the show helps them make sense of their own financial decisions. That's what we're here for. Lucas: So back to the dental industry. One more trend worth noting: some practices are investing in technology to offset labor costs. Things like intraoral scanners that replace messy impressions, or ai assisted X-ray reading. Luna: Does that actually save money, or is it just a marketing gimmick? Lucas: In the long run, it can save. The scanner costs maybe 30,000 dollars, but it eliminates the need for impression materials and reduces chair time. Over a few years, that pays off. But in a stagflation pinch, the upfront capital is hard to justify. Luna: So the big DSOs with deeper pockets can buy the tech, while the solo practitioner might have to wait. Lucas: Exactly. And that's the story of this moment — the haves and have-nots within the industry. The DSOs can absorb cost shocks, invest in efficiency, and build membership models. The independent dentist runs a tighter ship, and one bad month can be a real problem. Luna: It mirrors the broader economy in that way. Large firms with pricing power and access to capital do okay. Small businesses struggle. Lucas: It does. And it's a reminder that stagflation isn't a uniform experience. The headline numbers — 3.4 percent core inflation, 4.3 percent unemployment — they mask a lot of variation underneath. Luna: Well, next time I'm in the chair, I'll think about all this while I'm getting my teeth cleaned. Lucas: Just try not to flinch when they hand you the bill.