JADA Continuing Education
Assessing the economic return of specializing in orthodontics or oral and maxillofacial surgery
DAVID W. CORDES, D.M.D., M.D.S.,
NEVILLE DOHERTY, Ph.D. and
RENE LOPEZ, M.P.H.
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ABSTRACT
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Background. The authors determined the economic returns from an educational investment in the specialties of orthodontics and oral and maxillofacial surgery. They also addressed problems found in previous studies.
Methods. The marginal return for specializing in orthodontics or oral and maxillofacial surgery was determined using net present value and internal rate of return, or IRR, with the income of the general dentist serving as the common opportunity cost. Extreme scenario, threshold and one-way sensitivity analyses were used to account for variation in the data.
Results. The median group of orthodontists broke even 5.9 years after specialty training and had a working lifetime net return of $271,536 above that of general dentists; the IRR for them was 10.36 percent. The median group of oral and maxillofacial surgeons broke even 2.3 years after training and had a working lifetime net return of $587,563 above that of general dentists; the IRR for them was 25.30 percent.
Conclusions. Under the most likely conditions, the authors found a positive economic return to dentists in both specialties from their additional dental training.
Practice Implications. The positive financial returns brought by specialization indicate that the demand for additional dental education should continue within an environment of increased educational investment costs.
Prospective candidates for the medical professions enter these professions primarily because of their interest in improving patients’ health. Although health care is the main impetus for entrance, students realize that their livelihood will depend in large part on the particular profession chosen. Therefore, candidates for the health professions and their specialties may need to balance the goal of benevolence with the economic realities before investing in the advanced professional training that is a prerequisite for these fields.
The positive financial returns brought by specialization indicate that the demand for additional dental education should continue.
The purpose of our study was to determine the economic viability of entering orthodontics or oral and maxillofacial surgery vs. practicing as a general dentist. We measured this viability by examining the marginal returns from additional human capital formation (that is, the additional revenue gained from an investment of additional resources in education). To this end, we used two standard capital investment methods—the internal rate of return, or IRR, and net present value, or NPV—to determine whether or not positive economic returns are realized from additional training in these specialties. The findings have a twofold impact. First, they are relevant for the recent dental school graduate contemplating entry into one of the specialties, since the results predict the economic feasibility of entering these fields. Second, the findings are relevant for dental educators, since they influence the demand for various levels of dental education and the profession’s supply of manpower.
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PREVIOUS RESEARCH
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Several studies have shown a relationship between expected economic returns and the demand for additional professional training. Wilkinson1 showed that while differences in ability and tastes, market imperfections and changes in demand for types of occupations may account for part of the differences between enrollments, discounted earnings—or NPV of returns—are a significant factor in a person’s choice of occupation. In looking at the determinants of demand for medical education, Sloan2 demonstrated that career decisions are responsive to interoccupational differences in expected financial returns. He found, for example, that a $10 increase in physicians’ annual income correlated with a range of four to 13 people being attracted to medicine. His study also showed that expected long-run returns are only one determinant of demand.
Short-run costs.
Short-run incurred costs are another factor. With each annual dollar increase in the direct cost of medical education, six to 14 applicants are discouraged from entering the field. Likewise, for a dental career, several authors have shown that students’ decision to apply to dental schools is relative to alternative investments (such as investment in government bonds) and is positively associated with the dental rate of return on human capital investment.3–6
Most of the economic research done to date has focused on returns to general dentists, with little attention given to specialists.
Possible methodological problems.
However, each of these studies may have had methodological difficulties. Maurizi3,4 and the American Dental Association’s Bureau of Economic and Behavioral Research5 possibly overestimated the rate of return by using noncomparable groups, while Dunlevy and Niessen6 did not adjust for the different number of hours worked at different stages of a dental career, or for any possible differences in the number of hours worked between professions. These authors also included living expenses as a component of the direct costs of financing a dental education. This is somewhat surprising since Friedman7 and Stigler8 previously had shown that living expenses are common to any educational pursuit or occupation and should not be considered part of an analysis of returns on investment.
Most of the economic research done to date in the dental sector has focused on returns to general dentists, with little attention given to specialists. In 1969, however, Maurizi3 compared the 1961 rates of return for orthodontists and non-orthodontic specialists as a group with those for general practitioners, and found a higher rate of return for the specialist group. More recently, Weeks and colleagues9 determined the return on an educational investment to various professionals, including general dentists and all dental specialists. They reported that general dentists had an IRR of 20.73 percent, whereas all specialists (grouped together) had an IRR of 27.06 percent, when adjusted for hours worked.
In both studies,3,9 individual specialties cannot be distinguished, and the earnings of a high-school graduate were used as the opportunity cost. NPV and IRR require a common opportunity cost. Although the authors attempted to provide one by using only high-school graduates who pursued professions, the investigators may have selected an educational stage that was too early. Subsequent measurements would not be proportionately different between professions, but the absolute values of the measurements would be lower if college graduates were the comparison group.
Finally, although the authors attempted to account for additional dental specialty training time, certain generalizations limit the applicability of the results to any one specialty. The median income for all of the specialties was used; direct educational costs of tuition for specialty residents were excluded; and the analysis included only two years of specialty training time, while, in fact, specialty training can range from two to six years (for example, surgical training).
We examined the specialties of orthodontics and oral and maxillofacial surgery separately and compared them with general dentistry, using the income of the general dentist to provide the opportunity cost. By accounting for differences in training time, educational costs and hours worked, the study addresses the possible problems faced by previous studies and provides a methodologically sound basis for comparison.
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MATERIALS AND METHODS
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We used NPV and IRR to determine the marginal return on an educational investment for dentists specializing in orthodontics or oral and maxillofacial surgery. The use of these two methods in conjunction with one another follows the recommendation of Nas.10
NPV.
The NPV, in human capital terms, compares in present dollars the future wage difference between two occupations, after deducting the additional training expenses required by one of the occupations. In this study, the NPV was defined as the current value of the future wage difference between a dental school graduate and an age-matched graduate with further training in one of the two specialties, after all educational expenses from the additional training were subtracted.
FRj is the sum of the annual values for the hourly flow of returns to a specialist, j is the number of years from 0 to the nth year and r is the discounted rate of an alternative investment.
IRR.
The IRR was defined as the discount rate for which the NPV becomes zero (in the equation below, 
is the discount rate).
To account for possible differences in work time, we adjusted the number of hours of labor in each area of dentistry.9,11 The resulting measures are based on hourly wages and expressed as hours-adjusted NPV and hours-adjusted IRR.
There are two major potential limitations associated with using the IRR alone, which are controlled for by using the NPV along with it. These are that an investment may have more than one IRR if the net stream of returns changes signs (that is, positive and negative returns) more than once during the life of the investment,1 and that because it is a percentage, IRR is not sensitive to magnitude and may be misleading when investments of different sizes are compared. The NPV eliminates these problems by its summative nature and use of the present dollar as its unit of measure.
Study protocol.
Following the protocol established by Weeks and colleagues,9 we assumed that students entered and completed a four-year dental education program immediately after attending a four-year baccalaureate program. This established the age of a dental school graduate as 26 years. We then assumed that the dental school graduates proceeded directly into specialty training, without an interim period of advanced general dental training or general practice. Thus, our investment analysis began at the time of dental school graduation, with the cost of becoming a general practitioner regarded as part of the minimum necessary expense common to both general dentists and specialists. We then established a working lifetime from dental school graduation to age 65 years to provide a finite number of years during which we calculated specialists’ marginal returns.
We assembled cross-sectional data in regard to length of training, educational costs and stipends associated with U.S. residency programs,12 as well as incomes and hours worked for general dentists, orthodontists and surgeons. Data regarding incomes and hours worked for general dentists, orthodontists and surgeons were obtained from "The 1993 Survey of Dental Practice: Income From the Private Practice of Dentistry"13 and "The 1993 Survey of Dental Practice: Specialists in Private Practice."14 We assumed that residents worked as many hours during their educational training period as did the specialty-matched practitioners.9 Cost and income data were expressed in 1992 dollars, and the future flow of returns was discounted using the interest rate on long-term government securities (7.52 percent).
Despite the vast sample size derived from the ADA’s 1993 "Survey of Dental Practice: Specialists in Private Practice,"14 the age interval data for "under five years since graduation" was insufficient. Therefore, we designed a mail survey to obtain the information for this subsample. We sent the survey to 100 percent of dentists who graduated from residency programs from 1988 through 1991. (Their names were drawn from the 1995 Directory of Members for the American Association of Orthodontists15 and the 1996 Directory of Members for the American Association of Oral and Maxillofacial Surgeons.16) The survey contained some questions that were identical to those on the ADA survey and used the same inclusion criteria to determine the annual number of hours spent in practice, as well as to assess the direct educational costs.
To account for variation in the data and to measure the robustness of the results according to the categorization of Briggs and colleagues, we used three types of sensitivity analyses: extreme scenario, threshold and one-way.17,18
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RESULTS
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This study used NPV and IRR to determine the marginal return on an educational investment for dentists specializing in orthodontics or oral and maxillofacial surgery. To provide a methodologically sound comparison between specialists and general dentists, we used general dentists’ income to calculate opportunity cost, and addressed differences in training time, educational costs and hours worked.
NPV and IRR for orthodontists.
Using general dentists’ income as the opportunity cost resulted in general dentists having an NPV of $0.00, regardless of the discount rate, since the period of investment commenced at the end of dental school. In comparison, the working lifetime cumulative NPV, or NPVc, for orthodontists was $271,536 when unadjusted for hours of labor. In other words, an orthodontist could expect to earn, in present value terms, $271,536 more than a general practitioner. When averaged over a working lifetime, this amount translates to an additional $7,146 per year. In terms of an IRR, the investment had a marginal annual yield of 10.36 percent over the orthodontist’s working lifetime (that is, the cost of investing in specialty training yielded a return of 10.36 percent annually over the working lifetime). When adjusted for hours of labor, the average NPV, or NPVa, was $6.10 per hour. This figure represents the current value of the future additional hourly wages from specializing in orthodontics. The hours-adjusted IRR of 16.62 percent was a 6.26 percent increase over the unadjusted rate. This increase is attributable to the fact that orthodontists worked an average of 243.9 fewer hours per year and 9,268 fewer hours per working lifetime than did general dentists.
NPV and IRR for surgeons.
Surgeons experienced an even higher return on their educational investment than did orthodontists. The surgeons’ NPVc was $587,563, which is more than twice the amount for orthodontists. The annual NPVa was $15,462. When expressed as an hourly wage, surgeons earned an additional $8.40 per hour from their investment. In terms of a percentage yield, the unadjusted IRR was 25.30 percent and, when adjusted for hours worked, the IRR increased to 26.83 percent. Although surgeons spent twice the number of years in training and 198 hours more per year in practice than did orthodontists, the break-even point for surgeons occurred 1
years earlier. (The break-even point is the point at which a specialist begins to earn more than a general dentist after the additional educational costs have been taken into account.) Surgeons broke even at age 32 years, recovering their investment 2.3 years after completing residency training. Orthodontists, on the other hand, broke even at age 33 years, 5.9 years after completing their residency training (Figure
).
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Figure. Hours-adjusted net present value of educational investment for orthodontists and oral and maxillofacial surgeons, discounted at 7.52 percent with central values for parameters.
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With respect to the rate of increase in the positive flow of returns, up to age 39 years, the surgeons’ investment grew more rapidly than did the orthodontists’ investment. At age 39 years, however, the rate for surgeons slowed, narrowing the gap between the specialties in terms of NPVc. The orthodontists’ rate of increase slowed at age 47 years and never reached the level obtained by the surgeons (Figure
).
The positive findings and significant results, however, were not robust enough to withstand several of the variations in sensitivity analyses. At the lowest incomes (for example, first quartile), there were no differences in the NPV between specialists and general dentists.
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DISCUSSION
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Using NPV and IRR, we measured the marginal return from an educational investment in orthodontics and oral and maxillofacial surgery. The results indicated that under the most likely conditions (such as a median number of years of specialty training), there was a positive economic return to dentists in both specialties from the human capital formation beyond that of a general dental degree. In other words, under most economic conditions, the majority of dentists who chose to specialize in orthodontics or surgery were able to recover their specialty training costs as well as earn an additional return.
Using central value estimates (that is, median values), we found that orthodontists earned $6.10 more per hour, in present value terms, than did general dentists. Over a working lifetime, this accrued to $271,536 in additional income (present value). When viewed as an interest rate, these earnings translated to 16.62 percent more for orthodontists than for general dentists, as a result of their additional educational investment.
Surgeons received a greater return on their educational investment compared with orthodontists, regardless of the economic measure used. Using central value estimates, we found that oral and maxillofacial surgeons earned $2.30 more per hour than did orthodontists. Over an entire career, this translates to $134,269, in present value terms. When viewed as an interest rate, surgeons earned 10.21 percent more on their investment than did orthodontists. Again, this percentage has been adjusted to reflect the fact that, on average, oral and maxillofacial surgeons worked 198 more hours per year than did orthodontists. However, surgeons worked an average of 45.9 fewer hours per year than did general dentists.
Surgeons received a greater return on their educational investment compared with orthodontists, regardless of the economic measure used.
Educational investment required.
Another difference between the two specialties is the type of educational investment required. Dentists in both specialties were subject to the opportunity cost of a general practitioner’s income. Orthodontic training also required a direct educational cost in the form of tuition and interest payable on tuition and living expenses. Surgical residents, on the other hand, received a stipend large enough to eliminate the direct educational costs and to be included as income. In addition, surgical training required a minimum of four years rather than the two years required for orthodontic training. Nevertheless, surgeons broke even 1 years earlier than did orthodontists.
Theory of occupational choice.
The discrepancy in economic returns and the ranking order of those returns between general dentists, orthodontists and oral and maxillofacial surgeons are consistent with the classic economic theory of occupational choice. From that theory, a portion of the discrepancy is the "equalizing difference" and the remainder is due to external regulations that produce noncompeting labor groups. The equalizing differences may be attributed to the internal factors of training costs, occupational attractiveness and relative risk.
Both orthodontists and surgeons had direct or indirect training costs or both beyond those of a general dental degree program and, therefore, some marginal economic returns to specialists could be expected. With regard to occupational attractiveness, the working conditions of a surgeon generally are considered to be less desirable than those of an orthodontist or a general dentist. Surgeons are called to emergencies more frequently, keep irregular and grueling hours, and must allow for unproductive office hours while at the hospital. In addition, because of the higher morbidity and mortality risks associated with many surgical procedures, patients will pay a premium for the services of a surgeon. As a result, the surgeon is able to command a higher return than an orthodontist or a general dentist.
State licensing laws and enrollment limits in residency programs restrict competition and produce barriers than hinder people from entering the professions. The annual applicant-to-enrollment ratio is evidence that there is an unfilled demand for specialty education. As a result, the labor supply is restricted and specialists’ wages remain fixed at levels higher than the supply-meets-demand equilibrium amount.
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CONCLUSION
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The results of this study indicate that, under the most likely conditions, dentists receive a positive return on their additional human capital formation by specializing in orthodontics or oral and maxillofacial surgery. This positive return—all things being equal—should continue to attract dental school graduates to these specialties, providing the work force with sufficient manpower. The amount of average positive returns and the temporal position of the break-even points associated with these specialties also may have implications for dental school administrators. The results may indicate that dental schools have some latitude in setting program fees and length of study while still enabling dentists to earn high enough returns at reasonable break-even points to attract them to one of these two specialties.
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FOOTNOTES
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Dr. Cordes is in private orthodontic practice, 82 Broad St., Westfield, Mass. 01085, e-mail "straight_teeth{at}hotmail.com". Address reprint requests to Dr. Cordes.
Dr. Doherty is the former chairman of the Department of Behavioral Science, University of Connecticut School of Dental Medicine, Farmington, and a retired professor of economics.
Mr. Lopez is the executive administrator for the Bluestone Center for Clinical Research, New York University College of Dentistry, New York City.
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REFERENCES
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ABSTRACT
PREVIOUS RESEARCH
