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Everything Dental Blog – September 2013

Are You Fifty & Sexy?

 CLOONEY CHICK

Every month I write to inspire my clients. Sometimes I write about an issue that affects the clinical or practice management aspect of your business. Sometimes I write about empowering our valuable team members and sometimes I talk about fads, trends and industry movements.

Today I write to you about a movement that will arguably have profound effects on 15% of the independent dental practices and will, to some degree, affect all of us. The term corporate dentistry (which encompasses – institutional dental facilities, regional and national chains, and government facilities) is the fastest growing segment in dentistry today. It has already changed the landscape and will continue to erode the status quo.

The growth of corporate dentistry is inevitable, but its future prominence is unknown. Many believe that the end is near for the small neighborhood dental practice. Others believe that dentistry is following the medical model and it will become insurance driven and then there are those who expect corporate dentistry will reach its peak – at about 20% of the marketplace.

There are many rational and irrational perspectives on this movement called corporate dentistry, but most assertions can be sorted loosely into the three categories stated above. At the end of the day, corporate dentistry, the movement towards PPO dentistry and the changes that follow the implementation of The Affordable Health Care Act will dramatically affect the world as we know it today.

The average dentist in the United States is 50+ years old (Fifty is the new 35!). These dental professionals have witnessed and participated during several radical changes in how the business of dentistry was done and performed. They were in practice before we had personal computers and work stations.

When they began their dental journey, they practiced without gloves and masks. This great generation of dental professionals practiced when dental insurance was a rarity and cash was king! They operated before all the regulatory and compliance issues of OSHA and HIPAA. They began their careers when amalgam was the bomb and pioneered today’s adhesive and cosmetic dental revolution.

This great generation of dentists witnessed and participated in the greatest technological and radiographic revolution healthcare has ever experienced. They are responsible for the entire cosmetic and implant dentistry menu we offer. It was their perseverance that has set the stage for what we do and how dentistry is performed today.

The accolades above are real, but many of these dentists did not keep up. Many did not prepare for retirement and many have not modernized their facilities to meet the demands of the practice and the concerns of potential suitors. Many of these dentists will be marginalized over the next few years as they operate on the fumes of a declining practice in a changing industry.

If a book were written about the greatest generation of dentistry, the over 50 crowd (still in practice today) would be the featured characters! While some people believe that the golden era of dentistry has long passed, I believe the business of dentistry, if operated like a business, is still extremely profitable and lucrative. I do agree with those that argue that dentistry is much more complicated today and is less fulfilling to the provider who wears many hats. For the dentist who wears many hats and is the accountant, bookkeeper, office manager, buyer, human resource director, marketing manager, customer service person and equipment repair guy, the business of dentistry is overwhelming and not very rewarding.

 

Is Your Practice Sexy?

If you own a relevant dental practice in your geographical region, with the correct number of ops (or the potential for X amount of operatories), then you may be a sexy commodity. If your practice has a robust hygiene department and produces between $1.2 and $1.8 dollars in collections and you have proven leadership skills, then you are sexy to the DSO’s [Dental Service organizations].

A DE novo (five/six plus operatory) practice will cost between $600,000.00 and $900,000.00 to get constructed and equipped with dental equipment, furniture and technology. In addition to the build out, there will be staffing/training and marketing costs to ramp up the practice. Realistically, that practice will take between six months and two years for it to deliver any profit or cover its monthly costs.

That $1.5 million dollar practice (mean between 1.2 and 2.4) will sell for about $900,000.00, but it comes equipped with personnel and a proven leader. That $1.5 million dollar practice with a new paint job, a professional media/marketing effort and some new equipment/technology will turbo charge that business. Add some operational efficiency, such as centralized billing and scheduling, and you can be in the black very quickly. That’s what we call Dental Sexy!

The marketplace is tired. We have less practice buyers and the ones we have are in debt and they are chasing a dream (The completely fee for service practice) that may not be obtainable anymore.

The cottage $350,000-$500,000 a year dental practice that has fee for service patients, banker’s hours (no weekends) and doesn’t do any Endo, Ortho or Cosmetic dentistry is gone.

That $500,000-$800,000 practice that has a good hygiene/perio department, but farms out all the Ortho, Perio, Endo and Oral surgery, is a rarity and may have facility issues (not enough ops to grow into a thriving multi-specialty practice). Most of these practices are your two and three op practices and that is why they never really grew the other components. It was more of a space and facility issue than a management issue. This is that special practice that resides in an affluent neighborhood that has little or no commercial space available for expansion.

And that $2 to $4.5 million dollar multi–specialty practice that has a wonderful hygiene dept. (3+ hygienists doing scaling/root planning and Arestin™) and three or more full time dentists on staff is just too expensive for the average suitor. These practices tend to rely on the associates to buy in and eventually sell to the next generation and so on…

So what’s the upside and what’s the downside for the Sexy Fifty Year-Old?!

After researching this topic I came across Dr. Marc Cooper. He is one of the few consultants/experts speaking about this topic and he has a great deal to say about it.

Here is our interview:

EDB:  Briefly, what is a DSO?

Marc:  The initials stand for Dental Service Organization.” Just as there are differences between any business, there are numerous differences between DSOs. They have different architecture. They have different infrastructure. They have different leadership, and they have different expressions, and certainly, different relationships with management. A DSO can be internally managed. A DSO can be externally managed by what we call a managed service organization (MSO). That also has variables or flexibility in terms of how the MSO and the DSO relationship are set up. To answer your question, there is no one standard definition for a DSO.

EDB:  Share your thoughts on DSOs. What are the good, the bad, and the ugly?

Marc:  First of all, we have to realize that inevitably it’s going to go to group practice. There’s no way the economic engines the way they are now set up and the environment and the market are going to support individual solo practice. Just like in medicine, there are very few solo practitioners. The same kinds of forces, although coming from different spots, are going to influence dentistry to group practice. It’s inevitable. The question becomes at this moment in time what are the good points of a DSO, where are the bad points, and what are the ugly?

One good point is that as a DSO aggregates dentists and their clinical resources and acumen they are able to deliver care at a more efficient and better cost. Also, you have the ability to work as group in terms of diagnosis and treatment planning in terms of collegial relationships, in terms of continuing education, in terms of development as a clinician. It has a lot of positive or upside to it if it’s constructed right.

The downside is that you are not just yourself any longer, and that I think is the biggest downside for dentists. Dentists have a very difficult time participating in group. They think I, not we. They have been inculturated and their personality profiles lend themselves to being autonomous, and so the great strain on dentists is really to develop a capacity to work as group and to make decisions as group, what’s best for the group and not for me is very difficult for dentists. That’s the biggest downside risk.

We can talk about the money. They are relegated to a particular percentage. They can’t take out of the top drawer. In a solo practice, you can write off your car, your gas, your lunches, so there are a lot of individual perks when you’re a solo practitioner. When you’re part of a group those are not available to you, so that’s the second one.

On the business side, a DSO has the upside of being able to transact and negotiate for better deals with the supply chain. The downside is you have to make sacrifices in terms of supplies and equipment and labs. You can’t have 14 different labs. You have to select the lab that’s going to work best for the group. Same thing with supplies, and equipment. That whole thing for dentists could be considered a downside.

EDB:  Who are the DSO’s targeting for acquisition and what will that do to the current landscape?

Marc:  That’s changing as we speak, so we have to be careful that we point out that this is the end of September 2013. It was different two years ago than it is today, and it will certainly be different in the future. We have to be careful that we don’t put the stake so far in the ground that we say this is the only way. In the historic buildup of these acquisitions everything counted. You (DSO) wanted to get your footprint into a certain community, you wanted to do it a certain way, so you went for the most available practices. Usually, those practices would be the aging practices where the practitioner was in his late 50s, early 60s, looking for an exit strategy, wanted to continue to work for three to five years, but didn’t want to manage anymore. Practice productivity could’ve been anywhere from $500,000 to $800,000, a good substantial practice, hasn’t been updated in a while, middle of the curve practice, but in a location that you wanted to achieve your mark.

Then, over time as these things built up momentum and density, they said, “We want to go for upper end practices because these middle-of-the-road or lower end practices needed a lot of management focus which costs time and money. In higher end practices, people were already successful, the leadership would have been in place, the staff would be highly trained because they were already successful.” It was an easier acquisition, although it was more expensive because they needed to spend less management time and resources to have that practice be successful, so they moved up the scale to get the one to two million dollar practices and acquired those.

Others say, “The individual practice is interesting, but if we have someone that has a capacity to do multi-provider and has the space to expand the number of hours and providers in there, we want to add those to the mix.” So then they started to look at a larger entity they could acquire. Then, there’s the variance in the people who were doing the acquiring. Heartland, for example, looks to grow with individual practices, but over time they’re looking to move more into the domain of successful groups, because again the more mature and developed the group, the less management resource is needed to have them be successful. American Dental Partners started out that way. They only purchased groups. There’s the entire spectrum in between that.

Now what I’m seeing is more of the focus on purchasing groups or multi-provider, multi-location practices. Now they’re getting so developed that they really don’t need to purchase practices anymore, so I would say in the future rather than buying practices they’re simply going to open practices because it’ll be much less expensive and they have the resources, the personnel, the infrastructure, and now the dentists to be able to staff those de novo practices. I would think that the value of a practice has probably hit its peak in terms of acquisition. Pacific would be a great example. They intend to open numbers of practices on the west coast without buying practices. You have a house and it has a lot of value, but then the contractor comes and builds five houses around you, the value of your house would go down. That’s the same thing that’s going to happen in dental practices. I think we’ve hit our peak. It’s going to plateau for a while, but over time I think the practice values are going to decrease because these larger companies and even the medium sized ones are going to open their own shops.

EDB:  What will the dental marketplace look like in five years? How many traditional practices will remain in your opinion?

Marc:  The ADA has done a study on this, and they saw that in 2008 92% of the practices were solo practices. In 2009, I think the number was 76%, and I think in 2010 it was 69%. If you do a run rate, in other words, you do an accumulated average which we’re taught in business school, the number of solo practices in five years will probably be about 40%, and that if you continue that out for 10 years it will be around 10% to 12%. Some people are forecasting that it will go down to 25% and hold. My view is that more than likely it will be the 80-20 rule where 20% will be solo practices and 80% will be through managed group practice.

EDB:  Will fee-for-service survive and what percentage of the existing landscape will they have five years from now?

Marc:  It will always survive, but what percentage of the market is going to be fee-for-service is the question. You have concierge physicians and they’re out there doing their work, but it’s less than 20% of the market. Dentistry ordinarily follows medicine. I would say that less than 20% would be fee-for-service and 80% will be managed group. Managing group may have some groups that are doing fee-for-service. In fact, there’re a couple of groups I’m working with that are trying to aggregate their resources to be able to provide that. Given that dental insurance is expanding each year, employers are looking for better deals for healthcare because it’s so expensive. The forecast is not strong for solo practices being certainly not more than 20% and probably around 10% as this thing unfolds. I, as an upper end middle class guy, I’m going to practitioners in all my domains that are more fee-for-service because I can afford it, but how many people can afford fee-for-service. I know that dentists talk about quality care and customer service, but given that dentists have commoditized dentistry and that the competition is now pretty intensive I would think that pure fee-for-service practices will struggle. There are very few pure fee-for-service practices even today. Ninety-two percent of the practices according to the ADA take some form of insurance. Yes, they have a fee-for-service component, but they take third party. That leaves 8% that are pure fee-for-service. And as the third party expands their reach and their way of accessing the market through the employer and through individuals now, I can’t see fee-for-service having a big bite of this apple.

EDB:  How big do you think the DSO entities will get? What’s the percentage of dental practices that will be part of a DSO?

Marc:  I think DSOs will be the majority of practices in five years or certainly later. If you take a look at the population of dentists who are in their late 50s, they’re going to retire. Their practice values are going to diminish. They might be able to sell it to an existing MSO. Certainly, people coming out of school don’t have the resources to buy practices, so the asset value of a practice is going to diminish if you don’t have a buyer. I would think that the DSOs because of that space that’s being lost by the dentist being able to sustain a solo practice and transfer its asset, that lost space, is going to be occupied by DSOs. I’d say in five years, again, DSOs will dominate the market. I believe they’ll be certainly more than 50% and maybe as high as 75% of how dentistry is delivered.

EDB:  What are the specific upsides to the DSO movement?

Marc:  I want to give a bit of background here. I’ve worked in other domains besides dentistry. I’ve worked in corporate America. I’ve worked in hospital systems, and I’ve worked in Silicon Valley. Let’s take the word out of DSO and put a company or a dental company, as opposed to an individual because the way it’s cast now, DSO, MSO, looks like the arch enemy of solo practice and all of that stuff, the antithesis of quality and all of the things that they claim. My view is that working as a company with a great purpose and clear core values and an envisioned future, companies that are put together like that, dental companies that are put together like that are going to be extraordinary places to work. They’re going to make a profound difference in the way dental care is delivered or could make a profound difference in the way dental care is delivered.

Right now, dentistry waits until the wheels fall off, and then they fix it. That’s what solo practice does. It’s not that it’s bad, that’s how the economic engine works. You don’t get paid really for prevention. You get paid to fix it. These larger companies will be able to not only do that, but they’ll have enough capacity to start doing really significant preventative work. They’ll have the cash to do that. Now we’ll have prevention at a much higher order. In addition, they’ll also be able to install tools that solo practice cannot such as risk management tools, and quality assurance programs, and peer review, and chart review, and all these things that would enhance the delivery of care in a particular way that it’s going to be much more attractive to the market.

If I have a cardiac issue, am I going to go the Cleveland Clinic or am I going to go to some guy down the street who has a shingle on his door? I’m going to go the Cleveland Clinic because of the potency of who they are as a group, as a company, and their expertise in the area. The upside for me is that DSOs can be created that generate a tremendous impact in the industry. That would be the upside. Right now, what they are is aggregating dentists to reduce their costs and increase their productivity so that they can have a better margin. That is going to morph into a dental company that’s doing more than just fixing teeth at a better cost.

EDB:  Marc, you are very passionate about this issue. You are also very involved in working with dentists, groups and entrepreneurs to win the war. What will you be doing in the future to harness these opportunities and to help dentists navigate through all the changes?

Marc:  I’m already working with clients to help them expand their relevance and opportunity. My formal training is in corporate America. I’m able to bring that knowledge and skill set into putting these groups together and taking them through what I’ve taken major corporations through in terms developing a vision, a mission, a purpose, a strategic plan. It’s not a leap of faith for me to begin to bridge the gap between dental providers and experienced executives so that the aggregate works much better. The skill sets we have as a company are really unique, and we can bring that to the market.

EDB:  Marc is your work helping to escalate the changes or are you there to help others deal with the inevitable? It almost seems like you are adding fuel to the fire.

Marc:  Right. One of the bodies of work we do is to go in front of dentists who are like abalone hanging onto the post of solo practice and trying to reduce their fear of letting go. We have a program called Future Strategies in which we go out and talk to dentists who are in solo practice and say, “It’s coming down the pike. It’s unstoppable. Here’s what you can start to think about and here’s what you can start to do for moving your values and your assets to be successful in the future. I don’t want to be a doomsayer, but if you don’t do that, more than likely in 5 to 10 years your asset value is going to diminish dramatically and you will not be able to generate a sufficient income.” I’m not going to say that that’s valid, but that’s my suspicion.

Then, we have another program where we are developing people to work as group. That is a yeoman’s effort. It takes a lot of effort to have people really learn to work together as a group as opposed to just being collegial partners, but also train people to be directors of boards. Most practitioners have the ability to be an owner, a leader, and a manager at some level if they’re in existence or successful. But they have zero experience at how to be a director on a board, and yet that’s the position that’s going to be critical for the success of these groups. We have a number of areas we are training, educating, and developing people to be successful at groups.

EDB:  I agree with your assertion that the current solo business model lacks the tools and organization needed to compete in the future. I also believe the economic environment has changed so much, and the competition is so strong today, that the solo practitioner is getting squeezed.

Marc:  Again, let me describe it. The way dentistry has been established over the last 25 maybe 30 years is it is not about preventing a disease. It’s about fixing a disease. When you have to fix it, it costs a lot more. You keep on changing your oil every 3,000 miles, your car runs for 100,000 miles without major repair. If you don’t, you’ll have an engine issue that’s going to cost you a lot of money. That’s the way dentistry is basically set up. Third parties don’t pay for prevention. The economic incentives aren’t there to prevent, because prevention can be done by auxiliaries and is much less expensive than repair, there’s no incentive for a dentist to do that because it’s going to impact his or her personal income. You get much more return if you fix something as a mechanic than you do if you prevent it from occurring.

This is occurring in medicine. Again, medicine is the basic context that we’re all operating out of. They’re looking at ‘healthcare is way too expensive’ and how do we reduce the amount of money that we spend in healthcare, and how we do that is we move down the scale from treating the symptomology of an uncontrolled high risk case to way back in the disease cycle where some prevention and some education, and that interaction will make the biggest difference. Very few dentists have a pediatric component. They just don’t do kids. They send them out and hope it gets taken care of because adults pay a lot more for dentistry than kids do, but if you do your fluoride, do your sealants, teach the kids how to brush their teeth, get the parents involved, there won’t be dental issues in the future or they’ll be minimized. Dentists don’t do that.

If you take a look at most dentists, how many actually stain teeth for plaque and look at plaque removal? They don’t. How many do any biologic bacteriologic evaluation of what’s going in the patient’s mouth? Very few do that. Pretty soon you’re going to have the whole thing about genes and genomics and that’s going to change. Again, like anything else, you’ll be able to see who has the most susceptibility to caries or to periodontal disease and you’ll be able to ascertain which is the best treatment for that particular type. And that’s going to change dentistry as well. To answer your question, I would say that in 10 years maybe longer, maybe less, dental entities will be able to do the kind of work that have the health of the patient as the primary objective, not fixing the patient. That will be a different context and how it’s delivered now.

DR_COOPERDr. Cooper’s professional career includes private periodontist, academician, researcher, teacher, practice management consultant, corporate consultant, trainer, seminar director, board director, author, entrepreneur and inventor.

Dr. Cooper has studied with masters in many disciplines, participated in formal business educational programs, and worked as an independent contractor with top-flight consulting companies. In 2011, Dr. Cooper was selected as a coach for the prestigious TED Fellows Program.

The Mastery Company has been in existence since 1984. Dr. Cooper’s client experience in dentistry includes solo private practice, small partnered practices, managed group practices and retail corporate enterprises. Dr. Cooper has worked with numbers of health care entities such as insurance companies, clearing houses, bio-technical companies and disease management companies, as well as the senior executives and boards of large hospitals and hospital systems and a number of their related physician groups. In addition, Dr. Cooper has worked with Silicon Valley start-ups and Fortune 500 companies. He has worked with dental clients in the U.S., U.K. Canada, Portugal, Italy, Greece, Dubai, Abu Dhabi, Brazil, Singapore, New Zealand and Israel.

Dr. Cooper is author of seven successful books; Mastering the Business of Practice, Partnerships in Dental Practice, Running on Empty, SOURCE, Valuocity, Valuocity II, and The Elder. His electronic newsletter reaches thousands of subscribers in 31 countries. Dr. Cooper also co-developed a suite of online dental practice management assessment tools.

Dr. Cooper can be contacted at: info@masterycompany.com

MASTERY_LOGO

So there you have it. For more information from Dr. Marc Cooper, please click on his website.

www.masterycompany.com

 

Final Thoughts

I am optimistic about the future. While it will look different and we may earn our living by providing different products and services, I believe we will support our communities and meet the needs of our customers in the future. Going forward, we must all pay close attention to our numbers, industry indicators, market forces and cultural changes to master the future. Change has always been constant but it is occurring at an accelerated rate today. Never before has technology and government intervention played such a major role in any industry simultaneously.

The past few years have not been easy for many of us. The economic climate and high unemployment rate has had its impact. Many companies both large and small have been reactive, unreactive and over reactive during this turbulent time. This has resulted in people losing their jobs, companies closing their doors and good brands getting tarnished.

Fortunately, many companies have executed well and have grown during this time, but most national and international firms have benefited from overseas operations while the U.S. operations remain flat. Others are rehiring workers with certain skills and are focused on re-establishing their brands. Unfortunately, there are also those companies that resisted change and are still waiting for things to go back to the way they were before the recession. These firms will be marginalized over time.

I look forward to discussing the future with you.

Dentists and private care dental facilities can be successful and will thrive in the future if they adjust and embrace change!

I plan on staying young, vital, engaged and sexy – how about you?

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