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Corporatization of Dentistry Q&A

On Thursday, March 2, 2017, David Mayzel and I presented on the “Corporatization of Dentistry” at the Toronto Academy of Dentistry‘s Annual All Societies Night at the Westin Prince Hotel in Toronto.  First and foremost: congratulations to Dr. Janice Mummery (president), Lori O’Doherty and the All Societies Committee for putting together a great event (apparently, attendance was up by 20% over the last year).

Now, as part of my presentation, I asked the audience (about 80 dentists, give or take) to get together with the rest of their table and answer 3 questions:

  1. What do you already know about corporate dentistry?
  2. What do you want to know more about?
  3. What are your concerns about corporate dentistry?

Now, in what follows, I’d like to share some of those questions and my thoughts on same:

Question #1: What is the corporatization of dentistry?

I define it as the growing trend whereby a dentist, either alone or with another dentist or with another non-dentist, acquires, owns and manages multiple dental practices through the use of corporate vehicles.  I’ll refer to these entities/organizations as DENTAL CONSOLIDATORS throughout the remainder of this blog post.

Question #2: Is this a growing trend?

Yes.  It’s been big in the U.S. and Australia for decades but has only started to become a growing trend in Canada over the past 5 years.  Hundreds of dental offices across Canada have already sold to a dental consolidator.   There are also more entrants (dental consolidators) now than ever before.

Question #3: What are some new trends in how dental consolidators operate?

Dental consolidators have changed from acquiring only practices from GP dentists who wish to stay on for 5 years to now seeking out all sorts of practices (including specialty practices) and having a few dentist operatives to manage these practices on the ground.  New dental consolidators include those who have offered leasing services to dentists, bankers/financiers, hygienists, denturists, and dental consultants.

Question #4: How will this impact the average dentist?

The average dentist can fall within one of three groups: starters, scalers, or sellers.

Starters and scalers will face increased competition with dental consolidators because they may not necessarily have the resources, team, or buying power to compete effectively.  Per my new article entitled “Top 10 Secrets Dental Marketers Don’t Want You To Know“, dentists aren’t properly trained in marketing (or the business side of running a practice) so it’s going to be even more difficult for them to compete against sophisticated/resourceful dental consolidators who LIVE and BREATHE marketing and business systems.

Sellers may end up selling to a dental consolidator if they’re offering the best possible terms.  That’s demand and supply!

Question #5: How do dentists get shares in dental consolidators?

A dental consolidator may simply be a simple and single dentistry professional corporation; in this case, if a dentist (associate or seller) wants to get shares, it’s simply a question of what is that dentist doing to deserve getting ownership in the dental consolidator?  Are they selling their practice, but want to stay on and keep working but in a different capacity (like managing)?  Maybe they’ll get shares in that context.  But unless you have some leverage or something to offer, it’s unlikely that an associate or a typical seller would get shares in the dental consolidator.

Question #6: Why is this happening?

There is a market for it.

On the demand side, you have dentists and non-dentist investors who want to OWN and MANAGE dental practices because they offer great returns.

On the supply side, you have dentists who’ve been practicing since the 1980s and 1990s who want to retire and cash out.   Sometimes, but not all the time, dental consolidators offer the BEST deal possible for the selling dentist.  This could be the case, for example, if the selling dentist has a demolition clause in the lease and no other dentist looking to buy would proceed because they can’t get bank financing (and are afraid that the landlord might actually demolish the building!).  A dental consolidator may be less troubled by this because they can move the practice elsewhere, negotiate with the landlord, or simply assume the risk of demolition outright.  Or it might be the case where the selling dentist has a lot of employee-related liabilities (which a dental consolidator isn’t afraid of because they know how to manage that risk – for example, by slowly introducing written agreements).

Question #7: What are some of the nuances of selling to a dental consolidator?

Bottom line: have your legal team educate you, protect you and work hard to make you the most/save you the most money.

Some dental consolidators believe it’s a buyer’s market: they try to low-ball on the purchase price; offer you less than what the market would offer in terms of associateship compensation; or impose restrictions you won’t really find elsewhere (like chart fees, punitive damages, and very restrictive non-compete and non-solicitations clauses).  On the plus side, because buying a dental practice isn’t their first rodeo, they’ll likely have a team of experienced professionals who can help make the transaction smooth.  They won’t have problems getting financing (if they’re large and sophisticated, they likely have the funds from the marketplace or from a bank).

Also worth mentioning is that some dental consolidators involving non-dentists require sellers to engage in a 2-day sale process: on day 1, the seller must sell the professional goodwill to a dentist or dentistry professional corporation (that is part of the dental consolidator) and on day 2, the seller must sell the technical assets (equipment, supplies, inventory, leaseholds, computer hardware and software, etc.) to the dental consolidator (typically the non-dentist entity, a corporation).  This two-stage process is more complicated for the Vendor: it increases their legal and accounting fees and could also cost them more in taxes.  It’s best to speak with a dental lawyer and accountant to figure out what your best option is in terms of structuring the deal.

Question #8: What’s the quality of dentistry like with a dental consolidator?

This is a tough one to answer.  Dental consolidators will involve a dentist, so the question is very subjective: what is the quality of dentistry when it’s provided by that particular dentist or under their supervision?  Why would this change – for example, if the dental consolidator involves multiple dentists and non-dentists?  Per question #11 below, non-dentists can’t legally get involved in practicing dentistry.  But perhaps they dictate other things – like the equipment and supplies being used.  But how is a non-dentist any different from a dentist in this regard?  Again, it’s hard to generalize.

In my opinion, dental practitioners shouldn’t be motivated by their bottom line, but rather providing top-notch patient care.  That said, can you necessarily blame dentists for worrying about their production, expenses (rent, staff, marketing) and seeing how much they’re taking home at the end of the day?  They’re running a business too, aren’t they?  They need to invest in their team, brand, technology, etc.  But there’s a basic starting assumption: dentistry is dentistry across Ontario.  All dentists are supposed to have the same basic knowledge, skills and experiences.  So, given all of this, how can anyone generalize that a dental consolidator (who may simply be a dentist) would put profits before patients?  It’s patients first.  Every time.   And that will translate into the practice’s bottom line.  I think it’s the idea that having a non-dentist INVOLVED in owning and managing a dental practice jeopardizes patient care; but because there’s always a dentist involved in practicing dentistry unless that dentist wants to get into trouble with the RCDSO and their patients, patient care must always come first.  That’s the starting point at least…

Question #9: How can a non-dentist own a dental practice – including patient records?

As discussed in the video above and this article in Oral Health Office, there are good arguments out there that support the idea that patient records – despite being owned initially by the dental practitioner or practice which creates them (absent an agreement that says otherwise) – can be viewed as property capable of being bought by non-dentists.

Question #10: What does the future hold?

The future is what dentists make it.  If it so happens that dental practitioners wish to sell to a dental consolidator because they’re offering them the best terms, then so be it.  It is what it is.   Dentists and the public are free to lobby the government to change the laws so that only dentists can own and manage dental practices (look at how the practice of dentistry is defined in Texas, for example); but the growing trend in dentistry and other professions (including law and real estate) is for non-professionals to get involved.  The idea is that better access to care (more on this below – see Q #13) comes when dentists are left to do dentistry and non-dentists take care of the business and administrative side of things.  That’s the argument for allowing non-dentists to get involved in acquiring, owning and managing dental practices.

Question #11: What About Fee Splitting?

Fee splitting is legally prohibited between a dentist and a non-dentist.  But it happens a lot more than we know.  If there’s no public dispute, who’s going to know it’s happening?  It doesn’t mean it’s OK.  It’s just happening behind closed doors.  You have motivated parties, good arguments, and no real enforcement body (remember: the RCDSO only governs dentists and doesn’t seem to have the resources to police illegal fee-splitting).  So private parties are left to privately contract.  So what do the parties risk?  Well, the dentist risks being disciplined by the RCDSO if they’re caught and the non-dentist risks having their contract rendered unenforceable (maybe) by a court if the dentist violates it.

Question #12: Can Non-Dentists Dictate Procedures/Treatment?

This is illegal.  Only dentists can practice dentistry.  And the practice of dentistry is defined very narrowly and in clinical terms.  Specifically, section 3 of the Dentistry Act as: “The practice of dentistry is the assessment of the physical condition of the oral-facial complex and the diagnosis, treatment and prevention of any disease, disorder or dysfunction of the oral-facial complex.”  This makes it clear that non-dentists cannot have any say on anything to do with the specific clinical diagnosis or treatment for a particular treatment.  That’s like a real estate salesperson or broker (who didn’t go to law school, article or practice as a lawyer) trying to draft legal documents: it endangers the client/public.  So it can’t be allowed to happen.

Question #13: Does the Selling Dentist Lose Autonomy if they Sell to a Dental Consolidator?

Obviously, with a new owner, the old owner would no longer be calling the shots when it came to the business and administrative side of things.  What about if the seller stays on to associate after selling?  What happens to things like new patient flow (which dentist gets which patient/case), referrals to labs and other specialists, time off and even getting terminated?  Some of these things can clearly be negotiated in the context of a sale, but the new owner clearly has more leverage in dictating how to run its office and make business / administrative decisions.

Remember: dentists can only be employed by another dentist, dental partnership or dentistry professional corporation.  It’s illegal for them to be employees of a non-dentist (including a hygienist or denturist).  Practically all dentists are engaged as independent contractor associates.  And again, their ‘client’ (think: employer) can only be another dentist, dental partnership or dentistry professional corporation.

Question #14: What are the benefits of the corporatization of dentistry?

It’s about increased access to high-quality care.  The idea is that, if a dentist is left to practicing dentistry and the dental consolidator is capable of dealing with the business and administrative side of things, then it should result in greater efficiencies and cost-savings (through increased purchasing power) for the dental office; those things should trickle down into cost-savings for the patient and their insurance companies while still giving patients high-quality care.

Question #15: What About Production Quotas?

What if an associate dentist, hired by another dentist, doesn’t produce?  There’s a good chance they could be terminated.  It’s the same thing with a dental consolidator.  Production is what makes dental practices survive the day.  Sometimes it’s talked about within the practice; sometimes it’s only reviewed by the owner and actions are taken accordingly.

Now, for some dentists who are also wearing another hat – like being a shareholder or manager of a dental consolidator – they may be subject to maintaining certain production quotas.  If they don’t meet their targets, perhaps they have to pay out of their own pocket OR they won’t get a certain bonus.  But keep in mind that this production quote idea doesn’t apply to the majority of dentists involved in associating or selling to a dental consolidator.  It only applies to the owners/managers of the dental consolidators and it relates more to their ability to MANAGE practices than to actually WORKING at those practices and providing dental treatment themselves.  I hope this distinction is clear.

Question #16: Friend or Foe?

It’s all depends on who you talk to.  Banks who lend to dentists to buy practices and who are excluded from loaning money to dental consolidators won’t be happy (especially those dental consolidators who are self-funded through private investments).  Dental suppliers who have their margins pushed down by dental consolidators have a love/hate relationship too: they love that they’re selling a lot to a dental consolidator but must accept a discount at the same time.  Real estate salespeople who sell dental practices (and they are definitely shrinking with the advent of the no-commission model) aren’t fans of dental consolidators because dental consolidators don’t tend to buy practices that are marketed to the general dental community; they want to overpay for practices so they prefer to buy privately.  Finally, dentists who don’t understand dental consolidators, have old-school mentalities about the practice of dentistry (a.k.a. it’s not a business, but a profession!), and who have to compete with dental consolidators won’t be happy with them.  On the other hand, those dentists who’ve worked with or sold to dental consolidators may have lots of positive things to say about the experience.  Like I said: it all depends on who you’re talking to.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.