Corporate Dentistry: Making an Informed Practice Decision

W. Carter Brown, DMD, FAGD

AGD President-Elect Chair, AGD Practice Models Task Force and Corporate Dentistry Task Force

Aaron Bumann, DDS

Member, AGD New Dentist Committee

Weighing the Options

Associate, Small/Solo Practice Practice Ownership Specialization Public Health Corporate Dentistry Associate, Traditional Large Group Practice

@ASDAnet #ASDAnet

Trends in Insurance Benefits New Dental Schools Rising Student Debt Dentistry The Economy Corporate Practices Health Care Reform Act Midlevel Providers Changes in Oral Health Status

Source: American Dental Association, “Shedding Light on the Invisible Hand,” by Marco Vujicic, PhD, 2011 @ASDAnet #ASDAnet

Projected Growth Largest Groups

Hypothetical Market Share of the Largest Groups Among Private Practitioners

Source: American Dental Association, Health Policy Resources Center, Large Group Practices, Sampling Frame, Unpublished Data, July 2009 @ASDAnet #ASDAnet

A Few Definitions

Dental Service Organization (DSO):

o The structure which deals with the delivery of patient care o Can be a large group practice or multiple PC units o They often contract with a DMO for management services @ASDAnet #ASDAnet

A Few Definitions

Management Service Organization (MSO):

o The top-tier structure for decisions affecting the overall business aspects of the corporation o They make money from the DSO components @ASDAnet #ASDAnet

A Few Definitions

Dental Management Service Organization (DMSO):

o A structure where both the business decisions and patient care are combined @ASDAnet #ASDAnet

A Few Definitions

Dental Directors:

o In some models, they are employees of the management organization and in others they are the directors of the large group practice that contracts with the management organization o In some models, they are responsible for quality assurance @ASDAnet #ASDAnet

A Few Definitions

Practice Ownership:

o In almost every case, when a DSO talked about the opportunity for dentists to “own” a dental practice, they were referring to ownership of patient records only o Ownership generally does not include the building or equipment @ASDAnet #ASDAnet

A Few Definitions

Corporate Dentistry:

o “A variety of practice modalities in which management services, at a minimum, are provided in a manner that is organizationally distinct from the scope of activities performed by a dentist within only his or her practice” @ASDAnet #ASDAnet

A Few Definitions

EBITDA and EBITA:

o Earnings Before Interest, Taxes, Depreciation, or Amortization o The way equity firms (for-profit) determine market value o Resale value in five years or so versus net revenue @ASDAnet #ASDAnet

A Few Definitions

Equity Firm:

o An outside, for-profit investor o o Raises capital for the DSO Privately- or publically-traded @ASDAnet #ASDAnet

A Few Definitions

Professional Corporation (PC):

o Many dentists form PCs even for a single doctor, single office o o Relative to DSOs, the management company has business contracts with one or more PCs Each PC could run multiple offices —there may be a single PC owning all offices within a state, or even multiple PCs owning offices across multiple states @ASDAnet #ASDAnet

Reasons for Choosing DSO or Non-DSO

60 50 40 30 20 10 0 Non-DSO DSO Future Owner Flexible Schedule No Bus.

Resp.

Less Ins.

Involv.

Student Loans Source: American Dental Association, Group Practice Survey, Unpublished Data, January 2012 @ASDAnet #ASDAnet

Reasons for Choosing DSO or Non-DSO

o The question of “Work-Life Balance” ended up 50/50, so this was a factor no matter which model or group you are in.

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Number of Establishments

Overall decrease of 240 corporations, but numbers of establishments grew, meaning that there is movement toward fewer, but larger corporations

Source: U.S. Census Bureau, Economic Census,

www.census.gov/econ/census07,

Accessed March 14, 2011 @ASDAnet #ASDAnet

Types of Corporate Dentistry

o DSO with internal management (no management contract) o DMSO (with management contract) without outside equity owners o DMSO (with management contract) with outside equity owners o Geographic/multispecialty group practice (not a true corporate model) @ASDAnet #ASDAnet

Types of Corporate Dentistry

o Geographic/multispecialty group practice (not a true corporate model) o Often grouped in with Corporate discussions, but will not be a major part of this presentation @ASDAnet #ASDAnet

DSO With Internal Management

Board of Directors President Chief Administrator Group Doctor Mentor Regional Operations Manager Practice Doctors Practice Managers Collaborative Practice Management Team

o Dentist practice owners are the shareholders of the DSO o Common mission, values, guidelines/protocols set by Board o Business management through a centralized, internal team @ASDAnet #ASDAnet

DMSO (With Management Contract) Without Outside Equity Owners MSO Business Services Contracts PC/DSO 1 PC/DSO 2 PC/DSO 3 Dental Office 1 Dental Office 2 Dental Office 3 Dental Office 4

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o o o o o o

DMSO (With Management Contract) Without Outside Equity Owners

PC-owner dentists own the patient records and are responsible for clinical functions Each PC contracted with same outside management company (MSO) PC owners administer/implement the business direction from the MSO NOTE: The company with the primary corporate revenue interest is not the same as the dentists who have the primary clinical interest The management company may be owned by one or more individuals who may or may not be dentists The profitability of the company is based entirely on business service agreement fees instead of market valuation; fees vary with each practice’s income stream @ASDAnet #ASDAnet

DMSO (With Management Contract) With Outside Equity Owners Equity Firm(s) Business Services Contract DSO/ MSO Dental Office 1 Dental Office 1 Dental Office 1 Dental Office 1 Dental Office n

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DMSO (With Management Contract) With Outside Equity Owners

o There will now be interest in maximizing the “enterprise value” o Enterprise value is the present value of future cash from the business operations reflected as a multiple of EBITDA or EBITA o o Bubble Increasing enterprise value versus patient care @ASDAnet #ASDAnet

Key Observations From Interviews DSO – Internal Management – No External Management Contract DMSO – Business Services Contract – No Outside Equity Ownership Ownership (Beyond Patient Records) Contract For Business Services

Licensed dentists as S/H No – but centralized protocols established by board of S/H The management entity (MSO) Yes – with MSO

DMSO – Business Services Contract – With Outside Equity Ownership

Private equity firms (varying % ownership) Yes – with MSO

Productivity/ Revenue Goals

Yes – set by licensed owner dentists Yes, revenue goals administered by PC Yes – volume expectations (number of patients, supply limits, etc.) set by DMSO

Career Growth

Associate to S/H Associate to PC owner Associate to dental director @ASDAnet #ASDAnet

Commonalities Between Models

o CE in clinical and practice (varies by company [not model-consistent] based on internal or external) o o o o Entry into modality as dental associate Control of business services by someone other than the practicing dentist of a given practice Revenue expectations (although the details differ) Shift in focus to populations between Medicaid eligible and employer-insured @ASDAnet #ASDAnet

Takeaways From The Presentation

o o The AGD’s

pamphlet of questions to ask

Consult with your

own independent counsel or accountant

who is knowledgeable in the field o

Clinical decision-making

and understanding your ultimate

responsibility

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Making Informed Decisions: Questions to Ask

o o o Who owns patient records?

What are my employer’s expectations regarding my productivity, patient volume, and revenue?

And more… @ASDAnet #ASDAnet

o o

Responsibility

Regardless of who holds the responsibility for business decisions, dentists hold the responsibility for their clinical and ethical decisions, whether before a state dental board, a court of law, or the court of public opinion.

Every dentist should consult with his or her own independent attorney, accountant, or other appropriate professional who is familiar with varying modalities of business practices in health care delivery, regardless of the modality of practice that he or she may be considering.

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What Can the AGD Do For You?

o o o Contract review for members Practice management assistance Education to help you become the best dentist possible, regardless of practice modality o CE-based awards: Fellowship! Mastership!

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Thank You!

•

AGD Practice Models Task Force

•W. Carter Brown, DMD, FAGD, Chair/AGD President-Elect •Craig S. Armstrong, DDS, MAGD •Myron J. Bromberg, DDS •Richard W. Dycus, DDS, MAGD •Willis S. Hardesty, Jr., DDS, FAGD •Dr. Edgar Radjabli, DDS •

Consultants to the Task Force

•L. Jackson Brown, DDS, PhD •Jerry Caudill, DMD, MAGD •Jeffrey M. Cole, DDS, MBA, FAGD, AGD Immediate Past President •W. Mark Donald, DMD, MAGD, AGD Vice-President •Linda J. Edgar, DDS, MEd, MAGD, AGD Presiden t @ASDAnet #ASDAnet

Questions?

[email protected]

www.agd.org

888.AGD.DENT

(888.243.3368)

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