Written by Marc B. Cooper, DDS, MSD Thursday, 10 January 2013 09:47
In today’s rapidly changing world, the solo private dental practice does not appear to offer the future of prosperity and success that it once did. Now what?
Jim Collins, author of best-selling business books Built to Last, Good to Great, and Great by Choice, recently said, “The very, very best leaders are the ones who begin first with an incredibly rigorous assessment of ‘what are the brutal facts.’” The evident truth is that the world is changing, and changing fast. The number of dentists who are employees versus owners is increasing rapidly. More than 40% of graduating dentists are women, many of whom do not seek nor want ownership. The debt load of graduating dentists is staggering, making the purchase of an existing practice out of reach. Third parties, which cover roughly 57% percent of dental patients seeking treatment in this country (National Association of Dental Plans), are reducing their plans to the lowest PPO platform. At the same time, dental practice overhead continues to increase dramatically associated with the higher costs of rapidly advancing technologies. Corporate dental entities are expanding into many urban and suburban areas. All of this is occurring in the worst economic condition since the Great Depression. These are the “brutal facts.”
The context of dental practice is changing—and context is decisive. One factor that always demonstrates a change in context is the flow of investment capital—you know, follow the money. Less capital is going into individual private practice purchases, and that money is now starting to get more expensive. Whereas capital is flowing much more readily to externally managed group practices (MSOs); ie, large entities such as American Dental Partners, Heartland, and Pacific, and smaller players such as Refresh. Capital is also flowing into multiprovider/multilocation practices, particularly internally managed orthodontic and pedodontic practices, which usually encompass between 8 to 20 locations, generating anywhere from $10 to $25 million annually. And major capital is flowing to retail dental corporations such as Aspen, Willamette, and Bright Now. Recently, major venture capital has backed national discounters such as Brighter. Wayne Gretzky, when asked what made him a great hockey player, replied, “I skate to where the puck is going to be.” The same holds true for capital—it goes to where the future is going to be.
How Private Practitioners Are Responding
So, what are dentists in solo practice doing about it? Most dentists are rejecting the notion that things are changing at all and holding on tightly to preserve the past. They feel it’s a matter of battening down the hatches and surviving the storm, hoping that in the near future things will go back to the way they were. My assertion, backed by the evidence, is that solo practice will never return to the way it was.
The “system” of dental delivery has changed. The axis of power has permanently shifted from patient-provider, where the patient is the driver and the dentist is the decision maker, to purchaser-payer, where the employer is the driver and the third party is the decision maker. When you have a system change such as this, the change tends to be enduring.
The question dentists in solo private practice should be asking is, “How do I best configure my resources and assets to succeed in this new context where corporate dentistry is becoming a dominant force?” Unfortunately, that’s not what is being asked. Solo practitioners continue striving to make solo private practice work for them, unwilling to confront what I refer to as the brutal facts. They are listening to, and holding onto, the advice of pundits and consultants who are sticking with their old school rallying cry: “Decrease your expenses, increase efficiencies, improve customer service, and expand the array of dental services you provide, from Invisalign to sleep ap-nea, and you’ll succeed.”1 They are still trying to convince dentists it is possible to have a $1.2 million practice with better profit margins while working less and to live happily ever after. But in speaking to many dentists, what I hear is that they are working harder than ever before, that practice revenues are either flat or contracting, and they are barely keeping up.
Another brutal fact is that the 80/20 rule always prevails. Twenty percent of solo private practices will survive and even succeed in this new future. But these practices have very special practice owners. Dentist-owners in this 20% are obsessive in their commitment to practice success. They are continually engaged in advanced training, usually teaching and/or speaking at national and regional conferences. They are always marketing—and I mean always. They are typically located in areas of concentrated wealth such as Manhattan, Chicago, Chevy Chase, and Newport Beach. They live and breathe their practices. They don’t take PPOs. They are not run as family practices. They consider themselves exclusive and do whatever it takes to sustain their exclusivity. I call them “concierge” practices. They are determined to be the best of the best.
The truth is that most dentists are not concierge practice dentists; they run family practices and take some PPOs. The percentage of PPO participation depends on factors such practice location, competition, current number of new patients, and length of time in practice. Those dental practices that participate with PPOs make up the remaining 80% and are the most at risk. In my view, these practice owners need to very carefully consider what they are going to do in the future. For them, a reformulation of the dental practice model is needed. But the hardest part will be for them to accept the cruel reality that solo private family practice, as a model, is becoming less and less viable for succeeding in the new context of dentistry.
The Five Stages, as Described by Collins
What I commonly encounter when I’m speaking at conferences, study clubs, webinars, or conference calls, is described brilliantly in Jim Collins’ book, How The Mighty Fall.2 This book examines those companies that were once “great” and what caused their demise over the last decade. What I find is a fairly large number of dentists fall into the first 3 stages of the 5 stages described by Collins: stage 1, Hubris Born of Success; stage 2, Undisciplined Pursuit of More; stage 3, Denial of Risk and Peril; stage 4, Grasping for Salvation; and stage 5, Irrelevance or Death. I am now meeting more and more dentists sliding into stage 4, particularly specialists.
I am actively working with clients in stages 4 and 5. My initial objective is educating, developing, and training them to reconstitute themselves and their practices through consolidation and integration. It’s my view that this will be the best pathway for them to succeed in the future. The mindset necessary, the skill sets required, the ability to work in an organizational culture, the capacity to be an effective partner—numbers of elements that were not necessary for solo practice success—are now fundamental and critical to future success.
Our preliminary program has 2 objectives. The first is to enable dentists to design pathways to consolidate their assets and goodwill; eg, increasing number of providers, partnering up with other dentists, forming DSOs, etc. The second, without which the first objective will not work, is to truly integrate into a group that will allow dentists to ably compete in the future as managed group practices as retail corporate dentistry entities swell.
Developing dentists to successfully integrate is the most challenging job. Dentists have been trained and acculturated to think mostly from “I, me, my.” And in the past, that kind of thinking worked. But other components of the dental profession are now undergoing consolidation—suppliers (ie, DENTSPLY acquiring AstraTech), third parties (ie, DentaQuest with a number of Deltas and Doral), and MSOs/DSOs (ie, Pacific with their target of acquiring 50 practices a year). Given that consolidation and integration appear to be the future in dentistry, those dentists who master the mindset, skill set, and experience to succeed in consolidation and integration will be able to thrive well into the future.
- Jim Collins quote source. ‘What are the brutal facts?’ http://www.charlierose.com/view/interview/11983.
- Collins J. How The Mighty Fall: And Why Some Companies Never Give In. Harper Business, May 19, 2009.
Disclosure: Dr. Cooper reports no disclosures.
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