Focus On: Working for Franchise Dentistry

Michael W. Davis, DDS

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Michael W. Davis, DDS, elucidates matters related to working for franchise dentistry.

Q: What exactly is franchise dentistry?

A: A valid dental franchise must comply with federal and state statutes and deliver to potential franchisees specific disclosures required by law. A valid dental franchise must meet requirements under the Federal Trade Commission’s (FTC’s) Federal Franchise Rule.

Further, any dental franchise must comport with the FTC’s May 2008 Franchise Rule Compliance Guide. This extensive document goes into broad depth relating to company structure, protections, and disclosures for franchise buyers. If a doctor is dealing with a purported franchise whose representatives seem ignorant, they should be dismissed.

Unfortunately, numbers of corporate dental chains misrepresent their operations as dental franchises. They often have a common national brand and proffer “ownership” to prospective dentists. Too frequently, these clinics are beneficially owned by outside corporate entities. The “owner” dentists generally only hold nominal clinic ownership. Any pretense of a franchise operation may also be a sham. Government rules and regulations clearly specify what is and is not a franchise operation.

Q: How does one determine if a franchise is the right one to buy into?

A: Prior to any commitment of personal funds and sweat equity into a franchise venture, a doctor should demand a trial employment period. A reasonable time might range from 12 to 24 months. Every franchise has a different business culture and business model, which doctors should experience before making their decision.

A prospect should enter into such a binder only with clear understandings and agreements related to dental laboratory quality, referrals to specialists, and frequency and reasonableness of franchise litigations. Franchise management must present a protracted history of reasonable and fair business dealings with any disputes, which inevitably arise.

Beware of certain franchises that work their franchisee doctors like sharecroppers. Dentists are continually kicking their earnings upstairs to senior management in the form of royalty fees; unwarranted advertising costs; excessive overhead for rental space and/or equipment; reduced-fee discount dental plans, which the parent company primarily profits from; etc. Your attorney’s advice is imperative.

Q: Is it a myth or reality that a doctor can build personal equity in a dental franchise?

A: Except for a select few, this is a fairy tale. The majority of dental franchise/franchisee contracts severely limit the conditions under which the franchisee (or sub-franchisee in some cases) may cash out his or her equity. Contracts are generally very one-sided in favoring the parent company. Elements such as the timing of transition and the party to whom transition occurs are usually under control of the parent company.

Ideally in the franchise industry, the parent company is required to limit its franchises in any given region. This safeguard is for protecting purchasers of franchises from market oversaturation. Unfortunately, many dental franchises have over-inundated specific markets. The parent company’s goals are not necessarily aligned with those of franchisee doctors. Dentists earn their livelihoods directly from the care of patients and payments from them and third-party payors. The parent company primarily makes its money directly from franchisee doctors.

The parent firm may also enjoy enhanced revenues from an increasing number of subordinate franchisees fighting over a limited-size pie. When every facility maintains identical business models, all struggle to generate the required revenues demanded by the master company. Each is mandated to obtain rent, lab services, advertising, etc, exclusively through the franchise.

Look to doctors who have been with operations for 20-plus years or have retired and transitioned their franchise practices. Are these dentists a significant percentage of clinical operations, or have most former franchise holders simply walked away with little to show for their years of work? What do former franchise holders say? Personal due diligence is essential for a prospective franchise purchaser. Again, consult with your dental law attorney.

Q: What are the benefits of buying into a dental franchise?

A: The greatest benefit probably relates to colleagues aligned in one’s group practice. Young dentists can be well-positioned to receive superb mentoring. Colleagues can immediately consult with one another on challenging clinical cases and business decisions. Ideally, the parent company can also provide business guidance and extensive opportunities for continuing education.

Many of today’s recent dental grads are inundated with excessive student loan debt. It is reasonable to equate this with a modern form of debt bondage. Unfortunately, many young dentists are credit-challenged and have no hope in the immediate future of true practice ownership.

The majority will not remain as “worker bees” for the franchise. A few will move up into senior management. An even smaller subset will utilize their know-how and establish their own dental franchise or dental service organization (DSO). The preponderance will continue as clinicians, either working for a DSO or a public health clinic or assuming or partnering with a small-business dental practice.

Dr. Davis practices general dentistry in Santa Fe, NM. He assists as an expert witness and a consultant in dental fraud and malpractice cases. He can be reached at mwdavisdds@comcast.net or the website smilesofsantafe.com.

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