Top challenges of transitioning to a group practice

Growing from a single location to a multi-location practice is, understandably, no small feat. There are innumerable details that must be addressed, not the least of which is that the doctor endeavoring to pursue such growth must, at his or her heart, be an entrepreneur. In order to successfully make such a transition, there are a number of challenges that doctors must both be aware of and prepared to handle.

Dr. Marc Cooper, DDS, president and founder of the Dentist Entrepreneur Organization, a national consulting and training firm in Portland, Oregon, and Dr. Roger Levin, DDS, CEO and chairman of dental practice consulting firm the Levin Group in Owings Mills, Maryland, offered their advice for those entrepreneurial dentists looking to expand from a single location into a multi-location DSO.

Scalability

Dr. Levin recommends a logical, step-by-step approach, starting with optimizing that first location into a smooth-running practice.

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“The first stage is to take the practice, before you start expanding, and systemize the entire practice,” Dr. Levin says. “It’s almost as if you are about to launch a franchise, except you are not. So, before McDonald’s started expanding, Ray Kroc actually built the first McDonald’s systems for maximum efficiency. One of the biggest mistakes dentists make is expanding into practices two, three, four and five, but they’ve never really created the process or systems for how the practice should run, which leads to inconsistency, inefficiency and breakdown.”

Practice management systems are especially critical. While single locations have their own systems, Dr. Levin says they should be selected with growth in mind.

“The system that often handles one, two and three practices often does not handle four, five, six or more” he says. “You want a system that can probably handle at least 15. Even if you never intend to get there, you want a system that allows for the communication, the integration to run all of the offices off of one platform. And there are systems out there that do that. I would also suggest you get a highly proven system, not something brand-new.”

Once a well-organized practice is running, infrastructure supporting that expansion is necessary.

“Phase two is then to put in place an infrastructure that allows you to grow without the pain that so many entrepreneurs go through,” Dr. Levin explains. “And that would include the following: Number one is professional management. Ninety-six percent of dental office managers have no management background. So, we tend to keep promoting the people who were good in one or two offices to manage four, five and six, and we run out of their competency. But we like them, we trust them, they’re reliable, they’re loyal, and somehow we misunderstand that that makes them competent.

“Number two, you need to reproduce the systems from phase one into each office,” he continues. “You want every office to run in a very similar manner, if at all possible. Number three, you need to develop compensation models. One of the biggest mistakes I see, and we do a lot of consulting to small group organizations, is that they hire associates to work in the expanding practice, and they have a compensation model in the beginning that is really bad as they begin to expand. The compensation model you start with and can afford at the beginning, it’s not being incentive-based, it’s not moving people in the right direction, it leads to much higher overhead than the organization should have, and it’s very difficult to change people’s compensation and keep them employed.”

The last part of phase two is to develop a vision. That vision, Dr. Levin says, is especially critical to the overall integrity and success of a DSO.

“I think, in phase one, you are just trying to get everything organized,” he says. “By the time you start expanding, you need a vision of where you want to go. Do you want three, six, 20 practices? Because you can’t build a strategic plan without having a vision. In other words, every entrepreneur who reaches phase two needs to have a strategic plan. But that cannot happen until there’s a vision of what you want to build and what you want it to look like.”

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The final phase brings everything together and involves centralizing administration and practice management systems that affect each site.

“In phase three, you need to have centralized functions,” Dr. Levin says. “Centralized scheduling, centralized staff training. You want to get away from the on-the-job training; you want to be able to train the team as you want the job done. Centralized recruiting – you want to outsource. Outsourcing is fantastic. There’s not a lot of difference between hiring a recruiter or using an outside recruiting firm. There’s not a lot of difference between hiring a trainer and using a training firm. There are differences, but if you don’t want to engage all of this in your organization, then you can outsource it to the expert firms to help you.

“You want to begin to build centralized functions around how the practice operates certain administrative functions like HR, recruiting and ordering supplies,” he continues. “By this point, you’ll be negotiating, but somebody has to do the negotiation on an annual basis and bid out contracts. You may want a call center for your scheduling, at that point.”

He warns that each of these phases is critical to the success of a burgeoning DSO.

“The biggest mistake you can make is to skip a phase,” Dr. Levin says. “Because if you skip a phase, you’re going to spend a lot of time and money backtracking and trying to catch up.”

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Determining success

Dr. Cooper says that success is determined in three areas. The first he calls the “have domain.”

“The first area is, ‘What do you need to have in order to be an entrepreneur?’” Dr. Cooper observes. “You have to have the vision; you have to have the concept; you have to have the courage. There are certain things that you need to have to step into the arena of being an entrepreneur. You have to have a certain relationship with failure. You have to have a certain relationship with disappointment. You have to have a certain relationship with never giving up. You have to have a lot of things in terms of characteristics and qualities.

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“Then there is the ‘do domain,’” he continues. “‘What do I need to do?’ It’s not a prescriptive way; it’s not a formulaic way. There’s not a precedent recipe on how to do these things. You may have heard the expression, ‘If you’ve seen one managed group practice or DSO, you’ve seen them all.’ At this moment in time, each one that I’ve ever worked with is different. And it’s different because the values, purpose, vision and mission for each are different. Right now, because of the lay of the land in the dental industry, because they’re so fragmented, the capacity to have individual expressions at a much larger level is available.”

To meet the needs in his “do domain,” Dr. Cooper says entrepreneurial dentists must figure out such issues as strategic planning, SOPs, KPIs, hiring the best people and learning how to lead meetings.

The final domain is a little more cerebral, but Dr. Cooper says it’s the most critical.

“It’s the ontologic domain, the existential domain,” Dr. Cooper says. “Who one is as a leader, who one is as a manager and who one is as an entrepreneur.”

When Dr. Cooper worked with the NASA Ames Business Incubator, his role was to evaluate the applicants’ wherewithal and capacity to follow through on their ideas.

“The metaphor is, ‘Everyone knows how to swing a baseball bat,’” he explains. “You know what to do. You have that in your hands. But that doesn’t have anything to do with you being a professional baseball player. Who one is: that’s where I spend my time. If the entrepreneur has a sense of what to do, can they do it?”

Finding associates

Bringing in the right associates to be part of the DSO is its own challenge. In addition to finding competent doctors, it’s also necessary to ensure they’re a good fit for the organization’s philosophy and culture.

“One of the biggest challenges for DSOs is turnover,” Dr. Levin says. “You have a lot of dentists coming out of school, and they’re going to stay two or three years and move on, so it depends on your model. Ideally, you want dentists who are satisfied to be employees, but they can be incentivized based on their performance to work toward the goals of the organization.”

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Understanding the overall goals of the DSO is a necessary component in finding qualified associates.

“Like any job in America, the most important thing is the recruiting, interviewing and hiring process,” Dr. Levin says. “Because what you really want to do is model out, ‘What is the ideal associate for that organization?’ Some organizations don’t mind turnover of dentists. They don’t have to pay them a lot, they can be compensated at a lower level, and they don’t mind change every two or three years, nor do the patients, based on that kind of model. Often, that would be a higher insurance participation practice. The recall rates would be lower, so the practice relationships with patients would be less important.

“Then, you have small groups that are still dedicated to high-level care and customer service, and you want to participate,” he continues. “When dentists turn over in those organizations, patients lose confidence because their dentist is changing all the time. You model out the type of doctor you want, then you build a compensation plan to attract and incentivize those kinds of doctors.”

Dr. Cooper says that those associates can be found if there’s a proper understanding of what the practice is all about.

“There’s a phenomenon that I use in my work called ‘distinction,’” Dr. Cooper says. “Something is seen in a particular way; it is distinguished. When we begin our work with entrepreneurs, we need to generate the distinction that their company is. What are the core values that are going to be the foundational piece of this company? What is the purpose of this company? What’s the five-year vision for this company? If it’s meaningful, if it’s authentic, their values, their vision, their purpose, and looking through those lenses, out into the world, they’ll see people with like values who are up to the same thing, or parallel with the same thing, that they are.”

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The doctor’s role

And what becomes of the doctor who starts the DSO? Will he or she continue as a practicing dentist, or will the role change? The answer, Dr. Cooper says, is: it depends.

“We have dentists who become dental directors and move to the clinical side, generate CE, make sure the associates and other new doctors are happy and set, they set treatment planning sessions,” Dr. Cooper explains. “They sit down with formulary committees, they pick their labs, they go all the way over to the clinical side of the house. And that’s where they belong because that’s where they love to be. Other dentists move over to the business side. So, they’ll be moving into the CEO direction. They have choices, depending on their strengths and weaknesses.”

The doctor’s role is likely to change as the group expands. Being cognizant of one’s competencies - and being willing to accept one’s limitations - will help to ensure the practice’s success.

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“As you expand the practice, determine the real skill sets of the owner/dentist as a business person,” Dr. Levin says. “Another big mistake is that a lot of dentists’ business skills run out as they expand. A dentist who looks at himself or herself, evaluates two steps: step one, what level of competence do they have to be the de facto CEO or business manager of this expanding group practice? And they should determine whether they can handle it.

“If they can, the next step is, are they now an owner or a dentist?” he continues. “There is a difference. I meet a lot of dentists who are trying to expand and seeing patients 35 hours a week. It’s very difficult. It’s frustrating for them and the team. If you’ve gone past your competency, you need to bring in professional management. I see other groups where the owner/founder is no longer in charge. Maybe they’re chairman of the board, but they’ve got a CEO running the organization because the dentist who goes past his or her business skills will end up hurting the group practice. If they determine they have the skills, they need to determine how much time they’re going to spend running and operating it versus practicing dentistry.”

Hand-in-hand with the founder’s competencies are the strengths of the practice itself. That, too, will also dictate his or her role.

“It depends on how strong their current location is in terms of systems, structures, KPIs, SOPs, levels of accountability, metrics, analytics, how clean are their financials, in terms of their income statements, balance sheets, how well run, how tight, is that practice?” Dr. Cooper observes. “Now, if you’ve got a guy in the operatory four-and-a-half days a week trying to do some administration and marketing, I can tell you, it’s not very tight. Usually, if they open a second location, and I find that they don’t have what they need in terms of its ability to be scaled and replicated, they get their first shock. ‘Oh, we don’t have the necessary tool sets to work here.’ And they have to develop them. They need to get much more integrity in the systems they already have and through higher functions, as necessary, and have them duplicated at the next location.

“From there, you have to get more granular in each of the things that run a business, and that usually requires outside advisers or fractional CFO/HR, COO,” he continues. “So, by the time you get to the fourth location, you have a moderate executive suite going. Because those are the people that are going to be managing others.”

While operating one practice does make a dentist a business owner, if he or she aspires to expand into a multi-location practice, his or her mindset has to change. Now, rather than being a small business owner, and he or she must become an entrepreneur.