Why managed group practice will dominate the future

October 13, 2016

Article

Dentist-entrepreneurs may be positioned well for the future of dentistry as the prevalence of managed group practices increases.

This article is about solo practice, managed group practice and dentist-entrepreneurs, and my opinion that, inevitability, managed group practice will be the dominant form of dental practice in the future. Presenting this future to dentists, it is not uncommon for dentists to find themselves in one of four places: those who are “already there,” those who are strongly interested but unsure of what to do next, those that are uncertain about the validity of this future, and those who are in denial. As a dentist, more than likely you are either in one of these four places.

Although I believe managed group practices are the future of dentistry, ultimately, it’s your views of the dental landscape and dental practice, as well as your wants, desires, fears, beliefs, psychology, culture and history, which shape how you construe what is presented in this article.

The evidence

Insurance companies continue to put up barriers to payment and further squeeze reimbursement through various means and methods. According to the ADA, 90 percent of dentists now take some form of dental plan and seven out of 10 patients have a dental plan. These percentages will continue and might even slightly increase. Reimbursement per procedure will be limited or even reduced through PPO and EPO plans, and restrictions on reimbursable procedures will begin to occur as now mandated by Delta of Michigan.

The asset value of solo practice is trending downward since there are fewer qualified buyers. New dentists’ student loan debt is around $250,000 and steadily increasing. Millennials are more interested in quality of life than sacrificing for ownership. Dental practice operational and staffing costs continue to climb. Less than 10 percent of newly minted dentists want to buy existing solo practices. New dentists are steering away from solo practices due to reasons such as student debt, significant additional debt from the purchase of existing dental practice, work-life balance, and the desire for more of a community mind-set rather than a commercial mind-set. Additionally, the myth that solo dental practice will be the financial highway to retirement has been shattered. An asset that isn’t transferable is simply a liability.

According to the ADA and its Health Resource Institute, patient visits and per-patient expenditure per visit continue to decline, and along with it, so are dentists’ incomes. Managed groups practices are growing at 20 percent per year, whereas solo practices are shrinking at seven percent per year. Performing a trend analysis on these percentages, solo private practices will make up less than 20 percent of dental practices within a decade.

Malcom Gladwell (The Tipping Point¹) defines a tipping point as "the moment of critical mass, the threshold, the boiling point.” The tipping point explains and describes the "mysterious" sociological changes that mark everyday life. As Gladwell states about the tipping point, "Ideas and products and messages and behaviors spread like viruses.” Simon Sinek² describes the tipping point using the classic adoption curve model stating that when something surpasses 17-to-19 percent of being adopted by a market, the adoption of that idea or product spreads rapidly; notebook computers, cell phones, tattoos or yoga pants are a few examples. Today, group practices are now 20 percent of dental practices. The tipping point has been surpassed.

Investment bankers, equity partners and numbers of banks see financing dental practice consolidation as a strong investment. The amount of capital being distributed to “roll-up” dental practices is in the billions. Heavily vested management companies (MSOs) are doing enticing recruitment of dental practices for consolidation. But some well-established larger DSOs are slowing down the acquisition of solo practices. What they are now looking for are small groups-groups in the same location or with nearby multiple locations, that demonstrate solid management, good cash flow and a steady increase in new patients. And finally, other large DSOs like Pacific Dental are moving quickly away from the acquisition model to the “denovo” model, finding it easier to create the infrastructure and culture in a denovo practice than changing an existing practice. So at this point in time, acquisition of solo practices is a “mixed bag,” but the continued growth and expansion of managed group practice is apparent.

Many solo practitioners are now considering selling their practice to groups as their exit strategy. Other solo practitioners are just plain tired of the hassles of being the owner, leader, manager and clinician and are considering selling to an existing DSO. The average age of dentists who own solo dental practices (predominantly Boomers and later Generation-Xers) is increasing, growing the number of available solo practices for sale. With slumping production and declining new patient numbers, along with greater availability, the value of solo practices will continue to slump. The supply is growing and the demand is decreasing for solo practice purchase.

The evidence presented here is just the tip of the iceberg, but it is enough to demonstrate the viability of sustaining a solo practice is in danger and the success of managed group practices is significantly improved. And, it’s this evidence that makes dentist-entrepreneurs excited to develop managed group practices because a managed group practice best meets this emerging future.

How are most dentists responding? The level of resistance and confrontation generated currently by most practicing dentists in the face of the obvious future of group dental practice is intense. But change takes no sides. Change is not swayed by emotion or righteousness. Change does not rely on the past. Change is context-dependent and the context has definitely changed. The future is clearly managed group practice.

Unfortunately, except for selling their practices, the majority of dentists cannot take advantage of the changes that are occurring. They simply don’t have the qualities, characteristics, personality traits or desire to build and operate a substantial managed group practice. Most dentists of existing solo practices initially generated a practice to give themselves a good paying job and to be in control. They had little intention of building a great company. But today, a few dentists do have this intention, and those are the dentist-entrepreneurs. My estimate is somewhere between 10 and 20 percent of the dentist population (probably closer to 10 percent) have the necessary qualities of a dentist-entrepreneur.

Next: What are the attributes of dentist-entrepreneurs?

Having worked with many entrepreneurs both in dentistry and in other industries for the last 30 years, I have found that entrepreneurs present the following attributes:

Resolve

Dentist-entrepreneurs have the resolve, tenacity and persistence for generating a great business. They didn’t go into dentistry to give themselves a high-paying job; they went into dentistry for the opportunity to create a great business. They love business, unlike most dentists who simply tolerate business so they can do their dentistry and make a good living. Dentist-entrepreneurs love the business side of dentistry. They are unconditionally committed to building a great dental company.

Fearlessness

Dentist-entrepreneurs are willing to jump off the cliff and build their wings on the way down. They play to win. They are willing to take significant risks. They are not afraid to fail. They like the excitement of being on the edge. Whereas most dentists are risk-adverse, dentist-entrepreneurs have high risk tolerance. Most dentists try to minimize the risks, so they only do those things that have been proven time and again to work. Dentist-entrepreneurs are innovators or very early adopters willing to do things that have never been done before.

Passion

Dentist-entrepreneurs are passionate about creating a highly successful dental company. A dental company that is highly effective, efficient, productive, well-marketed, staffed with strong non-dental senior executives, a committed clinical and administrative staff, and strongly capitalized. They have the “fire in the belly” to create a prodigious company. They are constantly reading books such as Built to Last, Good to Great, Courage, Great by Choice, Blue Ocean Strategy. Their vision infuses them with a deep hunger and desire. They are fervent, nearly obsessive about the business of dentistry, about growing a dental company, whereas most dentists are primarily passionate about clinical dentistry.

Acceptance of ambiguity

Dentist-entrepreneurs can endure the uncertainty, the vagueness, the polarity of opposites, which is commonplace in growing a dental company. They can be with the uncertainty that ambiguity generates. They can live with the risk of not having the final answer. They can live in the discomfort of not knowing. But they live out of the confidence “they will figure it out.” Most dentists long for certainty and proof, that someone else has the answer. Most dentists want things that are concrete. They want things that have been time-tested. In fact, most dentists have great difficulty and are emotionally unsettled when things are vague, unclear or uncertain.

Vision

Dentist-entrepreneurs have a vision for building a great dental enterprise. A vision is built on their company’s core values. A vision that clearly states the organization's purpose and answers the questions "What business are we in?" and "What is our business for?" Their vision provides strategic direction and describes what the dentist-entrepreneur wants the company to achieve in the future. Whereas most dentists do have a vision but their vision is an extension of the past. Really, what they have is a vision which is an “already, always” future. Basically more, better or slightly different of what has been done before.

Next: What other traits do dentist-entrepreneurs embody?

Coaching

A dentist-entrepreneur seeks coaching. They know what they don’t know, and are not embarrassed by not knowing. They are humble and somewhat self-effacing and continuously request coaching. In the vernacular, they are “coach-able.” They are open to criticism, correction and requests. The company’s success is more important than their individual success. Dentist-entrepreneurs know coaching is not informational. Unlike most dentists who think that it’s the information (the pearl, the formula, the recipe) that will give them success, a dentist-entrepreneur knows it’s the actions that deliver the results. Dentist-entrepreneurs want coaching to constantly improve their actions.

Adaptability

Dentist entrepreneurs are flexible. They adapt to changes and, therefore, do not resist change. They understand that change is constant. Many dentists abhor change and resist change, which can cause emotional response such as anger or upset.

Failure and risk

Dentist-entrepreneurs understand the difference between failing and being a failure. They know that failing is just one of those things you go through to succeed. The don’t make themselves wrong, beat themselves up, be martyrs or victims when they fail. They realize the failure is the access to the future. The dentist-entrepreneur is willing to risk failing.

This “avoid failing” readily shows up in staffing. A dentist-entrepreneur has little tolerance for under-performing staff and staff that won’t embrace or comply with the core values of the company. Dentist-entrepreneurs understand that getting the right people on the bus is essential not just having a bus with all seats taken. Most dentist tolerate mediocre staff performance and non-adherence to the core values. Most dentist seem reluctant to fire people when they should be taken off the bus. Dentist-entrepreneurs are not afraid to “pull the trigger.”

In summary

Most dentists are not cut out to be entrepreneurs. Primarily their intention is to become the best clinician possible. Commitment shows up on your calendar and in your checkbook. Simply look where dentists spend their money and time and that’s what they are committed to. Most will spend enormous time and money on becoming better clinicians but little time on operating a dental company.

The business of practice and how dentistry is delivered, marketed and paid for is undergoing radical change. Dentist-entrepreneurs have a tremendous opportunity as the future of dental practice unfolds. The emerging future is managed group practice and building a great managed group practice is their passion. Being a strong corporate leader, a wise and effective senior executive, a solid board director is their path. Developing a well-developed infrastructure; hiring and partnering with truly professional non-dental executives, beating the rules not breaking the rules, going for greatness, is their driving force.

Their time is now.