Are you with a DSO searching for good practices to buy? Are you a dentist who wants to sell to a DSO? These insights from Heartland Dental's Mark Greenstein will help both sides of the transaction.
By Mark Greenstein, EVP and Chief Growth Officer
Earlier this year, Heartland Dental, the nation’s largest dental service organization (DSO), announced a record number of affiliations. This underscores a trend in today’s consumer-driven oral health-care industry that parallels medicine, pharmacy, and other health-care disciplines. Many doctors want support for their complex nonclinical administrative operations, and with growing their practices while realizing liquidity for the years of investment they’ve made in their practices.
Owner-doctors want to devote more energy to dentistry, which is their professional passion, and less to managing relationships with insurance companies, vendors, staff, and other needs. In a world where the burdens of running a business can be a real grind, especially during the pandemic, DSOs have become increasingly attractive.
Affiliating with dental practices or regional DSOs
The criteria vary for any given DSO and its potential dental practice affiliates. At Heartland Dental, we look closely at the top 10%–15% of US dental practices. If we consider a single practice or a small group of dental practices and believe this to be a good fit for our support model, we thoroughly evaluate all aspects of the practice to work toward an affiliation.
The transactions we have completed meet those criteria, but there is no one-size-fits-all when determining if an affiliation or acquisition is right for any given dentist, group practice, or regional DSO. The model at Heartland Dental focuses on three key elements: doctor, practice, and market. When this is applied to the more than 1,150 offices we support, there are commonalities.
First, we seek high-quality general family practices that are mainstays in their communities. We provide supported doctors with opportunities to use our clinical education resources and proven systems and processes to help them stay on the leading edge of oral care.
For every practice we consider, we want to ensure it has the physical attributes that position the doctor for future growth and whether it is in a good marketplace. For example, we prefer an office to have five or more dental chairs, with clean and well-maintained equipment, housed in a highly visible and easily accessible location. We usually find this combination in suburban areas with a stable or growing population and a broad base of insured and cash-paying potential patients interested in lifetime oral health care. We focus on a variety of demographics to ensure high access to dental care and future growth potential.
These attributes are a formula for a mutually growing relationship between supported doctors and DSOs. Ideally, the relationship should better position a practice so that when an owner-doctor chooses to retire or transition, the practice is an attractive option for dentists who are early in their careers.
Primary drivers for dentists
From a doctor's perspective, retaining their clinical autonomy—making all treatment-related decisions for their patients—is of utmost importance regardless of why they’re considering an affiliation. If there’s truly a doctor-led philosophy in the DSO, doctors are more confident in their options. There are three primary drivers in establishing a relationship.
First is relief. We understand that dentists are looking for relief from their ever-increasing management duties. This includes everything from human resources and accounting functions, to nonclinical staff training and rules, to billing and negotiations with payors, suppliers, labs, and more. And don’t forget marketing support for a continuous stream of new patients. Dentists are looking for a healthy work-life balance that will allow them to leave work at the end of the day or take a vacation without worrying about disrupted plans due to an office issue.
When Heartland affiliates with a practice or small group, we do so with knowledgeable and competent teams that work hard, smart, and together. We ensure all clinical and nonclinical team members are comfortable with the new relationship and confident that nothing will change with their primary job responsibilities.
Second is growth. There are 30-, 40-, and 50-year-old doctors who own their practices and want to grow their annual revenue. They’ve set goals and keep pushing but can’t seem to achieve their objectives. An accomplished DSO has proven systems and processes to help supported doctors better understand their businesses and recognize areas that may be preventing growth. Our team can help them identify possible restraints and create a plan to set doctors’ practices on a path to achieve higher growth.
Third is transition for dentists who are considering retirement. It's amazing how many doctors don’t have a good answer to “What is your exit strategy?” Doctors often don’t plan for the unforeseen curveballs of life such as an illness or pandemic. We often hear from doctors who are ready to move on from the pressures of leading a business or the years of repetitive stresses, the latter of which has been likened to “mechanical engineering of the mouth.” The doctors transitioning out or scaling back want to be sure the legacies they’ve built will continue, and they want to realize liquidity from what they’ve built.
Working with investment bankers, brokers, and accounting and legal firms
A dental practice or group practice can reach out to a DSO directly, or through their accountant, legal partner, investment banker, or transition broker. We welcome an intermediary’s participation in the process and are always interested in private equity sponsors that have dental assets and an interest in partnering. DSOs offer a viable avenue through which dental enterprises of wide-ranging breadth and depth can sustain growth and thrive in a larger context.
In the current economic environment, more dental businesses are selling to other oral health-care entities. For instance, in late 2020, we saw a number of major transactions with large DSOs affiliating with small, regionally-based group practices.
Starting the process
For a doctor interested in an affiliation, intermediaries can be helpful to start an evaluation. Whether they’re working with a broker or another third-party, or just testing the waters themselves, I recommend they seek a DSO that has consistently sustained growth in up and down economies.
Scale matters significantly. Many of the intrinsic challenges from which doctors are looking for relief are handled with scale. The advantage that comes along with Heartland Dental’s growth in supported offices is salability. This translates to a greater ability for supported dentists to obtain some of the best clinical products at the best prices for supplies, labs, and equipment. In addition, our expertise and operational efficiencies allow supported dentists to reduce many of the costs of practicing, including superior negotiating ability with payers. Clinical education opportunities and peer-to-peer support are other areas where having a superior infrastructure can enable higher growth.
You should consider an organization that offers these layers of support. Ask to see the infrastructure, meet with potential operational partners, and speak with dentists who have affiliated. Look for a DSO that provides tremendous operational support, as well as opportunities for leadership and continuing education so that you can be the best oral health-care provider you can be.
Mark Greenstein, MBA, is executive vice president and chief growth officer for Heartland Dental. He has 20 years of experience in management consulting and asset management, and he joined Heartland Dental in 2015. As EVP of strategy and development, he helps Heartland retain its leadership position through strategy, footprint growth, payer relationships, strategic sourcing, and business development. During his tenure, Heartland has grown by more than 50% to more than 1,000 supported dental practices in 37 states.