EP38: Trends Impacting The Patient Journey


Have you seen multiple practice locations appearing on your street corners? Have you taken a step back and explored your options recently? Dr. John and Brian explore the latest Dental economics around solo practice vs. corporate dentistry and how that is affecting the dental practitioner.  Brian Colao is the director for the Dykema law firm and is continually helping dental offices and lecturing for dental schools. Keep the pulse on the evolution going on around you in the dental world today!

“EP37: Buzzword: Corporate Dentistry; With Brian Colao” Transcript:

[music] welcome to the Double Your Production Podcast with the Team Training Institute, the one place designed for dentists and their staff who want to grow their practices by following in the footsteps of those that have done it, who are in the trenches, who know exactly what you’re going through, and now your leaders, the stars of the podcast, Doctor John Meis and Wendy Briggs.
Hey everybody. Welcome to this episode of the Double Your Production Podcast. I’m John Meis and I’m so delighted to be on the phone today with Brian Colao. Brian is the director of the Dental Industry. He worked for the Dykema law firm. He speaks at many, many conferences. I see him all over the country as we are at conferences together and we always have a chance to catch up. But his is the first time that we’ve been able to catch up on a podcast. Brian, welcome.
Well, thanks John. I’m really, really excited to be here. I know you’ve interviewed me a couple of times informally and we talked about doing this podcast, and I’m glad the dates lined up and here we are. I’m just really looking forward to this. Thanks for having me.
Oh, you’re sure welcome. So, in your position in the legal side of dentistry, there’s a lot going on right now. Can you give us kind of an industry update? There’s consolidation going on, there’s groups getting bigger, there’s laws changing in the states. Give us an update as to where things stand.
Yeah, no, John I’ve pretty much had a front-row seat or I don’t even know if I would call it a front row, I would call it chair-side or sideline seat you know almost on the field for the great evolution and the great consolidation of dentistry that’s going on. It’s a very exciting time in dentistry. I think it provides almost once in a generation-type opportunity for everyone from the solo practitioner to the group practitioner right now. I mean it’s a really exciting time to be in dentistry. What we’re seeing is solo practices, group practices, they’re rolling up and they’re becoming DSOs and they are getting paid some of the highest returns we’ve ever seen in dentistry right now. And what really excites me– that’s been going on for a little while, but the current update of the last year or so is there’s a lot of alternatives out there, what I call alternative DSOs where if you’re a solo practitioner and you recognize that this consolidation is happening and it’s probably not a good idea to just bury your head in the sand, pretend it’s not happening, and do nothing, there are other options for you in this marketplace that can really benefit your organization even if you’re not ready to [inaudible] up or to affiliate with a DSO. There’s just so many alternatives. Hopefully we can chat about a couple during our conversation today, but it’s a very, very exciting time to be in dentistry.
Yeah, it really is. It’s amazing to see what’s happening. As all of this is happening really any kind of change or any kind of industry evolution like this creates a lot of anxiety and fear in people, and I understand that it’s just the change that’s creating the fear, but can you give us kind of a take on people that are in individual practice? What does this whole transformation mean for them?
Well you know John I agree with you. Some people that come up and talk to me at various conferences or after I give presentations or [inaudible] sometimes they’ll call me up is they hear a podcast or something, and then there is a little bit of anxiety and fear out there, and I don’t think there should be. I mean I guess it’s only natural when there’s a major change or metamorphosis going on that some people will feel some anxiety, and I get that, I do. But in terms of what they really should be feeling I think they should be feeling excitement, and they should be sort of thinking about all of the opportunities available to them to maximize the value of their organization. For example, one thing that’s very different from this consolidation, as opposed to others that were going on– and I think you and I chatted about this not so long ago when I saw you at a conference. When other industries underwent consolidation, everybody says like when Walmart came in and maybe put some of the sole proprietor hardware stores or other stores out of business. There probably should have been some fear. And the outcome was unfortunate, in as much as, the big player came in and drove the little player out of business. But in this case, that can’t be– it’s impossible because corporations, no matter how much money they have, they can’t actually practice dentistry. They will always need the dentist, the solo practitioner or the group practitioner, to actually treat patients. So it’s not possible in this consolidation for a big player to come and just push the little player out of business. It’s got to be a situation where the big player comes in and makes it worthwhile for the little player to affiliate or explore some options. And that’s what you’re seeing right now. You’re seeing once-in-a-generation-type returns being paid to solo practitioners, and also being paid to group practitioners, to affiliate with DSOs because they are indispensable. The organization or the practice cannot function without the licensed dentists. So, for that reason, I don’t think fear is something that people should be feeling. I think they should be feeling excitement. They should be feeling, hopefully, a need to research or explore the options that are available to them. And then, ultimately, I think they’re going to have a once-in-a-generation-type outcome, where they’re going to be most [inaudible]. If you have a profitable practice right now, can expect an above-market return.
I had an interesting experience. I was visiting with a dentist who was selling his practice in– I think it was in Indiana. And I was representing a large DSO. And when he figured out who I was, and where I was coming from, he was like, “Oh. I don’t want anything to do with you guys. These corporate [goons?]. I don’t want anything to do with that. I’m not going to sell my practice to that.” And it was fine with me. I had lots of other opportunities. So I didn’t think twice about it. But about two years later, he calls me up and says, “Hey. Are you still interested?” And I think what he found was that he couldn’t find a buyer that could take care of him and the real estate all at once, and do it quickly and easily and predictably without him having to carry any debt. So it really was a big opportunity for him. He just wasn’t seeing it in that way.
No. I think that’s absolutely correct. And that’s a pretty common story. A few years ago, a lot of the folks that were representing the larger DSOs would come in a room and– I’m making a little bit of a joke here, but people would throw stuff at them, and boo them, and make them leave. Now, they’re inviting them. They’re begging them to show up and get an audience with them. And it’s a classic situation. And if you’re a sole practitioner, and you’re listening to us now, consider this. Consider if you’re selling your practice, and you don’t go the DSO corporate, private-equity-type of route, your ordinary universe of available purchasers are other licensed dentists in your areas. And you’re shutting yourself out of a huge segment of the market of the non-dentists. And to be frank, the non-dentists right now have more money than the dentists. And that’s a good thing, that shouldn’t be a bad thing because they have more money, they’re willing to bid against each other. They’re willing to make considerable investments that in a traditional doctor-to-doctor transaction, would not be available. And I think a lot of folks that feared the bigger DSOs at first, are figuring this out and saying, “Regardless of what pre-conceived notions or impressions I had about a DSO before, one thing that I can’t argue with is the multiple they’re going to pay for my practice, or the price they’re going to pay for my practice is going to be considerably higher than I’m likely to get in a doctor-to-doctor transaction.” So it’s irresponsible, I mean, not to at least sit down and consider it. Nobody’s going to make me do it, but it’s foolish not to invite these folks in and see what they’ll offer.
Yeah. I so agree with that. And the traditional dental buyer really doesn’t exist or exists in very, very small numbers today. Where someone comes out of school or comes out of a one or two-year associateship, and now they have the money to go ahead and acquire a practice. That buyer is almost nonexistent.
I would agree with that. I’m sure somebody’s going to call in or email you in Kansas or Iowa and say, “We’re doing it now.” No disrespect. I’m sure somebody is doing that somewhere, but the reality is what you’re seeing right now is the folks that are doing doctor-to-doctor acquisitions are group practices that have a grand plan to roll it up. Somebody that’s already an entrepreneur, has five or six or seven offices, might do a deal with a solo office because they have seven, and they say, “Hey, I want to go to eight. I want to go nine. I want to go to ten. Then we’re going to roll it up and maybe you’re going to become part of first, the doctor on DSL, and then we’re going to roll it up and be a private equity DSL.” That’s happening all the time. I don’t count that because that’s part of the foundation of the industry. But the traditional situation where somebody gets out of dental school and they want to go to a bank and take out a 500 or 600,000 or more loan and then buy a practice from a solo with the intent of operating it as a solo. One [evening?] solo doctor is retiring, and a young dentist is going to take out a big loan and buy that from that doctor with a goal of just continuing to operate that practice as a solo, that’s almost nonexistent. Again, no disrespecting somebody that is actually doing that, but it’s really greatly dimensioned. And I think will be literally nonexistent in the next 5 to 10 years.
There’s always going to be a place for mom and pops, but the economics of it has just changed so greatly. The amount of debt students are coming out of school, the gender mix of graduates. There’s just so many things that have changed that have really made the economic outlook very, very different. So that going solo route is tough, and I’m talking mainly in metropolitan areas. In rural areas, still that’s a very common way and stuff, but metropolitan areas, not so much. It’s becoming more rare. All right–
No. I agree with you. I mean, we have clients in all 50 states, and I was using Iowa as an example because I was talking to recently, a Nebraska doctor, an Iowa doctor. And I will say, they are affiliating with DSOs in ever-increasing numbers there. But you still might see a situation in other states in a rural area, you’re going to continue to do a individual doctor buying another individual doctor’s office with the intent of operating it that way. But in metropolitan areas, when I often sit down sometimes with dental students that I started to teach them core via guest lecturer or some dental school and see some people. I say why would you want to? The conversation always starts because everybody, corporate dentistry is a buzz word, and they’ll track me down and say, “The corporations are taking over America. What if I want to be a solo? I don’t want to be part of a corporate–.” Somebody will say something like that invariably to me and I’ll look at them and I’ll say, “But why would you want to be a solo now in this marketplace? Do you understand the current marketplace?” And of course, the poor dental students don’t because there’s almost no business courses in dental school so I don’t hold it against them, of course, they don’t know anything and they’ll say, “Well, what do you mean?” And I’ll say, “Well, right now you’re going to have– how much debt do you have?” And it’ll be very common for the kid to tell me he has two or three hundred thousand more, and I’ll say, “So you want to go to a bank and you want to take out another five or six hundred thousand and you want to saddle yourself with $900,000 in debt to operate this solo office,” and they’re starting to get silent, and I’ll say, “And let’s talk about the marketplace. If you were going to take out a $900,000 loan and you were guaranteed to go like gangbusters or something, I could almost understand it. But what you’re going to be walking into is an environment where all of the competitors have multiple locations, and there’s the majority of them, have multiple locations so the price they pay for equipment and supply is going to be a fraction of your price. They have a collective, negotiated prices with providers where the amount of money that comes into their practice, their reimbursement rate, is going to be higher than what you’re going to get in a solo office so they’re going to get more money coming in and less money coming out, and you’re going to have $900,000 in debt and be at a competitive disadvantage, are you sure you really want to do this?”  And it’s always eye-opening. I mean they almost are in disbelief that what I’m saying is true. They almost question that how could this possibly be– how come nobody in dental school ever told us about it? So, when we actually kind of get down and discuss this I think it’s a real eye-opener for a lot of the dental students and a lot of the young dentists out there.
So, what innovations are you seeing now around group practice and what’s kind of the latest thing that’s caught your eye? Something unique?
Yeah. A few things, quite a few things actually, John. There’s a lot of alternative models out there. For example, the California Dental Association and others have come up with programs where if you’re a solo dentist and you want to remain solo for a period of time, you can outsource some of your services and participate in volume-based buying discount. There’s also a lot of loosely affiliated dental groups out there that are coming into play for dentists that want to maintain all of their autonomy as a solo practitioner and yet reap some of the benefits of the power of masses so they’ll band together and they’ll have groups of sometimes 20 or 30 or 40 office and they’ll get a lot of volume-based buying discounts, they may or may not have an option to roll it all up and sell it to a DSO someday. There’s also some strategic affiliate programs out there where an individual solo office can sign an option agreement with some DSOs that say we won’t buy your practice until we agree that certain financial thresholds are made, are achieved so that you can basically try on affiliating with a DSO without making the commitment for several years. And then there’s a lot of direct to consumer marketing going on out there because what’s going on now is a lot of the traditional referral sources, particularly for specialists, are drying up. For example, if you’re a specialist and you’ve been heavily dependent on referrals from solo practitioners and those solo practitioners are now affiliating with DSOs and the DSOs are keeping that particular specialty in-house, a lot of your referral sources are drying up so you’ve got to do a lot of direct to consumer marketing. So now we’re seeing a lot of direct to consumer marketing models as well. I mean just a lot of exciting things going on.
And each one of these has great benefits and great flaws so it’s going to be fun to watch as these shake out to see kind of where it all lands. So–
I mean, it’s like– and one other thing. I apologize to interrupt, but it’s like an evolution– you learn in Biology about evolution. You say, “In response to stresses placed upon species, they will evolve to adapt.” And you’re seeing the dental market place do that. You were– everything was affiliating and rolling up with DSOs. There’s been a little bit of pushback on that with folks that wanted to maintain a little more autonomy. So now you’re seeing all of these alternatives open up. In other words, the marketplace is responding to the stresses and evolving to provide viable options to folks other than just traditional, conventional DSO model, which by the way is alive and well, doing very well. Nothing wrong with it, but just some folks want a little more flexibility and a little more options.
Sure. So Darwin would say the most adaptable is the one that will prevail. So a caution to all the listeners here. If you think you’re absolutely certain, or if you’re dead set on something, remain curious because there’s going to be continued evolution for sure. And–
I couldn’t agree more.
Do you see anything popping out of that kind of primordial soup that looks like it’s going to prevail, or do you think it’s just too early to make a prediction?
Well, you know what we’re seeing is a lot of specialty direct-to-consumer programs that I know that are going to prevail. For example, you have one-day dental implant centers. They revolutionized the marketplace. They took a particular procedure for a dental patient that took 18 months with multiple specialists, and they’ll do it a lot of times in one day. You have one-day denture programs that are direct to consumer that have also emerged. The latest trend even more recent than that is the clear aligner programs that you’re seeing and a number of folks offer that. It’s a great program. What you’re basically doing is taking orthodontics at a affordable price point with greater access. There’s been a lot of pushback. A lot of the traditional orthodontists don’t like it, and they’re making complaints, and they’re trying to generate this controversy that I think as you said, John, emerging from the primordial soup or whatever. I think these clear aligner programs and other specialty programs are here to stay. I think they’re good for the consumer and good for the public. They provide greater access to the lower price point and for that reason, I think they’re here to stay. I think there’s going to be a little more of a– how should a say it, a couple bumps in the road as the model settles into place. The same thing we saw with a broader DSO model a few years ago, but I think they’re going to be here to stay, and I think you’re probably going to see some other models emerge. Right now we have implants orthodontics, but there’s some wisdom teeth models emerging where people are specializing and just pulling wisdom teeth. And I think we’re likely going to see some other specialty procedures sort of come out of this for direct-to-consumer type models.
Yeah. Yep. I wouldn’t be surprised. The clear aligners, I was having a hard time getting my head wrapped around how that’s going to be regulated. And when you and I had lunch in Scottsdale recently, you were walking me through the thought process that you walked through a states dental board through. So do you want to just share that with our listeners?
Well, yeah. I mean, there’s common dentistry rules -right? – that are expressly allowed. So you hear some misinformation out in the marketplace where some folks, some trade groups that are making complaints or saying, “Oh, this is not allowed. It’s not consistent with the standard of care.” I mean, they’ll say don’t make these complaints, but my job is I actually am a lawyer and look at the law. I read this stuff. That boring stuff, I actually look at it. And there’s teledentistry, yeah. I mean, somebody’s got to. Right. And there are actually teledentistry statutes that permit this sort of thing because think of all of the counties if we’re just talking about orthodontics, for example, think of all the counties where there’s not even a Board Certified orthodontist there, the rural areas where you may need orthodontic treatment and they’re not available. So you’re starting to see teledentistry come into play. Not just for this clear-liner, but for all aspects of dentistry. So when you look at the teledentistry statutes, and the fact that they expressly authorized remotely treatment planning, this stuff, there’s a place for this. Is everybody in the marketplace doing it perfectly? No, but what I’ve always said that I’m not afraid of is let’s go ahead and say you’re allowed to do it or what you just have to follow the regulations. I think that’s reasonable. That’s what they said to the DSL industry years ago because people got up and were– and you were there John, and they were screaming, “DLS should be out of business, there’s no place for DSLs.” And I always found that silly. I said, “Let’s just look at the regulations and say, ‘If you can put your model together in compliance with the regulations then we’re going to allow it. If you violate the regulation that we’re going to punish you.'” But let’s not get up here and make these broad statements that people should or shouldn’t be in business. And I think that’s what you’re seeing right now with some of the Clear Aliner Programs, some of the trade groups, I don’t think are thinking it through. They’re up there making these broad pronouncements, but I can assure you when you actually drill down into the teledentistry regulations, there is a compliant way to do it. I think the focus should be making sure that everybody complies with the existing regulations rather than having some hidden agenda that we just don’t like these people so we’re going to try to make them go out of business or something like that. That’s not productive. That’s been tried with the DSL industry and it didn’t work with the DSL industry and it’s not going to work here.
Yeah, I totally agree that dental boards getting involved in restraints to trade hasn’t worked out well, anywhere. It’s been tried and it’s certainly been tried as–
It’s the only profession. I don’t want to go on and on and on, but I’m actually enjoying this conversation a lot, John. It’s the only profession that competes, Right. Let’s say you’re a publicly traded company, and you’re getting into trouble with the SEC. You’re not like what the SEC has to say to you, but we can all agree the SEC does not compete with me. Right. When the regulator is looking at you, it’s probably going to be some lawyer in Washington DC or some other city, and that lawyers looking at what you’re doing and maybe complaining about it or advocating that you need to be fined or penalized in some way. But we can all agree why that may not be a pleasant moment for us that we’re getting regulated in that way. That particular attorney does not compete with your business, they’re just looking at the regulation. But when you get into these professions like dentistry, it’s one of the few– I mean, dentistry and medicine, maybe the practice of law, probably accounting, or some of the few professions where the regulating body, the board directly competes. And you said that. I mean in North Carolina, the board got in a lot of trouble a few years ago, went all the way up to the US Supreme Court for restraint of trade. And what they found was the board was not immune to prosecution under the Sharman Act because it wasn’t closely supervised by the legislature. And that’s the case in many states where you have a dental board– some of them are changing the rules, by the way, but the governor has to sign off on what they do. And I think that’s good, overall good for the industry. But for the longest time, the boards were operating unregulated where folks that competed against you in the marketplace could come down with the rules that really kind of an inherent bias to stop the competition and and that’s the stuff that’s counterproductive to business, and some people would argue it’s counterproductive to a free economy and everything that America stands for, not to get on a soapbox too much.
Yeah. But I totally agree, and I also agree with the principle that dentists should be in charge of clinical dentistry, that dentists should be the ones making the clinical decisions, taking the responsibility for those decisions. I agree with that, and I know you and I have had the conversation, you do as well. How do we find a way that we can have businesses that are growth, that have the capital to grow, and to consolidate if there’s economic advantage for that? And there’s economic advantage for patients as well.
No. I mean, that’s right. And again, I come back to, “Hey. Let’s follow the rules. Let’s not make–” I mean, and you are absolutely correct that in a DSO-type context where you have a management company, the DSO cannot practice dentistry, it can’t treat patients, and it can’t interfere with the independent professional judgment of the doctor/owner of that practice. And that’s the rules, and I think that’s what we should apply. We shouldn’t make these silly broad pronouncements that DSOs are bad for the public, or they shouldn’t be doing business. I think we need to look at them and say, “Are they following the rules?” Yes, it’s true that the DSO is providing non-clinical administrative support services, but are they allowing, as they should under law, that dentists make the clinical decisions and to exercise his/her independent professional judgment? And if they are, then we have nothing to fear from that particular model. Is everybody perfect all of the time? No. And have there been some cases over the last 20 years that some people can point to – they’re mostly a long time ago – where maybe the management company didn’t quite get it correct, and you could argue under the law those individual cases that there was some interference going on? But on a going forward basis, at least in this current marketplace, the overwhelming majority of the DSOs understand the rules and are not interfering with the professional judgment of the dentists, and they’re compliant.
Yeah. And if they did interfere, it’s a crime.
It is. And we have laws. I mean look, that’s what we have. Dental boards and court [inaudible], and I never in all the lectures, I’m one of the more pro-DSO people you’ll ever see with all my lectures, but I’ve never abdicated [inaudible] seen many of the lectures I’ve given [inaudible] that the DSO shouldn’t anyway be allowed to interfere with the independent professional judgment of the data. So I’ve never said that. So I’ve had all over that DSOs are good for business, they improve choices for the consumer, they provide greater access to care, but you’ve got to do it in a compliant way. And if somebody is not doing it in a compliant way, well that’s what we have the [Dow?] boards and the courts and other folks to regulate that, and they are. You see it. I mean, I may do 100 a year, and you’ll see one or two that that is a little questionable, and somebody’s got to find somebody or force them to follow the regulations. But that’s like a 1 to 2 percent thing. 99% of all the DSOs operating, at least in my personal experience, seem to kind of get this and work really, really hard on compliance. And out of 100, there might be one or two a year where some regulation is required.
Two questions for you, and one is anything coming along with funding dental growth that’s unique and unusual? The typical way was the dentists would go to a bank, buy practice number one, number two, number three, around number four or five, the banks are thinking, “We’ve got a lot of risk tied in with this one person so what are you seeing people doing for raising capital in that situation?
Yeah, I’m seeing a lot of things. I was just meeting with some bankers last week that are going to roll out a program in the next six months or so. They’re not publicly disclosing it yet, but in the next six months they’re going to roll it out and they’re a very nimble, really good bank that I think is going to be able to react to the unique qualities of the DSO marketplace. I think you’re absolutely right. After two or three practices on a traditional dental lending platform, you’ve maxed out and there’s no more growth for you. Now we’re seeing a lot of things. We’re seeing at least five banks step into the DSO space where there was a void or a vacuum a couple years ago. and they’re offering DSO-specific programs and credit facilities. I think that’s really good. There are also some private equity groups that I’m aware of that had in the past been traditional private equity investors into the dental space. And now they have lending programs. Now, they’re not necessarily open to the public like a bank or you could just come and anybody can apply. But for certain specialized situations, if you have a profitable organization but you’ve kind of maxed out on your existing lending platform, they can step in. They can lend some money.
There’s also some minority investment opportunities where some folks maybe aren’t prepared to give up a controlling interest yet but they can raise capital through a [inaudible]. There’s at least three private equity groups I know, maybe even four I think, that are offering minority programs who will come in and raise necessary capital without giving up a controlling interest. So there’s a lot of things right now going on. A lot of these loosely-affiliated dental groups are able to band together and get more creative credit facilities by banding together with 20 or 30 offices as opposed to two or three offices. So there are a lot more options available for financing today than there even were two years ago.
Yeah, and I think that’s going to continue to evolve as well, as there’s going to be this gap in the market that somebody’s going to step forward and start serving. And so the last question I have for you is the making sure that your documents and your business structure is compliant with your state laws. It is not particularly easy. It’s somewhat complicated, it’s something that you’ve really been able to master in all 50 states. If someone wanted to get some advice on how to set these things up properly, how would they get ahold of you?
Yeah, thanks for that John. I can be reached if you go to dykemadso.com. D-Y-K-E-M-A dso dot com. All my contact information is there. My email address is bcolao, C-O-L-A-O, at dykema dot com. I’ve got a group of about 35 lawyers that specialize in the dental space. We’re in all 50 states and, you forgot, seven Canadian provinces, but that’s kind of what we’re doing here and we have a conference this year. I hope, John– you don’t know this yet, but we’re going to be talking to you about participating in it a little bit more directly this year. I guess I’m making a little bit of the announcement on the podcast, but we’ll be talking about that offline. It’s going to be July 10th through the 12th in Dallas, Texas. And again the information [inaudible] by DSO dot com. I would encourage anybody that liked this podcast and has questions – in addition to maybe reaching out to me, I’m happy to answer them any time – you might consider attending this event this summer because I think it’s going to be a really, really good event. We had almost 700 people there last year. We’re going to get at least that much if not more this summer.
I’ve been to the event and it’s a very, very, very quality event. You guys do a super job in putting on your meeting and I’m excited to be there again this year.
Well, we’re excited to have you.
All right. Well, that’s it for our time here, Brian. I so appreciate you hopping on the phone with me today and recording this podcast. To our listeners, I hope you enjoyed this and I’ll see you on the next W Production podcast. Bye-bye. [music]


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