Industry Leaders’ Perspectives: The - McGuireWoods

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Industry Leaders’ Perspectives: TheFuture of Dental SupportOrganizations and Dental PracticeGEOFFREY COCKRELL, PARTNER312.849.8272 [email protected] West Wacker Drive, Suite 4100Chicago, IL 60601BARTON C. WALKER, PARTNER704.373.8923 [email protected] Third Center201 North Tryon Street, Suite 3000Charlotte, NC 28202TIMOTHY J. FRY, ASSOCIATE312.750.8659 [email protected] West Wacker Drive, Suite 4100Chicago, IL 60601WILLIAM T. NASH, ASSOCIATE312.849.5258 [email protected] West Wacker Drive, Suite 4100Chicago, IL 60601March 2015www.mcguirewoods.comThis white paper is intended to provide information of general interest to the public and is not intended to offer legal adviceabout specific situations or problems. McGuireWoods does not intend to create an attorney-client relationship by offering thisinformation, and anyone’s review of the information shall not be deemed to create such a relationship. You should consult alawyer if you have a legal matter requiring attention. The insights provided by each leader in this white paper are the personalopinions of such leader and are not attributed to their companies and associations, the authors or McGuireWoods.

Industry Leaders’ Perspectives: The Future of DentalSupport Organizations and Dental PracticeDental Support Organizations (DSOs) haveexperienced consistent growth in the lastcouple of decades as more providers seekthe competitive and patient-supportactivities that such organizations provide.This growth has led to significant third-partyinvestment. In the past decade alone, morethan 25 private equity firms have investedsignificantly in DSOs. As discussed in thiswhite paper, there are a number of reasonsto believe that DSOs will continue to be ahot area for growth and investment activity.A number of DSO leaders see opportunitiesfor achieving greater efficiency throughconsolidation as well as trends outside theindustry, such as the changing insuranceclimate, that may benefit DSOs.The term DSO encompasses a broad rangeof business models. Generally, DSOs offerpractitioners support in a range ofadministrative, financial, technical,marketing and managerial matters. Theadvantages for practitioners are clear.Practitioners benefit from access totechnology and services that are beyond themeans of most solo practitioners. Thepractitioner also is freed from administrativetasks so that he or she may focus on patientcare. Patients also see significant benefitsfrom greater convenience and oftentimeslower prices, and from being seen bypractitioners with access to the latest dentaltraining and technology. Such factorsexplain why the rate of DSO growth hasoutpaced the dental industry as a whole. In2012, Dental Care Alliance reported thatmembers of the Dental Group PracticeAssociation, renamed Association of DentalSupport Organizations (ADSO) in 2014, hadgrown by 18 percent while the dentalindustry’s growth was 5.5 percent.DSOs come in a variety of businessstructures. Generally, a DSO works withone or more professional groups of dentistswho oversee the clinical aspects of thepractices affiliated with the DSO. The DSOis usually responsible for managing thetechnical, marketing and administrativefunctions of affiliated practices. DSOs andtheir affiliated professional groups aregenerally keenly attentive to state laws onwhich business models are permitted. Inorder to speak more generally about theindustry, the authors have not attempted todescribe in-depth how each DSO hasstructured its operations to comply withthese requirements.For this white paper, the authors interviewed12 leaders who have been involved inshaping the industry, including seniormanagers of DSOs, leaders of the ADSOand investment bankers experienced in DSOtransactions. The white paper includesinsights gleaned from these interviews onsuccessful DSO business models, challengesto the industry and what the future may holdfor DSOs.Industry Leaders’ Perspectives: The Future of Dental Support Organizations and Dental Practice Page 2

Richard Beckman, ChiefExecutive OfficerGreat Expressions Dental Centers Inc.300 E Long Lake Road, Suite 311Bloomfield Hills, MI 48304248-203-2330 www.greatexpressions.comRichard Beckman is the chief executiveofficer at Great Expressions Dental Centers.Mr. Beckman also serves as ADSO vicepresident and chair of the ADSO EthicsCommittee. Mr. Beckman joined GreatExpressions in 1998. During his tenure, thecompany’s revenue has increased from 10million to 300 million, grown from 21locations to 200, and been on the Inc. 5000’slist of fastest-growing companies for sixconsecutive years. Great Expressions hasbeen a leader in providing preventativedental care, orthodontics, surgery andcosmetic dentistry. Mr. Beckman recentlywon 2014 Entrepreneur of the Year forConsumer Services in the Michigan andNorthwest Ohio region. Mr. Beckman hastaken an active role in the communities inwhich Great Expressions operates, such asby donating to University of Detroit MercyDental School and Nova SoutheasternUniversity Dental School and providingmonetary and staffing assistance to St.Vincent DePaul in Detroit which, amongother services, runs a dental clinic with morethan 2,000 annual patient visits.KEY INSIGHTSThe DSO model offers a number ofadvantages over traditional solo practices.DSOs allow dentists to focus their efforts onclinical care rather than spending asignificant amount of time and energyfocused on back office issues. DSOs alsooffer a means to improve patient outcomes.For example, Great Expressions has a 12person national doctor panel that meetsquarterly to review results and discuss theclinical direction of the dental group. Thepanel reviews the latest trends in dentistry toensure that Great Expressions-affiliatedpractices are abreast of cutting-edgetechnology and procedures.DSOs also have the ability to track datafrom a number of practices to compare ratesof procedures. These mechanisms allowDSOs to encourage conversations amongpractitioners about changes andimprovements in dental procedures andpricing. Great Expressions also reviewspractice data to determine if its practices hasthe right mix of generalists and specialists inthe right locations. The use of review panelsand technology has allowed GreatExpressions to be proactive in ensuring theethical operations of its business andaffiliated providers.Industry Leaders’ Perspectives: The Future of Dental Support Organizations and Dental Practice Page 3

Great Expressions focuses on ways toimprove access, improve the patientexperience and deliver the highest-qualitypatient care. To that end, Great Expressionsseeks to accept all types of insurance andoffer all dental specialties. “If a patientseeks to access one of our providers, we willdo whatever we can to offer services to thatindividual,” said Mr. Beckman. Offeringgreater access is not antithetical to offeringthe highest-quality care. Great Expressionsalso focuses on the needs of its providersand ensuring that they receive the trainingthey need and have access to the latest indental technology.In the next five years, the dental industrywill continue to be a mix of DSOs and solopractices. The business and regulatorylandscape will reflect the competitionamong these entities. Great Expressions haspositioned itself well to deal with change byaffiliating with a number of differentpractices types and by accepting a widerange of insurance plans.Industry Leaders’ Perspectives: The Future of Dental Support Organizations and Dental Practice Page 4

Doug Brown, Chief ExecutiveOfficerAffordable Care, Inc.5430 Wade Park Blvd., Wade II, Suite408Raleigh, NC 27607(919) 851-3996 www.affordablecare.comDoug Brown is the chief executive officer atAffordable Care, Inc. Mr. Brown has been aleader in the DSO space since 1995. In2004, Doug brought together DSO industryleaders, which led to the formation of theAssociation of Dental Support Organizations(ADSO). Doug is the ADSO’s immediatepast president and currently serves as cochairman of the Government AffairsCommittee. Doug has been CEO ofAffordable Care since 2011. AffordableCare manages the Affordable Denturesbrand, which provides services forapproximately 220 dental practice affiliatesin 40 states. Affordable Dentures is thelargest and fastest growing provider ofdenture and implant services in the U.S.KEY INSIGHTSThe DSO industry will continue to be anactive area for deals in the coming years.Small and midsize DSOs have been aparticularly hot area of DSO deal activity.Such companies will continue to grow andeither develop their own managementinfrastructure or sell to established DSOs.The DSO model offers strong growthpotential because it centralizes managementexpertise, technology and training. DSOsare able to market, install customized ITsystems and offer targeted training in waysthat are not possible at the private practicelevel.DSOs will need to continue to monitor theregulatory environment. State law anddental boards have varying requirements onmanagement of dental practices.Additionally, the DSO model is relativelynew and evolving. Traditional dentalpractice owners may feel threatened by theemergence of DSOs because of thecompetitive advantage in consolidating themanagement and marketing of practices.For example, in the denture space, a DSOmanaged practice may charge one-third ofthe fees, offer same-day service and reducethe number of follow-up visits needed,compared with a non-supported practice. Inthe next five years, the DSO industry willcontinue to grow, with individual DSOsdeveloping business models that offer aunique “special sauce” to practices. In orderto ensure that growth, individual DSOs andtheir partners, such as the ADSO, mustcontinue to demonstrate strong complianceprograms and effectively communicate withregulators to clear up any misconceptionsabout the industry.Industry Leaders’ Perspectives: The Future of Dental Support Organizations and Dental Practice Page 5

Vito Dacchille, Chief ExecutiveOfficerInterDent9800 S. La Cienega Blvd. #800Inglewood, CA 90301(310) 765-2442 [email protected] Dacchille is the chief executive officerof InterDent, Inc. Mr. Dacchille joinedInterDent in December 2013. He previouslyserved as chief operating officer forConsoliDent, Inc., which had dental officesin nine states, including Florida, Michiganand Georgia. InterDent provides services todental offices and multi-specialty dentalpractices in eight states. InterDent managesfive brands Gentle Dental, Smile KeepersDental, Dedicated Dental, Southwest Dentaland Blue Oak Dental Group and providessupport services to more than 178 affiliateddental offices employing more than 450dentists. Its network of affiliated officesprovides comprehensive dentistry to morethan one million patients annually. Servicesinclude general dentistry, orthodontics,periodontics, endodontics, pedodontics andoral surgery.negotiating leases and financing, theclinician can focus on educating patients ontreatments and providing high-quality care.The goal at InterDent is to provide supportso that affiliated dentists can give patientsthe best dental experience possible to ensurethat they come back and recommendInterDent-supported practices to theirfriends and family. This means supportingdentists so they can offer evening andSaturday hours, accept as many types ofinsurance as possible, develop new paymentmethods, and locate in convenient retailareas.The DSO industry is likely to change in thecoming years. In the recent past, the top 15DSOs have grown significantly and many ofthe obvious deals have been done. The bigdeals in the next one to two years are likelyto be amongst the top 15 DSOs. It wouldnot be surprising if a large private equityfirm sought to merge two of the largestDSOs to eliminate perceived redundancies.Given the pressures on payors to find value,there will be corresponding pressure onproviders to seek competitive advantagesthrough economies of scale.KEY INSIGHTSDSOs offer clinicians true autonomy topractice dentistry. Rather than being pulledaway from patients to consider issuespotentially outside of their expertise, such asIndustry Leaders’ Perspectives: The Future of Dental Support Organizations and Dental Practice Page 6

Quinn Dufurrena, DDS, JD,Executive DirectorAssociation of Dental SupportOrganizations19751 East Mainstreet, Suite 340Parker, CO 80138720-379-5342 [email protected] Dufurrena is the executive director ofthe Association of Dental SupportOrganizations (ADSO). Dr. Dufurrena is atrained dentist with more than 30 years inhealthcare delivery and healthcare policyanalysis, including nearly 20 years ofexperience with DSOs. He has practiceddentistry in a variety of sectors, includingthe military, private practices andnonprofits. He also has advisedpolicymakers on teledentistry, electronichealthcare records, data privacy and ruralhealthcare. As the executive director ofADSO, Dr. Dufurrena heads the nationalassociation for DSOs. The ADSO’s missionis to communicate the benefits of DSOs toenable dentists to focus on providing highquality dental care.KEY INSIGHTSThe term DSO is an umbrella term. TheADSO currently has 35 DSO members, eachof which has a very different business andoperational model. Some focus onproviding cutting-edge technology toaffiliated practices while others concentrateon reducing costs to serveMedicaid/underserved populations. Overthe next five to 10 years, competition willrefine these models and new models arelikely to develop. To serve a broader arrayof DSO models, the ADSO is expanding itsmembership to DSOs with 10 million to 30 million in annual revenue, beginning inJanuary 2015. This expansion should allowsmaller DSOs to discuss and collaboratewith larger DSOs to learn what it takes togrow and consolidate their operations toachieve greater efficiencies.These trends will be part of an overallexpansion of the DSO market. The DSOindustry continues to grow rapidly withpatient visits t