Upstairs in the corporate world

May 1, 1999
Dental management companies affect more than just the dentist - the influence of the corporation reaches into the hygiene operatory as well.

Dental management companies affect more than just the dentist - the influence of the corporation reaches into the hygiene operatory as well.

Linda Harvey, RDH, MS

Starting with the first day of dental hygiene school, quality of care has meant providing the best possible care for all patients, regardless of their needs. The philosophy still stands today; however, the environment in which we provide care is changing.

One change is the growing trend of dental management service organizations, also known as dental practice management companies (DMSO or DPM). A DPM or DMSO is a company that purchases a dental practice and/or enters into a management service agreement with that practice. Thus, a dental practice becomes part of a larger corporate entity. This article explores the DPM concept from the dental hygiene perspective.

The trend is appealing to investors and a growing number of dentists for several reasons. First, from the business perspective, dentistry represents a fragmented, $45.8 billion industry ripe for consolidation and reorganization. The dental industry is viewed as fragmented due to its duplication of services (68 percent of dentists are in solo practice) and the high cost of business operations for individual practices.

A second distinction about dental services is the lack of penetration in the market. DPMs and investors feel that there is much more business to be captured than is realized. They view the segment of the population not receiving dental care as an untapped market. DPMs believe the opportunity exists for expansion without recruiting established patients from other practices.

The organizational structure varies among DPMs. One key difference is whether the company is a publicly traded or privately owned corporation. Both are for-profit entities. However, a public corporation trades its stock via a public exchange such as the stock market.

Another difference is whether the dentist becomes an employee of the DPM or retains self-employment status. Some DPMs purchase only the "hard" assets of a practice, such as equipment. The dentist retains ownership of the patients. If a dentist remains self-employed, staff members (including hygienists) usually remain employees of the dentist rather than becoming employees of the DPM.

A third difference involves the type of reimbursement offered for the sale of a dental practice. Dentists are paid either cash or a combination of cash and stock for the sale of their practice.

The strategy behind a DPM is to provide high-quality, comprehensive dental care while maximizing efficiency of operations, centralizing supply purchases, increasing productivity, and expanding the market share for each affiliated office. This strategy includes developing hygiene services as a profit center within each office.

How they achieve their goals depend upon the focus of the DPM. Some concentrate on developing dental centers with an innovative design and layout. Others concentrate on fuller utilization of all staff members. Others offer more services, such as dental labs or specialty-focused care. Some DPMs even target a specific patient population such as fee-for-service, Medicaid, or managed care.

Regardless of the focus, DPMs offer a variety of management and administrative agreements to their affiliated practices, which typically fall into three categories:

- Service agreements generally include some combination of marketing, capital funding, staffing, equipment, inventory, patient scheduling, billing and collecting, legal and accounting services, and maintaining all records.

- Management agreements are similar to the service agreements, but vary depending on the statutory and regulatory requirements of the state.

- Consulting agreements occur in a small number of states that do not allow third parties to manage or own the dental office.

In general, agreements are tailored to meet a variety of business options. When buying a dental practice, a DPM evaluates numerous business and quality factors to determine if the acquisition will be mutually beneficial. Factors evaluated include the demographics, market potential, competitive environment, supply of available dentists, dental regulatory environment, patient-provider ratios, advertising costs, and the economic condition of the local area. In addition, a DPM is also concerned with issues such as the dentist`s qualifications, experience, and reputation in the local community, as well as the capability for revenue growth and continued profitability. The analysis for a potential acquisition is very thorough.

After a practice is bought, the DPM charges an administrative fee for managing the practice. It may be a flat fee, a percentage of net or gross revenues, or based on the performance of the practice. Specific terms of the management agreement may be long term or short term. Long-term agreements range from 20 to 40 years while short-term agreements, such as consulting contracts, may last only a few years. Often times, there are automatic extensions or renewals in the contract.

In exchange for a management fee, a DPM offers a combination of benefits to its affiliated practices depending upon the specified business agreement. Benefits according to Advest, Inc. may include:

- Access to capital. The company supplies capital for dentists to establish, expand, or purchase new equipment for their practices.

- Relief from administration. A DPM manages office staff, negotiates equipment purchases, leases, etc., leaving the dentist to concentrate on patient care.

- Employment benefits. Some DPMs offer dentists and staff benefits that are not always affordable in solo practice settings.

- Group purchasing power. By pooling the purchasing power of many practices, expenses are lowered which increases profits.

- Staff recruitment. DPMs assume the job of recruiting staff for its affiliated practices.

- Up-front payment. Advance sale of the practice offers dentists an opportunity to realize the value they have created in the practice before retirement.

- Contracting services. The DPM will negotiate with insurers, third parties, employer groups, or unions on behalf of the dentist.

- Advertising. DPMs help practices with marketing and advertising in order to reach patients who are not receiving dental care.

Some of these benefits directly affect the dental hygienist in a practice while other benefits appear less obvious. For example, when a DPM handles staff recruitment, a company manager or staff recruiter is actively involved in the interview and hiring process. This varies from the traditional private practice where the dentist is the primary decision-maker. Somewhat less obvious is access to capital. Available capital affects purchase decisions, including the purchase of equipment for hygiene operatories.

Dentists have mixed feelings

Dr. Owen Boales, in Jacksonville, Fla., recently sold his practice to ConsoliDent Inc. in Miami. Dr. Boales has practiced 20 years and has a staff of 18. His main reason for becoming affiliated with ConsoliDent was the "presale" of his practice. In other words, he was able to sell his practice prior to retirement and receive the equity while the practice is at its peak. He feels ConsoliDent is interested in buying high-quality dental offices with a good reputation in the community.

"Overall, there was a seamless transition in patient care," Boales states.

Although Boales and his staff now are employees of the company, on a day-to-day basis, he doesn`t feel there are many differences in how the office runs. Scheduling is still decided by his office, although the company has general guidelines.

Purchasing of supplies also is handled at the individual office level. However, ConsoliDent contracts nationally with one dental supply company, and supplies must be purchased from an established formulary list (although some exceptions are made). Purchasing through a central location represents a cost savings for the office. Similar to other large contemporary corporations, ConsoliDent has policies for harassment, discrimination, and a drug-free workplace that are enforced throughout each office. In addition, the company has a generous benefit package including a 401(k) retirement plan.

The DPM structure differentiates itself from the traditional individual and multi-center practices, which not all agree is beneficial for the profession. Dr. Robert Cowie, who also practices in Jacksonville, believes that the patient-provider relationship suffers in the end. He feels that the hygienist`s relationship with patients will also be affected. Cowie states that DPMs are apt to place more emphasis on the bottom-line production rather than true patient interests. He explains this can be especially true of publicly traded DPMs that must answer to stockholders (whose primary interest is to make money). He predicts this trend will not be as successful for general practitioners as it has been for orthodontists.

The innovative flair of business

Currently, more than 30 DPMs are in existence. The DPM with the longest operating history is Orthodontic Centers of America, Inc. OCA was formed in 1989 and specializes in orthodontic practices. This company has been very successful acquiring orthodontic centers and then developing these practices internally. OCA has developed highly efficient scheduling and operating procedures that allow a practice to maximize its potential for patient care.

Bright Now! Dental is a new DPM headquartered in Costa Mesa, Calif. Bright Now! provides services to 48 dental offices in California, Oregon, and Washington. "Our mission is to provide patients with a dental experience that is exemplified by high-quality care, exceptional value, and superior service," says Rick Matros, the company`s chief executive officer.

The company`s strategy offers many benefits to affiliated practices, including a "one-stop-shop" approach. A "one-stop" practice offers patients many specialty care services in addition to general dentistry. The company is also developing an extensive quality assurance program. The program will consist of a panel of participating dentists to provide clinical guidance along with a review of protocols and new technologies.

Dentists within this network retain ownership and control over all aspects of patient care. The dentist also retains management of all clinical personnel, such as assistants and hygienists. Bright Now! employs the non-clinical staff, such as receptionists and office managers.

"When we established our company, part of our mission was to create a truly dentist-driven culture," states Matros, "the flexibility and extra services that we provide benefit both dentists and patients."

ConsoliDent, a privately held DPM, was founded in 1997 and manages dental offices in Michigan and Florida. The ConsoliDent philosophy is to provide information and training to help dental offices take better care of their patients.

"We take good people and make them better," states Dr. Laurence Brody, chief executive officer.

ConsoliDent provides comprehensive management services, information systems, financing, and strategic planning. When ConsoliDent acquires the assets of a dental office, the support staff (front office and assistants) become employees of the company. Dentists and hygienists become employees of Dental Health Group, an affiliated company. ConsoliDent offers a wide range of benefits to its practices such as disability and health insurance, reduced costs for uniforms, hepatitis B vaccinations, and a 401(k) plan partially funded by the company.

Hygiene`s view of the corporation

By now, you may be wondering, "Why do I need to know anything about DPMs?" The changes experienced throughout the dental office either directly or indirectly affect the dental hygiene component of a practice. The two reasons for understanding this trend are, first, to make informed employment choices and, second, know about nonclinical career alternatives.

When making any employment decision, many issues come to mind. A primary concern is the "fit" of the office. In

the past, you considered whether your practice philosophy matched that of the dentist. Now you must evaluate the philosophy of the DPM.

Linda Ragsdale, RDH, for example, feels working for a practice owned by a DPM has been good for her. Ragsdale, a 10-year veteran, has worked for a Bright Now! dental office in Tacoma, Wash., for the past two years.

OI chose this office because I love the hours! We work from 11:30 a.m. to 8 p.m., which is great for me,O she explains. Ragsdale feels the company emphasizes quality of care, which is demonstrated by its focus on prevention and periodontal care. She enjoys working in a practice with more than one dentist and being able to share ideas and new information. OI feel good about the work I do and the people I work with,O she states.

When choosing a practice setting, additional considerations include the size and location of the practice, hours, and scheduling ? not to mention the salary and benefits the practice or DPM offers.

Some DPMs offer benefits that appear very attractive when you consider that hygienists are Onot generally satisfiedO with benefits offered in private practice, as reported in the 1997 RDH magazine?s Salary and Benefit Survey. Hygienists report benefits to be lacking in the areas of paid vacation and holidays, health insurance, and retirement plans.

However, employment decisions are highly individualized, and benefits are only one component of the decision-making process. You must weigh the pros and cons of working for a practice owned by a DPM.

The second reason for understanding this trend, as mentioned above, relates to non-clinical employment. Whether for personal or health related reasons, you may find yourself investigating alternate employment opportunities in management or business. Consider the possibility of working for a DPM, as Sandra Jainchill, RDH, did.

Jainchill is the director of professional relations for ConsoliDent. She has a bachelor?s degree in business and a strong insurance background. One of Jainchill?s key responsibilities is providing training for the dental staff, including hygienists. General training includes practice management, computer systems, and scheduling. Training for hygienists includes treatment sequencing, instrument sharpening, and documentation.

Jainchill enjoys being able to share ideas among a variety of offices in their network, which she feels enhances patient care.

Even if these options don?t appear to be in your future, it still is important to understand this growing trend.

Dentists often are advised to investigate business and employment options thoroughly. So should hygienists. Carefully weigh the benefits as well as the financial and management aspects of working for a DPM. Who exactly is your boss? Who governs patient scheduling and purchasing of major equipment? Are the benefits better? Is there opportunity for advancement? These are only some of the questions to ask when determining employment compatibility.

Enhance your business savvy regarding the environment in which you practice and responsibly use these changes for the ultimate benefit of your patients.

Linda Harvey, RDH, MS is a licensed healthcare risk manager and consultant in Jacksonville, Fl. She may be reached at [email protected].

References available upon request.