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					                  When the stocks of dental practice           Financial consultants and others who
              management companies soared and fell            once advised dentists about DPMs say
              like fireworks in July, people like Doug        today that the industry has simply fallen
                       Brown      were     taking    notes.   from their respective radars. The same

Though public          Convinced of the viability of          forces that cooled Wall Street's once-
dental practice        DPMs, Brown and others were            fervent     courtship      of       the    firms-
Management             intent on fashioning their own         bankruptcies, widespread stock market
companies have         businesses based, in part, on          turbulence,    troubles     in      the   related
largely fallen from    lessons learned from the public        physician management service sector-
sight since their      firms' plight.                         have       eroded     overall       interest   in
troubles in the                                               management companies.
1990s, private         During the ensuing years, some
DPMs have seen         of the public companies managed        • "We don't track them like we used to,
steady growth.         to find their feet and even            because we don't get questions about
                       advance,     but   the   market   in   them from our members as we once
              general has failed to regain its luster.        did"-Dr.     Donald      Collins,      American
                                                              Dental     Association     senior      manager,
special projects, Council on Dental             the    end   of     2004"-Robert      Fontana,
Practice.                                       president and chief executive officer,
                                                Aspen Dental Management Inc.
• "It's just that it's not a very followed
industry anymore. It's not that exciting;       • "We have 63 offices across the
[public DPM] stock prices are generally         country, and we get about 110 new
far lower than the rest of the market           patient visits per month per practice"
right      now"-Christopher   Jahnle       of   Doug     Brown,       president     and    CEO,
Haverford      HealthCare Advisors        and   DentalCare Partners, which manages
author of "Dental Practice Management           dental practices located in Sears stores.
Companies: A Guide to the Industry."
                                                Russell Jackson, executive editor of the
• "They just sort of fell off the map"-Dr.      monthly newsletter Managed Dental
Terry Watson, president of the financial        Care, is one person who has kept an
consulting firm Watson and Associates.          eye on the private DPMs' progress over
                                                the years. In contrast to the public firms'
But those observations tell only half the
                                                erratic past, "the private companies will
story. Elsewhere on the map, though
                                                tell you they've been humming along
apparently overshadowed by recent
                                                with steady growth ever since they
history,    are    unmistakable   signs    of
                                                started," he says.
growth in the industry-this time, though,
in the private sector.                          Gregory Serrao, chairman, president
                                                and CEO of publicly traded American
• "We began in 1997 with just a few
                                                Dental    Partners      Inc.   has    had    an
practices, and we sit here today with
                                                especially keen interest in the private
120 offices doing approximately $100
                                                sector. "The private marketplace has
million in annual revenue"-Dr. Rick
                                                been     vibrant.     Some     of    the   most
Workman,          president   and    CEO,
                                                successful          practice      management
Heartland Dental Care.
                                                companies in dentistry are private and

• "I started here in 1998, and at the time      have been private forever. And we've

we were about a $13 million business.           been pursuing them forever, too, to be

Today, we're slightly over $50 million in       part of our family."

annual revenues. We've grown from 12
                                                Executives of private DPMs say that the
offices in 1999 to 50 offices today, and
                                                statistics illustrating their growth point to
we expect to have about 65 locations by
more than isolated cases of success.            market troubles and continue to grow.
They contend that       their     increasing    They've done so in large part because
numbers of offices and patients are just        they share some of the same business
the seeds of a movement certain to alter        values that have kept the privates
the dental landscape. They maintain,            buoyant.
too, that many of the same forces that
                                                On the other hand, the private firms'
prompt pharmacists and optometrists to
                                                growth hasn't been without challenges.
forsake independent practice for work at
                                                For instance, turnover among dentists
Walgreens and LensCrafters also are at
                                                can be a problem, concedes Brown of
play in dentistry. "I absolutely believe
                                                DentalCare Partners. But it's a problem
that within the next 10 to 15 years, half
                                                he thinks his company has a handle on
of all people who go into private practice
                                                with a new plan that offers dentists
will never own, says Heartland Dental
                                                equity in the company.
Care's Workman. "It's inevitable."

                                                One of the private DPMs' vehicles for
Inevitability aside, the fact that private
                                                analyzing such challenges and finding
DPMs are a growing presence in the
                                                possible solutions has been an informal
profession calls for a close look at their
                                                consortium of executives from about
structure    and   goals,   say      industry
                                                eight companies, including DentalCare
observers.
                                                Partners and Aspen. About twice a year
                                                they get together to discuss problems
                                                and   success    stories.   Though   they
How many DPMs?                                  gather primarily to learn from each
                                                other, also present at those meetings
According to the American Academy of
                                                are the lessons of the past.
Dental Group Practice, there are 40 to
50 private DPMs nationwide, and they
tend to be regional. The number of
public companies has fallen from about          Rollups and nosedives
14 in the late 1990s to six today.
                                                It was called consolidation, and during
To be fair, some public firms, such as          the last decade it swept though the
Orthodontic Centers of America and              world of health care like a wave. For
Serrao's     American   Dental     Partners     some people, it was a chance to build a
(ADP),      have weathered the earlier          business. For others, the goal was
simply to get rich quick. When investors                 collections and billing and other front-
looked       around        and      identified      a    office functions. Also, dentists were
fragmented           industry,         they      saw     offered the prospect of being able to
opportunity;         at       the      time,      few    focus        on    dentistry        and    leave    the
opportunities seemed more attractive                     business          side    of    practice       to   the
than medicine and dentistry.                             management company.

"In   the    middle        1990s,        there   was     It     all    sounded         too     good.    Almost
tremendous fragmentation in the health-                  overnight,          small,          isolated    dental
care provider marketplace," says Brooks                  practices became parts of large busi-
O'Neil,      senior       principal       with    the    nesses through a process financial
investment                bank           TripleTree,     advisers          termed        rollups.       Venture
Minneapolis, and a director of publicly                  capitalists helped fuel the frenzy with an
traded        Birner          Dental        Practice     eye on going public. "Many service
Management Services. At the time, he                     industries rolled up, and most of those
estimates, about half of the country's                   companies were combined in haste,"
physicians were independent and more                     says         Jahnle      of    Haverford       Health
than 85 percent of all dentists were                     Advisors. Investors, he continues, were
either practicing solo or with one other                 driven by the mindset of rolling up until '"we
dentist.                                                 can suddenly be a public company with a
                                                         stock, and then we'll all be rich."'
"There was a belief, and I was one of
the     believers,     that      these     providers          Dentists often sold their practices for a
needed to come together in larger, more                  combination of cash and stock in the
sophisticated groups," he continues. "A                  company. As it turned out, about 14 firms
good argument was made that by                           did go public and another 20 or so were in
bringing in better management systems                    the wings when, in 1998, troubles hit.
and capital and information technology,                  Firms formed primarily to gain a premium
the practices could be more efficient and                price on the public market started to
capture a much more significant market                   stagger. "Some of the companies were a
share."                                                  big success until investors got wise to the
                                                         fact that these guys just cobbled these
Supporters       of        consolidation         cited
                                                         firms together quickly and there was no
potential savings through economies-of-
                                                         value being created;" says Jahnle.
scale       purchasing,          more       effective
     In effect, some consolidations proved to    practices and employed dentists, Serrao's
be      houses    of   cards:     Growth   via   company shares ownership. Doctors and
consolidations was not matched by a              company executives, for instance, have
growth in profits. "Nothing in their             equal representation on the firm's policy
strategy was about building a business or        board. "First of all," he says, "the doctors
operating a business;" says ADP's Serrao.        do own their group practices; they own the
                                                 patient records, the receivables and,
     "First and foremost," adds Brown, "a lot
                                                 basically, their right at the table." ADP
of money came in very quickly and was
                                                 owns all non-clinical assets and provides
put in the hands of executive management
                                                 business management services. (Laws
who probably were not equipped to handle
                                                 prohibit non-dentists from being involved
organizations of that size."
                                                 in the practice of dentistry.

     When management companies on the
                                                   Typically, the DPMs have an exclusive
physician side had similar problems,
                                                 business relationship with a professional
investors began to regard the entire
                                                 corporation, which employs the dentists.)
industry as a bad bet. DPM stocks tanked;
some companies, like First New England             Shared ownership or a similar program
Dental, declared bankruptcy.                     that allows doctors to have a stake in a
                                                 company's growth are a prerequisite for
     Those public firms that have held on,
                                                 success,      says     DentalCare       Partner's
such as Orthodontic Centers of America
                                                 Brown. In fact, he continues, it's among a
and      American      Dental     Plans,   are
                                                 number of features that set apart many
distinguished by a commitment to the
                                                 private DPMs today from their public
business. "From the day we started," says
                                                 predecessors. Also on that list is a growing
ADP's Serrao, "we understood that we
                                                 tendency to adopt the de novo (build and
were here for the long haul. We weren't
                                                 develop)      method     of     expansion,    an
running the company for the public
                                                 emphasis on staff training, advertising,
markets; we wanted to build a business.
                                                 centralized    systemization       of    practice
That's what we were focused on."
                                                 management systems and uniformity in
                                                 business models throughout a DPM's
Ingredients for success
                                                 practice network.

     A key feature of ADP's business plan is
                                                   Each of those features is directed
partnering with practitioners. As opposed
                                                 toward the common goal of adding value
to     earlier   DPMs,    which     purchased
to the practices, an aim lacking in some         in every aspect of the practice-what goes
early public companies, says Brown. Most         on with the computers, the scheduling,
notably, he continues, the experience of         reimbursement and so on. Well, that's fine,
the 1990s demonstrates that as dentist-          if he has the energy to do that. On the
owners sold their offices and moved from         other hand, if a doctor wants to spend
being     independent      practitioners   to    most of his time at the chair and delegate
employees, their productivity fell. "They no     more duties to the management company,
longer had the same profit motive;' he           that works too. The point is that we build
says, "so they just were not as eager to         the services around the needs of the
produce. And that wasn't unique to               dentist."
dentistry, the same happened in some of
                                                   Adhering to a de novo model of
the     physician   practice   management
                                                 expansion helps eliminate numerous
models earlier."
                                                 problems endemic in the 1990s, says
  To boost dentists' incentive (and help         Brown. When a management company
prevent turnover), Brown's firm has rolled       back then purchased an office and began
out a partnership program. Dentists who          to change operations, dentists often
join the company as associates work              bristled with resentment, which some-
strictly for commission; those who become        times affected their productivity. For
partners draw a commission plus a 35             example, Brown says, "if a company tried
percent equity interest in the practice. "As     to introduce a different reimbursement mix
that practice equity builds, the dentists will   using discounted plans and so forth,
have something they can sell to another          dentists may or may not have been willing
doctor when they retire;' says Brown.            to accept it. The fact is that when you
                                                 purchase disparate practices, each of
  Aside from partnering, dentists with
                                                 which may be very successful on its own,
DentalCare Partners have wide options
                                                 you're not going to get the results you
available for the responsibilities they
                                                 want because all the doctors are going to
choose to shoulder. For instance, a dentist
                                                 view things differently. But with the de
can opt to focus specifically on dentistry or
                                                 novo model of building from scratch, you
decide on a varying mix of clinical and
                                                 can ensure consistency from the outset,
business duties. "There's not a one-size-
                                                 and    you're   not   having   to   change
fits-all because every dentist is different,"
                                                 viewpoints and protocol, because they're
Brown says. "You might have a doctor
                                                 already in place."
who's very hands-on, wants to be involved
  Aspen Dental, which has offices in             Training staff to handle those patients
Arizona, New Mexico and Colorado,              as    professionally     and    efficiently       as
conducts marketing studies to decide           possible is another priority, say DPM
where to open each practice, and then          executives.      The      emphasis         is     on
follows a stepwise plan of expansion. "All     developing both their clinical and practice
of our offices are internally developed, and   management              (including          patient
we open with zero patients," says Robert       communication and case acceptance)
Fontana,    the   company's     CEO     and    skills.
president. "The offices go through a
                                                 Dr. Rick Workman of Heartland Dental
maturation. We'll start off with one doctor
                                               Care says, "all doctors who join us go
and some staff, say, an office manager
                                               though what we call our leadership series,
and a dental assistant Then after about six
                                               which is a combination of clinical and
months, when we start to have recalls,
                                               leadership skills, two days a month for six
we'll bring on a hygienist part-time.
                                               months.      During     your   first   year       at
Eventually, another part-time dentist is
                                               Heartland, you're probably going to spend
brought in." As the patient base expands,
                                               in excess of 30 days sitting in a learning
the hygienist and part-time doctor will be
                                               environment. "
on hand full time and specialists will join
the practice.                                    In 2003, he adds, all Heartland doctors
                                               received training in providing sedation,
  Marketing to ensure increased patient
                                               Invisalign     treatments,      anterior        and
flow is a prime component of many private
                                               posterior services and more. Also, other
DPMs. Aspen, which relies primarily on
                                               office staff members receive at least 100
ads in the Yellow Pages and newspapers,
                                               hours a year of CE in clinical and practice
figures "to see 60,000 or 70,000 new
                                               management subjects. (Heartland offices
patients this year;" reports Fontana.
                                               are located in the Midwest.)
DentalCare Partners' Brown estimates the
company annually spends about $4 million
or "5 percent of our revenues to advertise
on TV. And we're on every week in all of       Working for DPMs
the major markets we're in, from Chicago
to Cleveland to Pittsburgh. As a result we       Not surprisingly, many dentists who join

get about 110 new patient visits per month     the private DPMs had initially figured

per practice."                                 they'd    be     solo     practitioners.        After
                                               graduating from New Jersey dental school
in 1995, Dr. Emil Labib went to work as an          But assimilating to the DPM world did
associate in a private office. But he didn't      pose challenges. "Initially, I think the
agree with the practice's philosophy and          biggest thing was adjusting to the number
began to look around. When he heard               of patients I was seeing, says Labib. "In
about an opening at Aspen, the financial          private practice there's a lot of down time.
package was attractive, but he did have           In DPMs we have a full schedule because
concerns. "I wondered whether I'd be              we have such a strong marketing arm. So
dealing with human beings. I didn't want to       I don't come in and sit in the office; I'm
want to work in a [treatment] mill."              producing. This is a million-dollar business
                                                  after all." Though it's not productivity at the
  Labib took the leap and today is director
                                                  patient's expense, Labib insists. When he
of Aspen's Albany office. "I have an
                                                  hires dentists, he says, "I want them to
associate and a full-time hygienist I handle
                                                  know we provide quality dentistry. We
patient care from a to z. I have a lot of
                                                  don't cut corners and we don't ask them to
autonomy, and at the same time I can get
                                                  cut corners."
any kind of support I might need to handle
things like staffing, billing, etc."                Dr.    Charles     Zazzo     manages       a
                                                  DentalCare Partners practice in suburban
  Labib chooses the types of supplies he
                                                  Chicago. He says DPMs provide the best
needs and the company chooses the
                                                  of two worlds-clinical autonomy and
supplier. "In terms of management, they
                                                  business support-and believes that it's just
have a lot of oversight because that's their
                                                  a matter of time before the industry is a
strong suit. And then obviously dentists
                                                  prominent presence in dentistry.
get to do what they do best, which is be
clinicians:"    Company       involvement    in     "When I look at Sears Dental, I see a
treatment decisions is nonexistent, Labib         dichotomy," he says. "At the office level,
says. "From my experience that is                 we want to be warm and fuzzy like the
definitely out the door." (Concern about          group practice down the street, and
the business side of the office interfering       provide quality, comprehensive care. But
with the doctor-patient relationship was a        on the corporate side, we want to be the
prominent issue during the 1990s-see              90-pound gorilla that can advertise like no
Lasting        Impressions,        page     66.   one else can and negotiate with vendors
Subsequently, most states have passed             and suppliers. So we have both the
laws prohibiting such interference.)              advantages of a smaller practice clinically
                                                  and those of a larger corporation on the
business side."                                 much will the private DPM industry
                                                expand? Will companies like Heartland
  DPM advocates say the industry will
                                                and Aspen really become the dental
continue to grow for a number of reasons.
                                                counterpart of optometry's LensCrafters
Financial adviser Brooks O'Neil, for one,
                                                and     Pearle   Vision    or    pharmacy's
believes that the growing popularity of
                                                Walgreens?
flexible health spending accounts and
higher deductible insurance indemnity             Workman of Heartland Dental Care
programs will give rise to what he calls        cites a number of factors that will make the
consumer-driven health care.                    DPM option increasingly appealing to new
                                                graduates: their growing tuition debt and
  As a result, "people will become more
                                                accompanying reluctance to take on
thoughtful about how they spend their
                                                another loan to buy a practice; their
money," he says. "And what I think will
                                                increased desire for flexibility, which could
happen is that a more consumer-oriented
                                                be especially important for the growing
marketplace will develop, where providers
                                                number of new female dentists who might
are going to have to appeal directly to
                                                want to start families; and their lack of
patients to attract them to their practice.
                                                business training.
"And they'll do it exactly the way retailers
do it: it'll be related to location, hours of     "I think what they want is an opportunity
operation, the type of service they offer       to increase their clinical skills, work in
and pricing, for example. It's my strongly      beautiful offices, be treated fairly and with
held belief that the typical dentist doesn't    respect and receive exceptional continuing
have a clue about how to deal with that. If     education with a good salary." Workman
you look at the evolution of the grocery        says dentists will follow the same path that
industry or any other retail industry, you      lured   pharmacists      from    independent
know that the mom-and-pop operations            practice during the past several decades
have gotten blown out by the chains             to take positions with chains such as
during the last 25 to 40 years."                Walgreens.


What's on the horizon?                            Susan      Winckler,     the     American
                                                Pharmacists Association's vice president
  So, the questions: Will other doctors         for policy and communications, reports
similarly find DPMs a viable, attractive        that of the 50,000 pharmacies nationwide,
alternative to solo practice? And how           about half are independently operated.
years,dentists                                   never own."


          She adds that it's the new graduates from            1999 survey showed that 65 percent of
          pharmacy school who are most attracted               dentists were solo practitioners, and our
          to the chains. Moreover, some of the                 2000 survey showed that 63.7 percent
          same dynamics at play in dentistry are               were in solo practice. So the decrease is
          influencing young pharmacists' decisions             very small.
          to work for chains: their large tuition debt,
                                                                 "I know about the [young female dentist]
          lack of business experience and a desire
                                                               situation, that they don't want to work full
          for flexibility. "I think it's true that men and
                                                               time and that the young practitioners have
          women health-care professionals today
                                                               debt. But quite often these dentists will
          have different expectations [than past
                                                               work for somebody and then start their
          generations]," says Winckler. "They want
                                                               own practice; most of them don't take long
          to serve, but perhaps not 24/7."
                                                               to get going'
            Much the same holds true for young
                                                                 While forecasts about the future of
          optometrists, says Beth Von Behren, the
                                                               DPMs vary, there's no discounting the
          American Optometric Association's special
                                                               steady growth of the private companies-
          projects director for member services. The
                                                               and thus far there's no indication their
          association,    she   adds,    conservatively
                                                               expansion will slow. If anything, they've
          estimates that about 17.5 percent of its
                                                               displayed resilience and the ability to
          new members opt to work in a chain such
                                                               learn. What they're doing is working.
          as LensCrafters or Pearle Vision. "They're
                                                               And there's little question that industry
          very appealing practice settings for them."
                                                               observers who not long ago reported the
            Nevertheless, organized dentistry isn't            demise of DPMs will again be tracking
          ready to concede the demise of the                   them.
          independent practitioner anytime soon. Dr.
          Albert Guay, chief policy adviser at the
          American Dental Association, notes, "Our
            .




                                                               Daniel McCann is senior editor with Dental
                                                               Practice Report. He can be reached via
                                                               e-mail at dmccann@advanstar.com

                                                                                              JANIFEB
                                                                                              2004

				
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