Episode 119: Assembling a Group Practice - Forming a DSO
In the first episode of The Dental Amigos’ fifth season, Assembling a Group Practice, Rob and Paul explain the logistics of a dental support organization (“DSO”), and discuss the variety of ways that group practices are formed.
Understanding that DSOs may seem complex and difficult to understand, the Amigos kick-off the season with a breakdown of what group practices are, which services they provide, and how to form them. Finally, Rob and Paul finish the episode with a discussion of the pros and cons of dentists working with DSOs and the role DSOs may play in the future of dentistry.
See the full transcription below:
Welcome to the dental amigos podcast with Dr. Paul Goodman and attorney Rob Montgomery, taking you behind the scenes of the dental business world. All the things you didn't learn in dental school, but wish you had. Rob is not a dentist and Paul is not a lawyer. But since Rob is a lawyer, we need to tell you that this podcast is for informational purposes only and shouldn't be considered legal advice. listening to this podcast does not and will not create an attorney client relationship. As is always the case, you should formally consult with legal counsel before proceeding with any legal matter. Learn more about the dental amigos at WWW dot the dental amigos.com. And now, here are the dental amigos
Rob Montgomery 0:39
were one welcome to another episode of the dental amigos Podcast. I'm Rob Montgomery. And I'm joined as always by the head Nacho himself, Dr. Paul Goodman. Great
Paul Goodman 0:47
to be here with you, Rob.
Rob Montgomery 0:49
It's good to see you, Paul. And here we are Season Five where we got re upped for another one, or Netflix contract or whatever
Paul Goodman 0:57
the same characters gonna be on the season. Yup, it's us. Think we got it? Yeah,
Rob Montgomery 1:02
there are no other application. It's it's just us auditions, I guess you would say, I don't know. So this season, we are going to talk about assembling a group practice, you know, some kind of overview issues with with that some of the challenges and things to think about who you should be working with what to do. And when I'm just going to lead off with this by saying, in this particular world, there's no kind of like right way to do it, and how there's so many different ways to go about assembling a group practice. And I think so much of it depends on the resources that you have the opportunities that are presented, the region where you're, you're looking to assemble this group practice, there's no kind of one playbook when
Paul Goodman 1:52
the other obvious thing is that relationships are, you know, resources, relationships. Yeah,
Rob Montgomery 1:56
Paul Goodman 1:57
Agent, the three R's. Yeah,
Rob Montgomery 1:59
yeah, for sure. So today, what we're gonna talk about the kind of the broad topic in this first episode of forming a DSO and who you want to who's going to be on the team, but, you know, it really is, you know, again, understand that there's just no right way to do it. And this probably more so than anything that we're that we get involved with, it's really runs the gamut as far as the size, the way that they're, they're managed, where they get their money. And these impact, your ability to grow that practice. So. And I think, you know, what I would say, too, is, you know, forming a DSO and assembling a group practice is just like anything, you have to be careful about growing, you know, and whether it's growing your practice, internally, you know, your one location or your two locations, or if you're looking at assembling a 10, location, 2030 locations. You know, it growth is hard right now. And to the extent that you can plan for it, you'll be better off. So when we're talking about forming a DSO, or talking about, you know, dental services organization, you know, what, what we're looking at really is a management agreement, you know, management Administrative Services relationship with the practice. So, at a very basic level, in the DSO model, you have the practice or the practice entity that then enters into a management services agreement with the management company, ie the DSL, and that DSO is agreeing to provide all of the non clinical services to that, to that practice. So everything that supports the practice, and what that ends up being is everything except the dentistry, right? So the dentists in the practice, do the dentistry, the actual professional services, and then everything else in the practice is done by the DSO for a fee. And so that's sort of like the basic starting point. There are different ways that we would see that modeled, depending on what the practices strategy is for growth, and we'll talk about that in another episode. If you're thinking about bringing associates on in some sort of equity role in a particular location, there may be a sub DSO that is responsible for managing just that location that would then enter into an outsourcing agreement basically, an independent contractor arrangement with
Paul Goodman 4:43
the FIS DSI s question for audiences is a language you talk a lot Rob, this management organization or they often also are required to be investors in the practice and have a investment inside of it. or can they simply just manage it for a fee without anything else? Any other influence or not influence any other relationship on the outcome of
Rob Montgomery 5:09
it? Yeah, I mean, well, they are not supposed to be able to influence the clinical decisions of the practice. Essentially, the value of the practice ends up at the management company in a scenario because the management company is the one that's making the money off of the off of this and where the where the profit is, is where is where the value is. So those people are commonly not dentists that own those management companies. And obviously, the the practice entity that enters into that management agreement is owned by a dentist, or dentists. And we
Paul Goodman 5:46
do see now to that just as we expand this concept of group practices, the DPO, which is what they say is dentists provide organization is this where, in your experience, what kind of comes to mind when thinking about they just have a lot of dentists faces on these teams?
Rob Montgomery 6:03
Yeah, I mean, it's the same thing. Same thing. DPO, DSO, same thing? Yeah, just calling it different branding while you like,
Paul Goodman 6:08
you like how Francis, can I ask them that? It goes, it's the same word for different marketing, right? Different marketing? Yeah, yeah. So it's basically like, there's another entity that has a role in the administrative and management part of your practice, who's not you? Right? Whereas, you know, we just came from our previous season of buying a practice where it's all you, right? You know, it's all you as, as the owner operator. So I think that kind of gives our audience a background on what a DSO is, and how it impacts your professional life different because actually, I mean, that we'll talk about this as the seasons go along. But most of the time in the circle of the dentists life, this is 15 to 25 years into their career, would you say?
Rob Montgomery 6:49
Yeah, probably not. But usually, you're one No, definitely not year one. And if somebody comes to us, you're one with us, they were suspicious of what they got going on. But, you know, there are definitely entrepreneurial dentists that are looking to do this sooner than later in their careers. There are tremendous opportunities to grow a portfolio of practices and sell it for a whole lot of money, which, you know, that inspire some people to kind of look into that. So that's kind of the structure and, you know, one of the questions and this is really becomes a planning thing is like, when do you form that management company that DSO you know, like, you don't need to do it, when you have one practice, I could, but doesn't make a whole lot of sense, you may not need to do it when you have two practices or three. But as you grow, it starts to make sense to form that that entity and put that relationship in place. So that you're able to pay your non clinical staff who's working in all these different offices, through that through that DSL, instead of these employee sharing agreements between office to office, which can be a little bit a little bit cumbersome, but you know, that really, again, depends on the nature of the of the practice, the size, the locations, and the preference of the of the owners, and the people that are consulting them as to when when to actually make that step, actually doing it is not that big of a deal. You know, it's just really putting a few documents in place. But it's something that you don't want to do before you've started to grow and expand for the most part. So when you look at, you know, kind of assembling a group practice kind of step back, I mean, we talked about some of the technical details, and the sort of the legal technicalities of what a DSO arrangement is what the management agreement is, but really, you know, this is just generally, you know, we're talking about assembling a practice, just like anything else, buying practices, or doing startups, whatever your model is, and we'll, we'll talk about that on a on another on another episode. But with that, you know, who's going to actually be doing that work. And what I've seen over the years, it's one of the challenges that dentists face, again, just like any business owner, small business owner, is how to how to manage that growth. And you've heard me talk about this. And you know, I think you obviously understand and, and are on the same page with this, that it's the challenge of operating a professional practice, you know, where you are the one who's making the doughnuts. Now, if you also have aspirations to grow the practice, and assemble this, this group of practices, who's going to be out there actually doing these acquisitions or canvassing for a startups? You it's very difficult to do that when you're a chairside dentist, right. So part of what I've seen the people that are successful at growing a group practice they realize that they need to get a business person involved. And you may have to share some of the the ownership and the equity and the profit of this overall enterprise with that person. But, you know, from our perspective, it's always nice when we have that person to deal with. We've got no problem dealing with dentists who are serving in that role. But it's hard. Like there's only so many hours in the day.
Paul Goodman 10:21
And that's why Rob, maybe I'll ask you, because you do in different spaces, because I think it'd be valuable in the forming of the DSO episode. Why do you think that it's super common to see this in medicine, and maybe less common in the vet and DSOs bet and dental space, but it's emerging in that? Because it seems like medical doctors are a quarter of a century ahead. You know, my orthopedic surgeon guy is like, oh, yeah, we sold out to a hospital system. We now work with them was kind of ho hum. Right? It wasn't like some giant thing. Like now they're making me do 20 knee surgeries. I used to do 10 Yeah, I mean, I'm sure you know, just a hygiene visit. So it wasn't like, we had this deep conversation. But I just, you know, you see a name change on a door. Even when we had our youngest daughter's pediatrician, they brought us in for the night just talked about their practice, they'd sold out to AdvoCare. They said, Hey, we're a group of women, pediatricians. We want to focus on medicine for your kids, and we want someone else to do the backend stuff. And I'm not naive enough as a dentist and think that that's all maybe Steven Treader unicorn and rainbows. Yeah. But it's very normal in the medical space.
Rob Montgomery 11:26
Yeah, well, it's, it's kind of a necessary evil. I mean, the regulations for physicians are just it's such a much higher regulated industry, that it's almost impossible to run a mom and pop physician practice now, you know, you really need those resources. You know, and it's just so much of that is driven by, by Medicare and other insurance, you know, they've got challenges with the insurance world that is way worse than what dentists have to deal with in a lot of cases. But this gets us into this as a whole nother conversation that, you know, how, you know, I wouldn't say broken but challenged, our health care system is
Paul Goodman 12:06
more important. It's like, you know, if someone's listening to this, or at the gym, they're thinking, why the heck would I ever want to form a DSL? And you and I both know, there are exhausted but enthusiastic private practice owners that say, I can't do it this way anymore. No, you may be making seven figures a year. That might be Yeah, on its on his face very financially successful, they can be making $600,000 a year, but they're still the one who has to figure out when hygenist number four quits, or assistant, and the hope is that you get some help in the things that you really didn't go to dental school to do, wherever want to do. But you had to do them to do your dentistry.
Rob Montgomery 12:41
Yeah, no, I think you're talking about and it depends, you know, the context of that, too. Like, if you're talking about getting help, because you're going to sell your practice, and let somebody else deal with that, you know, we're what we're talking about is, you know, you're growing this, and so you're the one that's going to be putting those people in place, and you're doing it yourself. And I think, you know, also, when you talk about physician groups and physician practices, they were part of the health system, those physicians are just last leaders for this bigger thing, you know, like, the what they're really selling are these other services that the hospital and health system is making a ton of money off of, they're not making money off of your, your 20 Minute checkup? Right, right. There's no value in that, you know, but there, there's a bigger, a bigger picture. But I think, you know, really, you know, in that this, this brings us to the next sort of subtopic with this is, is who are you going to have on your team? You know, and are you going to employ somebody who was a non dentists to help with the acquisitions, or the startups. And again, as I said, a few minutes ago, in our world, it's a great scenario, because if we're working on deals, and we need to talk to the client, it's nice to have somebody who's just dedicated to talk to the lawyers to talk to the brokers to talk to the due diligence people to talk to the CPAs. Like, that's, it's a good position to be in, and you may have to pay that person a fair amount of money. But you know, it's the ROI on that if they're going to be able to go out and help to you to make good deals, and and grow with the practice while you're still focused on the clinical aspect of things. That really can be the best. Yes, World. Sure. But, you know, there definitely are challenges with with the growth and a lot of ways in which one of the things that we say and a lot of this is obviously dependent on where what region you're in, which is competition for buying practices, you know, and, you know, our clients that we helped to grow their practice portfolio in the early 2000s. It was really easy that right you know, it was so much of a buyers market at that time that you show up you say here's the asset purchase agreement. Oh, We're not really changing much, we're gonna pay you're gonna like it or not. And that's it and the deals got done. Now, you know, there are so many other practice groups and people that are trying to form these group practices, that it's a very competitive world for, for buyers, as you say, you know,
Paul Goodman 15:20
I mean, maybe you could just clue our listeners into, you basically have more purchasing power, when you form a DSO, you have the ability to capture deals through your group that you wouldn't be as an individual. And sometimes it's very attractive to a dentist for so many reasons, right, not just only being able to have someone help with the management side, but also, you know, building something that they're proud of, and built into a sense of belonging.
Rob Montgomery 15:48
Yeah. Yeah, I mean, it can be, but, you know, by the same token that that's not that doesn't always come together easily, either, you know, and the ability to, to buy to have that standing. I mean, you're talking about supplies and things or you're talking about buying
Paul Goodman 16:05
both and, you know, just in the deals I do with the sometimes I'm gonna say, hey, what do you think of me selling to XYZ DSO, they want to buy my practice, and also good to other more deals with me. And I will share someone who is, you know, fortunately, I've always worked with my brother and my dad and other dentists. So there's camaraderie, but I can kind of see that as being an attractive opportunity to certain dentist, who are not necessarily ready to hang up the handpiece yet. I also don't want to do it on their own. Yeah, yes, middle ground, form a DSO opportunity. That's not see, I think a lot of dentists, Rob think DSOs are evil, and they are, you know, ruining everything, but it's their own colleagues that are forming them. I mean, it's some cases, it's, you know, but the dentists have to participate at some level facilitating, so someone that they know how to see course has done this. And if you if you ask them, and you're willing to have some of these uncomfortable conversations with your colleagues, they're gonna say, so I'm going to say I got involved in Formula. DSL was the worst decision I made. So I'm going to say it's the best decision and I'll use your it's an independent decision. Yeah. And I think it's just we're giving some really good context as to what it looks like. And also, why, right, you know, somebody would want to be involved with this.
Rob Montgomery 17:16
Right. But by the same token to, like we talked about last season, you know, the importance of the transition the culture, you know, it ups the ante really with this, because if you're you're looking if you're assembling a group of practices, you generally want to have one kind of way of doing it, there needs to be some sort of uniformity. So if you're talking about buying practices, and and putting them under the same umbrella, you want there to be similar.
Paul Goodman 17:45
Well, that's what I told her. And I guess I'll try to come up with one for each episode from the LPP. But I was thinking for this one, the Dennis gaff ghf get along ability factor. So they get along ability factors, the key to all this right. You know, how well can you get along? Who are you? I mean, I'll just tell a quick, fun story, her play supper club, you know, a few blocks from here, this woman, Amanda who started it, I mean, she's become like a celebrity chef. And I went there with Mary. And she described every dish, and it was just out of this world. And then my team members said, Well, they're now opening a bigger restaurant, because someone says, Hey, Amanda, we want to do to do a bigger restaurant. And for all I know, Amanda's, like, that solo GP who's doing great in her small supper club. And now she's forming a restaurant DSL, right. And we've seen here in Philadelphia that never ends well, right, that you're right, that, you know, we've seen things happen where, you know, look at Marc Vetri, he's kind of said, take my rest of my restaurants, I want to go back to being solo. Right. Right. So I think it's, you know, the exciting part, I guess. And the interesting part is like, there's a lot of commotion around dentistry right around with this. A lot of people putting a lot of attention on purchasing. I mean, I get calls and messages sometimes weekly about you want to sell your practice to me in the form of DSL. And I said, it is kind of annoying today. Maybe today's the day, right? I still have always continued to say no, but that's
Rob Montgomery 19:09
the point. I mean, but there's a lot of competition there. And that's why, but I think the other thing, too, is just to keep in mind that it really ups the ante as far as like, the quality of the acquisition right now, because you're really talking about to a large extent is like this absentee, you know, management of the practice to some extent. So, you know, when you're looking at bringing on these practices, it only takes like one or two, if you have a group of 10 or more, to really become a problem when you know, and it's no easier for DSOs to shed themselves of the bad, bad deals and the stakes get higher, you know, when you're trying to grow the practice and if you have one practice, it's very unprofitable, that has the ability to bringing everything else down, and that impacts your ability to borrow and raise money. And so you know, you can't really They do bad deals, the, you know, the DSOs that I've observed, that have had problems that have failed, or had to, you know, sell it a fire sale, or ones that made bad acquisitions flat out.
Paul Goodman 20:14
And it's like, you know, it's like the Jim Collins right person, right bust. And I've worked in the restaurant industry for years. And this chef who is just so amazing, but every one of his restaurants are out of business, because he was great at making the food and horrific with people, right, like, so when they backed him to open two restaurants. Yes, they got all this acclaim, I don't remember, I don't want to tell you on the podcast, I afterwards, but now they're on a business. And he had to go back to be in a chef underneath someone because he was not the right person, right to leave this and there's just, I think dentists have to start, they have to start using muscles they never used, right, you know, so it's or
Rob Montgomery 20:46
get people right on board that have those muscles, you know, and when you talk about that that person that's helping with acquisitions, or is the essentially CEO of the group. You obviously, too, you want to have good CPAs that understand this world, ya know, and there are CPA firms that are specific and or should say, great service for this business model, you know, and if somebody has two DSL clients, you know, whether it's a lawyer or a CPA, it's probably a little bit of a problem, right? You know, because they just don't have enough enough experience to be able to offer to the client for targeted
Paul Goodman 21:24
drugs. I just think some of these dentists, they're so kind of spectacular building things. This is really a compliment, right? It's like, someone reached out to me, he goes, I got 12 practices. Do you know a good accountant? I could use I go, how did you get 12 practices without a good accountant? Yeah, but they do sometimes. Right? It's like, they might have $10 million of dental business, which is significant to run, but they don't really have any infrastructure to it. And it's kind of like, running by the seat of their pants. That's why when you start to form these things, you start to have people, I guess, when you get the right, I guess, when you get the right people doing it, it can go really well. Yeah, for sure. But if you get the wrong team doing it, it can kind of ruin everything you built. Oh,
Rob Montgomery 22:06
absolutely. I mean, again, like I said, it only takes a couple of the wrong people, or a couple of bad acquisitions to really stymie your, your growth. And I'd say just you know, as the takeaway here, before we wrap it up here with this, this intro episode is, it's just like anything, it's really the challenge is knowing when to add overhead, when to make the investment in this additional infrastructure, whether it be human capital, or you know, physical locations? Or when do you have to go out and spend money on a lease where you're going to situate your admin people, you know, is it after three, four or five practices, and again, every situation is different. But I think, you know, really, understanding that you can't do this all yourself all the time. You know, it's just like anything else, when you're doing a startup, the, the owner entrepreneur is the one that is going to take risks, the one that's going to put in that extra time. But you know, to your point, like you need to know when to flip that switch, or at least you should realize, at some point, you're gonna have to flip that switch or switch I guess, and not just continue to haphazardly grow, you may be able to luck out at some point and get away with it. But you know, lockout being the key, the key phrase,
Paul Goodman 23:24
you got to guard against vulnerability. And that can be a tremendous amount in these in these states, but also tremendous opportunities. I think the reason why it's a good kickoff episodes is we're just going to see more and more of this and our listeners are going to hear more and more about it.
Rob Montgomery 23:36
Yeah, absolutely. So thanks, everybody for listening. If you enjoyed our show today, as always, please give us a good review on your favorite podcast platform and until the next time. Thank you. Thanks, Rob.
Thanks for listening to another great podcast with the dental amigos. And don't forget to tune in next time to have the dental business demystified. If you're looking for more information about today's podcast, you can find it on the dental amigos.com If you're looking for Paul, you can find Paul at Dr. Paul goodman.com. And if you're looking for Rob You can find him at your dental lawyer.com This podcast has been sponsored by Orange Line Media Group. Helping dentists and other professionals create content people love find out how we can help you take your business to the next level at WWW dot Orange Line mg.com. Till next time