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The best business model always wins… even at the dentist

One of the more intriguing concepts found in finance texts is that of “the invisible hand.” This metaphorical hand is an amalgamation of unseen forces moving the free market economy. 

It is the purest form of market and business evolution in a capitalist society. As changing landscapes present new challenges, those that adapt, thrive.  It is not only the basis of wealth creation; it is what compels businesses to fulfill the best interests of society.  Pressure creates progress, but sometimes that pressure can create more than just a bit of fleeting anxiety.

The hand that governs unnoticed has been flipping the bird to businesses across most industries as of late. This giant middle finger has come in the form of a pandemic. In a torrent of COVID-related challenges, small businesspeople are becoming increasingly weary of pioneering these new challenges alone. Many entrepreneurs are looking to circle the wagons. 

Enter mergers and acquisitions.

The Coronavirus has quickened the pace of consolidation in one of the last large cottage industries — dentistry. The intimate nature of the relationship between a dentist and a patient, along with the long-standing tradition of independence in the profession, have allowed solo practitioners, until recently, to remain in the majority.

Consolidation in dentistry is not completely new.  Over the last decade, solo doctor-owned practices have declined as large corporations, fueled by private equity, have entered the scene by acquiring practices and building de novo offices. These corporations will sometimes refer to themselves as Dental Support Organizations (DSO) and employ hundreds or thousands of dentists across the nation in offices that are individually branded under a larger umbrella. Rather than capturing local market share, growth is often spread out regionally or nationally without sustained geographic focus.

There is a concern among dental professionals that this trend is not good for the patient or the profession. The idea being that as control transitions from dental care providers to stockholders, the focus shifts from long-term patient wellness to short-term quarterly profits. There is also an undercurrent of concern that many of the merger and acquisition strategies are centered around packaging and selling organizations for profit with little regard for patient and team welfare. Is this the case? And if so, is the theory of the invisible hand failing to serve the best interests of society here?

The derivation of M&A intent and function is quite simple. Businesses look to compliment and expand their footprint to capture economies of scale in reaction to competitive forces, which require cost containment and increased margins. In the end, however, the world’s capacity to indulge creativity rewards those that can lower price and increase quality.

If the freedom to choose remains essential to our consumerist behaviors, the best business model will win.  A new business model in dentistry is emerging in the Capital Region that is starting to garner national attention — the Dental Health System. Locally owned by providers who see patients on a regular basis, a Dental Health System can have a geographic focus that allows it to best serve all the stakeholders including the team, the patients and the community.

Absent the venture capital that typically fuels M&A, a “DHS” can still grow steadily, remain provider-owned, and distinguish itself from a “DSO” or a solo practitioner in several ways that benefit the patient.  First and foremost, with caregivers driving corporate strategy, the bottom line is more likely to be measured in people rather than dollars. This dynamic does not often appeal to investors looking for quarterly returns. But it is rewarding to career-minded partners who see greater long-term return coming from relationship-driven lifetime value.

Dental Health Systems can also be the fix for what has long been broken.  It is no secret that for many, access to quality dental care is an issue. Dentistry is expensive, but even for those with means, dentistry can be arduous and fall short of expectations. A DHS can combine the expertise of multiple dentists, specialists and dental lab technicians, often under one roof. This expertise, combined with new technologies that can be afforded in a DHS, can advance the standard of care and lower costs for patients.

The traditionally fractured system of dental care often leaves patients frustrated with redundancies and inefficiencies when one must seek treatment from multiple providers. Care is improved when redundancies and communication impediments are resolved with centralized patient records and universal systems working in concert.

Fewer and fewer dentists are looking to work in solo or small group practices. New generations of dentists beginning their careers with hundreds of thousands of dollars in student debt are less inclined to take on ownership alone. Some of these millennials are also prioritizing work/life balance over the rigors of ownership. Moreover, the high cost of new technologies and the ever increasing regulatory and administrative burdens require economies of scale.

The coupling of these dynamics with the demands that COVID has presented has led many practitioners with limited business experience to seek help shouldering the burden. A traditional solo practitioner wears so many hats that it has become a struggle to implement new and constantly changing infection control protocols, source scarce personal protective equipment, fill pandemic related staffing shortfalls, navigate the complex application process for stimulus money, and secure the necessary financing to remain solvent during closures.

There is no doubt the mergers and acquisitions are accelerating in our current economic environment.  However, it is possible the best business models will be those that can remain locally owned and find new opportunities to serve all stakeholders and deliver new possibilities. It cannot be overstated… the best business model always wins.

Brandon Rogers is vice president of finance for Verber Dental Group, in Camp Hill, Pa. His past experiences include roles at Giant, Highmark, and JPMorgan. 

Michael Verber is president & CEO, Verber Dental Group/Verber Family Dentistry.

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