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Private equity investors are buying up dentist practices, finding enthusiastic partners in both older dentists and younger ones, and changing the face of the profession. In doing so, they sometimes skirt state laws on dental practice ownership.

Private equity funds are investment partnerships that buy and manage private companies before selling them. The funds are managed by a partner, and investors put in money with the expectation of significant returns.

The primary tool of private equity in dentistry is the Dental Support Organization — sometimes a Dental Services Organization — which is described by private equity groups as a way to “support” dentists by supplying billing, payroll, business and nonclinical services. So the dentist could join a D.S.O. and use it for business aspects of the practice — which should mean that the dentist is in charge of clinical matters, but is no longer in charge of things like billing, payroll and so on. So the line for ownership can be very blurry.

The American Dental Association says that ownership of practices by individual dentists dropped from 84.7% in 2005 to 73.0% in 2021.

Licensed dentists and ownership

Some states have laws that an actual licensed dentist must be the owner of a dentistry practice, according to dentists and industry analysts. But some private equity organizations have sought to mask their presence by using for nominal owner names a string of limited liability corporations, for example, though the actual ownership behind the legal documents is more complex and nuanced.

This D.S.O. tactic has been the primary tool of private equity in dentistry because of these state laws, said Dr. James Hargrove, a dentist in Baton Rouge, La. Hargrove has been on the state Dentistry Board and also headed the local chapter of the American Dental Association.

“The intention was to keep corporations from interfering with the patient-doctor relationship,” he said. “So corporations have come in and said ‘we are only going to operate a management company for the dentist who owns the practice.’ But that’s a bit of a straw man.

“They want to own a practice without violating state law, so they put up a false front that the dentist owns the practice but they own the management company,” he said. “A D.S.O. comes in and owns a number of dental offices and they will essentially hire a dentist to work that office, and give the dentist a percentage of whatever is earned. That’s where it gets tricky — if a dentist has to own the practice, but they’re paying only a percentage of what the dentist does himself, then who’s owning the practice that the hygienist is doing?”

“Dental Service Organizations (D.S.O.) are Private Equity (P.E.) backed independent business support centers that provide administrative and compliance services to dental practitioners,” Grand View Research writes in an industry report. “The non-clinical services offered by a D.S.O. range from human resources, branding, dental supply/device procurement & maintenance to accounting services. The D.S.O.’s provide greater buying power as they have the ability to negotiate with vendors and thus lower dentists’ supply costs.”

JD Supra, which provides analysis and publicity of different fields, wrote that D.S.O.’s have been “an extremely popular investment vehicle in the past two decades. The D.S.O. business model continues to thrive and grow.”

Owners cashing out

Often the D.S.O. will gain ownership of a practice from an owner they buy out who then stays on, and the contract determines what percentage of the overhead is paid to the dentist, and what part the D.S.O. keeps. “They can cash out, basically,” Hargrove said of the seller. “They sell at a higher multiple to a D.S.O., who will take all the headaches away, pay them the same or a little less, and they get the equity out.”

Part of this is driven by the economics of dentistry, which have made it hard for freshly minted dentists to buy a practice, Hargrove said. When he graduated from dental school 15 years ago, he had maybe $150,000-$200,000 in educational debt. “Now it’s closer to $400,000 or $500,000,” he said. At a school like New York University, it is $750,000, he said.

“You have a lot of debt,” he said. “Will a bank lend to you to buy a practice? So dentists have trouble buying practices. There are fewer practices out there, because more are owned by a D.S.O., and they can’t get a loan. All these things make it challenging for a young dentist to acquire a practice. On top of that, they come out of school with virtually no business sense. You can learn that, but it’s a painful pathway.”

For that reason, he said, younger dentists often will start out in a D.S.O.

“According to ADA Health Policy Institute research, more than 10% of all dentists were affiliated with a dental practice supported by a DSO in 2019. About 10% of dentists over the age of 50 and 20% of dentists under age 34 were supported by DSOs,” A.D.A. News wrote in mid-2022.

They quoted Andrew Smith, executive director of the Association of Dental Support Organizations as saying: “It’s not just new dentists. We often see a lot of dentists later in their careers making the switch to D.S.O.-supported dental practices for a multitude of reasons, including wanting more time with patients and family and less business administration. We’ve also seen many dentists later in their careers choose the D.S.O.-supported model because there is less financial risk selling their private practice.”

Hargrove said dentistry is experiencing a financial squeeze because insurance payments are the same as they were 15 years ago. If your income doesn’t go up, he pointed out, it’s hard to deal with inflation, meaning higher expenses, including higher labor costs because the supply of workers has shrunk and so he needs to pay more to hire and keep good employees.

“I wouldn’t say D.S.O.’s are an enemy, but it makes it difficult for us to compete,” he said. “The real challenge is insurance companies not keeping anywhere close to inflation.”

Parallels with medical ownership

The medical profession, separate from dentistry, is in a complicated parallel discussion with regards to the ownership of a medical practice. Doctors have increasingly been hired by, and embraced, the private-equity-owned emergency medicine staffing services, as well as private equity investments in radiology, dermatology, urology and practically every other specialty. This often means doctors are employees, not owners of their own practice.

Mitchell Li, an emergency room doctor who is the founder. of the “Take Medicine Back” Facebook group and newly birthed nonprofit of the same name, is battling against the corporate practice of medicine (CPOM is what he calls it), in which state regulations are deployed to prevent corporations from taking over medical practices and interfering in the physician-patient relationship. Yet almost 40 percent of the nation’s emergency departments are staffed by these service companies.

Medical service companies that hire doctors to staff emergency rooms and other specialties, he said in a Zoom interview, have perverted the doctor-patient relationship. Several spectacular recent failures of private equity-backed staffing agencies — Envision Health is in bankruptcy and American Physician Partners just folded without paying doctors — show the perils of corporate involvement, he said.

“We have an intuitive understanding, just like the general public, that something’s not fair in the healthcare system,” he said. “But very few people know about the corporate practice of medicine doctrine, and the laws that prohibit the corporate practice of medicine in most states. We’re so uninformed about that, yet that affects pretty much all of our lives when when these corporations own our practices.”

State dental regulations and litigation

Many states have the requirement that the owner of a dental practice be a licensed dentist, but some do not. The American Association of Dental Boards did a survey in 2021 asking state dental boards: “Does your state/territory require dental practices to be owned by a dental licensee (dentist/hygienist/therapist, etc.) by at least 51% or greater?”

Answering “yes” were Colorado, District of Columbia, Kentucky, Massachusetts, Missouri, Rhode Island, South Dakota and Texas. Answering “no” were Arizona, Iowa, New Hampshire and Utah. Alabama answered “No specified percentage of ownership, but a dentist must be part owner and must make all medical decisions.” Wyoming said “Essentially, yes. The Act defines one with ownership or control of dental equipment, or material, or an office to be a proprietor. The Act then defines a proprietor is considered to be practicing dentistry and a license is required.”

This technically might block a D.S.O. from entering the state, but Hargrove said the laws are not strictly enforced. The state dental boards rarely challenge a D.S.O., he said.

“The state boards have a concern that — if they litigate these issues — that federal law trumps state law, and federal law basically has fair trade protections in it,” he said. “That’s the limit on how you can limit the commerce of other individuals. And some of the state boards are very concerned — I’m not going to speak to the Louisiana board — but I do know that some of the members of some boards in some states have concerns that if they lose that fair trade, they lose that legal fight based on fair trade laws.

“All of a sudden, there’s nothing scaring corporations from doing what they’re doing. And it would just open the floodgates, and you’d see corporate dentistry on every corner of every shopping center in the country.”

Currently, he said, private equity groups have been fairly selective about where they go. “They look at the insurance reimbursements of the states that they target, how the laws are written in those states, and they pick the ones that they think are the best, most fertile ground for them to expand,” he said. They are also looking for a practice with enough income — a practice with $500,000 or $600,000 in annual income is not attractive enough, but one with $1 million in income is. Also a group of four or five offices is attractive, he said, so the market is seeing people trying to buy practices and sell them as a package.

Business did drop during the pandemic, according to the Grand View report, but it has recovered. “According to the American Dental Association, 39% of practices in the U.S are fully operational with the volume of patients they had pre-pandemic,” the report said.

What about quality?

Hargrove said that quality can suffer with a D.S.O.

First, he said, there are good and bad dentists in private practice and in D.S.O.’s. There are also good and bad D.S.O.’s, he said.

But D.S.O.’s often employ dentists on the cusp of retirement — having sold and agreed to remain for two or three years. What happens to the practice after that? “They normally get either fresh grads or very young dentists,” he said. “They don’t appear to provide a lot of mentoring. They claim that they do, but at the end of the day, the real learning in dentistry comes from a mentor that walks them through it. You were taught to do it this way, but this is what really happens.

“Schools give a sound foundation of information, but you need to learn a lot from experience. That is generally lacking in the D.S.O. environment. It can be lacking in private practice, too, but you have a better chance if you have an experienced dentist sell to a younger dentist and stay on for a few years.”

Also in a D.S.O. practice, he said, the patient may see one of several dentists practicing there, instead of having continuity of care with one dentist who has a care plan and a relationship. So you get different opinions on treatment.

What a D.S.O. may provide, he said, is the promise of a comfortable base salary. Maybe $750 a day, no matter how much work you do, rather than a higher take-home. “They agree to a sure thing at a smaller amount, foregoing the opportunity to make more,” he said.

Also, the D.S.O.’s tend to have better benefits than a small or solo practice, he said. This attracts younger dentists. The graduating classes are now 60 percent women, he said. “Women value the security of benefits over the opportunity of a higher paycheck. They don’t like the risk: They want to finish work at 5 and go home,” he said. “Some male dentists want to work as much as they can, earn as much as they can, and hopefully make more.

D.S.O. problems

The D.S.O.’s have not been without their problems. In 2015, “One of the nation’s largest dental management chains, Aspen Dental, violated New York law by making decisions that should have been left to dentists and sharing profits with dental clinics, according to a settlement with the state’s attorney general,” Frontline reported in the wake of an investigation by the Center for Public Integrity and Frontline.

“The news report found that Aspen Dental, which targets low-income patients, pressured dentists to increase revenue by using high-pressure sales techniques. Many patients complained of being overcharged or given unnecessary treatments. The attorney general investigation reached the same conclusions.”

In Massachusetts in January, “The Massachusetts Attorney General’s Office announced a $3.5 million settlement with Aspen Dental Management, Inc. resolving claims that the dental chain cheated thousands of Massachusetts consumers through a series of bait-and-switch advertising campaigns,” The Fall River Reporter reported.

The biggest D.S.O.’s

Beckers Dental wrote recently that the largest D.S.O.s in the United States by number of administrative-supported practices are:

  1. Heartland Dental — More than 1,650 practices
  2. Aspen Dental— More than 1,000 practices
  3. Pacific Dental Services— More than 900 practices
  4. Smile Brands— Nearly 700 practices
  5. MB2 Dental— 500 practices

What you can do

Not sure if your dentist is part of a D.S.O.? It’s worth asking.

Hargrove wrote in an email: “There are 100’s or 1000’s of D.S.O.’s in the USA. The only easy way to sort of tell is to find out if they have multiple offices from their webpage, but you won’t be able to differentiate if it’s just a dentist that owns multiple offices or a true dso management company without actually talking to the office and asking (and good luck getting a straight answer).

“You can conceivably contact the sec of state to see who owns the business and see if that entity is a dentist, but that would be a lot of effort and it could still be listed as an L.L.C. that is owned by a dentist (which would be the most common for private practice) and then look at the member owners of the L.L.C. and see if they are licensed dentists in that state.”

Jeanne Pinder  is the founder and CEO of ClearHealthCosts. She worked at The New York Times for almost 25 years as a reporter, editor and human resources executive, then volunteered for a buyout and founded...