Dentists who sold to private equity-backed groups were promised wealth creation. According to one dental CEO, many end up with a lower income, a payout that never arrived and little to show for it.
Greg White, DMD, president and CEO of PepperPointe Partnerships in Lexington, Ky., joined Becker’s Future of Dentistry Roundtable Sept. 14-15 to discuss why he believes private equity comes out ahead as dentistry consolidates, and what that means for dentists and patients.
Note: This response was lightly edited for clarity and length.
Greg White, DMD. President and CEO of PepperPointe Partnerships (Lexington, Ky.): Part of the reason that’s changed is because private equity came into it. Now, everybody’s fighting over the same people. Something had to happen. Complexity fatigue absolutely was creeping into the life of every dentist. The higher cost of dental education — one could argue the quality has gotten significantly worse while the cost has gotten significantly more. It creates a chasm here where these guys cannot pay for it, and these guys don’t want to sell it for what they would have to sell it to the individual coming out of school if they can get more from somewhere else. So, enter private equity money. I do think it’s a great opportunity for the young kids coming out. The biggest problem is that scenario that was laid out about how that doctor is going to be able to get that money and invest it and do well — that would work fine if dentists were financially disciplined, but dentists are the high income poor. Only 4% of them can retire after 30 years of practice and maintain their current lifestyle, and it’s because so many of them are so miserable in the four days a week that they’re practicing that they spend every dime for immediate gratification on Friday, Saturday and Sunday just to muster up enough energy to drag their butts back in on Monday. That is a constant, perpetual thing for them. So, that money that they got that they were supposed to invest, they didn’t. They had to use it to supplement their new lower income, so when they get to this recap period, that doesn’t come, they’re out of that money, and now they turn around like, “Holy crap, I used to make $1 million a year. Now, I only make $300,000. And that multiple that I got 60% of up front, it’s gone.” … It’s a “have-nots and have-yachts.” That’s really what it is. Private equity wins every damn time … When the private equity company says, “Well, we can’t get out of this.” They’ve already mostly kind of gotten out of it with the money they’ve scraped from the dentist, and the dentist is so crazy, they think that private equity money is what was provided to them when they got that money up front. It wasn’t, it was a loan. It was an interest-only loan. The private equity money only went in to buy the majority ownership in the platform.
So, when the recap does occur, what ends up happening is all of that loan money has to be paid back first, and then the dentist ends up getting a little piddly piece of it. But everybody else is going to win because the river always takes the course of least resistance, and private equity will always take that course. If [private equity wants] to dominate the whole thing, they will, and it will be exactly like was described. It’ll be a consolidation. There will be fewer players, but there’ll be more invested in it for the longer term. But the question then becomes, what happens to the dentist and the patients when this is all said and done? That’s something that gets lost in the discussion. These conversations become about who’s going to direct and who’s going to own dentistry, rather than who’s going to actually care for patients.
