The benefits, drawbacks of private equity in dentistry, per 1 dentist

There are several possible advantages and disadvantages a dentist must consider before deciding to sell a practice to a private equity firm, according to Franklin Woo, DDS. 

Dr. Woo is the dental director of Blue Shield of California. He recently spoke with Becker's about private equity deals in dentistry and the effects of them on dental practices. 

Editor's note: Responses were lightly edited for clarity and length.

Question: How do private equity deals affect dental practices?

Dr. Franklin Woo: There is a slow but steady trend in dentistry for private equity firms purchasing successful dental practices to establish a dental brand in various areas in the U.S. The private equity firms may purchase the entire practice outright or perhaps allow the owner to retain a minority ownership of the practice depending on the negotiations between the equity firm and the dentist-owner.

The upsides of this trend are:

1. For the most part, most private dental practices are small businesses. A newly graduated dentist may find a new private dental practice relatively easy to operate and control. There are not a lot of patients, and the staff usually consists only of a receptionist/insurance-billing person and a dental assistant. As the practice grows, complexity in the practice occurs as more patients enter the practice with different insurance plans. More staff is typically added, requiring more administrative time on the part of the dentist-owner. A successful dental practice might welcome a private equity company or firm purchasing the practice, freeing the dentist to practice dentistry rather than dividing time between clinical work, administrative tasks and human resource issues.

The corporate equity umbrella will free the dentist from the hassles of billing, insurance processing, patient processing, payroll and human resource issues. As part of a group of practices, the practice may benefit from the economies of scale due to or stemming from the potential revenue volume it is expected to generate.

2. When the dentist contemplates cutting back on clinical work or contemplates future retirement from active clinical practice, a private equity firm may purchase the practice at slightly more than the dentist might expect on a private sale on the open market. The over asking price for the practice is an additional bonus in the retirement nest egg for the dentist.

The possible downsides of private equity in dentistry are:

1. Dentists tend to be a proud and independent group of healthcare practitioners. Dentists take great pride in providing excellent health services, building a relationship with the community and building up their practices financially over time. On the day the deal is closed and ownership of the practice switches to the private equity firm, I can only imagine the dentist-owner will experience a profound emotional sense of loss for the practice. It is probably akin to watching your child grow up under your guidance and now leaving home for future endeavors.

2. With a transfer of ownership to a private equity firm comes contractual obligations and corporate expectations the prior dentist-owner may not fully expect nor appreciate. Private equity firms want a return on their investment. The ROI may translate into production quotas, expected revenue generation and changes in treatment planning the previous owner may not agree with. 

3. The change in status from owner to employee of a corporate entity may not be fully embraced by all dentists.

Individual dentists will need to weigh the upsides and downsides to private equity purchasing their practices and arrive at a decision to participate in this trend or not.

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