Fort Lauderdale, Fla.-based Vitana Pediatric & Orthodontic Partners is one of the fastest-growing DSOs in the U.S. despite not having the largest network, an intentional strategy the company has stuck to for success.
The organization was recently ranked among the fastest-growing private companies in the U.S. by Inc. for the second consecutive year, achieving 646% revenue growth over a three-year period.
Ashish Bagai, co-CEO and head of business development at Vitana Pediatric & Orthodontic Partners, recently spoke with Becker’s about the decisions and approaches that have helped fuel the company’s growth.
Note: Responses were lightly edited for clarity and length.
Question: How does Vitana’s partnership model differ from other DSOs in the field right now?
Ashish Bagai: We’re big believers that the dentists are still the CEOs of their practices. Our model is a [joint venture] model, so we invest anywhere between 51% and 80% of the practice, and the doctor retains anywhere between 49% and 20% of their practice. It’s not a set number. We give them flexibility based on their needs and their individual financial goals. How much do they want upfront? What do their cash flows need to be for them over the next five to 10 years? It’s a real wealth management conversation with them versus just, “Hey, I’m selling my practice.” In addition to that, we also allow them the option to participate in parent-level equity. Anywhere between 10% and 20% of the value is for the parent rollover shares they can invest in as well. So, a typical structure looks like this: Let’s say the practice is worth $1 million. We invest, on average, in 70% of the practice, and the doctor retains 30% of their own practice. It varies, but I’m giving you an average number across all our partnerships. And then, on average, it’s about 15% that the dentist rolls over into the parent. For that example, $550,000, or 55%, is cash at close. Fifteen percent is $150,000 in the parent company shares they invest in, and they retain 30% of their practice. Going forward, it’s a five-year typical arrangement on the partnership side of things, and if they want to eventually sell their minority stake with 30%, we have options they can do at recap at a much higher multiple. That’s our overall structure.
Q: What are the biggest lessons your company has learned during its growth journey over the years?
AB: I think the first one is to stay focused on what you know really well, versus trying to do everything. We stay exclusively on pediatrics and ortho. We don’t go beyond that just because we know those spaces really well, and I think those two specialties require and deserve their own strategies and ways of thinking and growth. Those are very different than merging them into a [general practice] or other specialties because approaches are different, DNAs are different, and the types of doctors and support they need are different. I think that’s the number one thing: stay focused and niche. It might not allow you to buy 100 practices because there’s only a certain number of practices there, but stay focused on what you do and do that really well. Be the best at what you focus on.
I think the second one is, instead of trying to be the biggest, we’re trying to be the best, and that’s not going to be the biggest. We’re okay with that. We’re very comfortable with that moderate growth with the number of partnerships but really high quality partnerships … We’re not for everybody, and we recognize that, and we’re very comfortable with that. When we do get a partner, we have a lot of good alignment. So that’s the second.
Growth only happens when you’re structurally and financially aligned. Our structure has evolved a little bit because of the learnings we’ve had, so we’re big believers of JV models. We can only allow the doctors to be CEOs of the practices because they own a meaningful part of that practice. If they own 0%, it’s really not comfortable for us to have them make decisions, but in our case, they own 30%-40% of their practices, so we’re very comfortable when they make a decision. Even though we might not agree with something, I think there’s a healthy respect there and trust that if you own a meaningful portion of the practice, you’re making the decision for the right reasons.
The fourth lesson we’ve learned is to build trust with not just the doctor, but the entire team before trying to drive meaningful growth in a practice post partnership. We don’t go and rush and change and try to grow the week after partnership. We first get to know the teams. We first get to know the doctors. We get to know what they can handle, and really build trust because without that, no one’s going to allow you to be successful in that partnership. So, take time to get to know people. We always talk about it with our regional directors — if the people trust you and they know we have the right intentions, you can do phenomenal things over the next five years, but don’t try to do everything in the first six months.
Q: What is it about pediatric dentistry and orthodontics that makes them so niche and needing very specific things?
AB: If you have, for example, 100 general practices, and you’re bolting on five to six specialty pedo and ortho practices, you’re not really giving them the attention and care they need. You’re trying to optimize your entire portfolio of 106 practices. You’re optimizing for that entire group, and you’re not growing those particular [pedo] practices or ortho with as much care and opportunity that they can get. You’re trying to make sure the 106 are done well.
Secondly, they both have a very different workflow and decision making process. Pedo has a higher volume versus any other specialty. The way you’re building a primary relationship with the family for orthodontics, more and more parents are now going to specialists for their kids’ oral healthcare needs. So, it’s really important to make sure the environment and the culture really supports that. Again, it goes back to, you’re not trying to optimize 106. You’re trying to really get to know what that kid-specific practice needs. A GP group will hire GPs in a pedo office, versus pedo-only groups who understand that having a well-trained specialist, a board-certified pediatric dentist, is what drives the level of care that kids and parents are very comfortable with, especially as the profile of the parents are changing. Twenty-five percent of kids are seen by pediatric dentists today, versus 80% of the kids who are seen by pediatricians. That’s rising, and we want that to rise, and that’s why we want to play a meaningful role in raising that 25% to 40% or 50% over the course of time. Specialist care is only done by pedo-only groups that really understand that it takes a pediatric dentist to grow those practices properly with the level of care versus, “Let’s throw a GP in there because we can’t find a pediatric dentist,” and it’s lower cost that they have to pay the debts. That will dilute that profession or that culture with what’s good for the group.
Orthodontics is very very different. I think it’s a longer relationship with the family. It’s a much higher ticketed item, so the decision making of the customer or patient journey is very different. The way you market to that family is very different. The way you have that relationship evolve over the course of two years is different. The level of trust with the treatment coordinator and the orthodontist and how that flows in the office is just very different. So, just very different specialties versus a GP group that’s trying to bolt it on just to optimize their referrals and make a little extra money. That’s not what the intent of our specialty focus is.
Q: Vitana has ranked among the fastest-growing companies by Inc. for two years in a row. What do you attribute the company’s growth to most?
AB: First of all, we’re very selective with our partners. We don’t just go and partner with anybody. We say no to a lot more than we say yes to. The number one reason I think we’ve grown so well over the last two to three years is the level and the quality of doctor partners that we have. Second, I think the practices we evaluate are just well set up with good systems before you even come in. They have an office manager. They have a tenured staff. They have the opportunity to grow. They’ve got a strong name in the community. They’ve been operating for decades, and they have a good associate base with them generally. And they’re larger practices that we’re partnering with compared to traditional DSOs who are with generally smaller [practices] than our average at least. So, good practices that are larger with systems and great doctors is the number one reason I think we do so well, especially on the organic growth side.
Secondly, I think our corporate support team is fantastic. We focus on people who are able to provide leadership but also are able to get their hands dirty and really work alongside each practice. Everybody knows each practice by name and every employee in the practice by name. Our team’s on call. We provide an almost customized approach to growth. It’s not, “Let’s do this across all our practices,” because they’re very different. Some are pedo only, some are ortho only, some are pedo and ortho, and the sizes vary dramatically. There are two things we standardize, which are finance and accounting, and HR, payroll and benefits. The rest of it is really customized. I think customization leads to outsized growth because you really take an approach to say, “What does this practice need to grow?,” and it’s very different for each practice. We focus on the revenue growth versus cost cutting post partnership, so adding specialties, adding orthodontics to pedo and adding locations to existing partnerships. So, if a dentist had three locations, you go to four and five with them, versus, let’s just try to cut supply costs only. Yes, we do that too, but that’s not what drives you to 30-plus percent growth in a given year organically.
Understanding how insurance works and plans and payer negotiations — that’s been a big part of our growth across the board. Investments in [capital expenditures] — we’ve increased facility sizes from seven chairs, for example, to one that was 21 chairs. The fact that we have long-term investors, not just typical private equity, three-to-five-year investors — that allows us to invest to be able to drive growth properly. A typical group is owned by a private equity company that has three years to flip it. We have a much longer horizon, so I think we’re able to make better decisions for proper growth.
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