By Dr. Brendan Hallissey, Guest Writer
As I started to write my thoughts on this subject, I was wearing my 1-month-old son in a Babybjörn. He was intermittently falling asleep on my chest and fussing a little to remind me that I should continue to bounce up and down to keep him happy. After our journey of opening a practice, nearly reaching burnout, and then selling to private equity, I felt as happy as I had ever been. It was a long trip to get to this point, but it all seemed to happen at the right time.
I grew up in a small town in Maine, and, like many people from the sticks, I felt some kind of yearning to escape and “make it.” I didn’t know exactly what that was. But my mother had always spoken to me like an adult, so I realized that to “make it,” I would have to make money. Like a lot of people, I viewed being a doctor as a good choice and went through different iterations of what type of doctor I would become. Being an analytical person, I explored many avenues as I advanced through school, but I realized the path that fit my personality best was dentistry. I liked that it was a respected field in which I could help people, but it would not require me to be called into the hospital at any time of day or night and have to carry the stress of life-or-death situations on a regular basis. Despite the urban legends, the dentists I knew all seemed happy with their careers, and I definitely wanted to find happiness.
My family life was tumultuous as a child, due in part to my parents fighting and worrying about money. I thought that having the kind of money a dentist can make would make me happy. I thought that buying a practice was the solution to our problems. But I learned there was a different path.
Buying My Practice (and All the Stress and Debt That Came with It)
Ten years after graduating from dental school, my wife (also a dentist) and I were the owners of two practices and too many headaches. I learned from seeing the financial stresses of debt on my family that it can very negatively affect your happiness, and, up until this point, I had done a pretty good job of managing it. As the employment market in our area tightened after the 2008 financial crash, my options were to commute over an hour to work, sit home while my wife worked, continue to work in a group practice that I was getting squeezed out of by new ownership, or purchase a practice. I opted for the last option, and, in doing so, I took on over $1 million in debt. We muddled along and saw the opportunity to take on an additional practice that would change my wife’s half-hour car commute to one in which we could walk or bike together each day.
Mr. Money Mustache—with his lessons on frugality and, quite frankly, avoiding driving—had some definite influence there. While we were saving on commuting, we added several hundred thousand more dollars to our debt load when we bought the additional practice. We also doubled the headaches.
Much stress came about from several other dentists’ tales of embezzlement. Given my risk-averse nature, I was doing all of the banking and books for both businesses. In addition to working at her own practice, my wife was continuing to work 30 hours a week as an associate at another office in New Hampshire, and I was working part-time at that New Hampshire office to try to earn more to pay off our massive debt—in particular, she was concerned about her school debt from a private dental school.
As we were thinking about starting a family, the debt seemed like an insurmountable obstacle. Could we really raise a child, giving him the attention we wanted to give with the amount of work we were doing both in and out of the practices? The stress was coming to a head in 2016, and it became apparent that we needed to find an option that could improve our work/life balance. I now know that we were heading toward burnout, but I had never even heard the term at this point (except as a reference to stoners).
Sometimes, though, your salvation just falls from the sky—or at least gets delivered into your mailbox.
More information here:
A Dental Career Reimagined — I Thought I’d Be Rich But I Found Wealth in Another Way
The DSO Down-Low: How Private Equity Has Infiltrated Dentistry
Private Equity Comes Calling
I received a mailing from a company I had never heard of called Heartland Dental. I was skeptical of the offer to affiliate my dental practice, because what I knew—or thought I knew—about “corporate dentistry” was all negative. It was the big bad Boogeyman that was going to take over and crush us poor little independent practitioners. It was all about profit, and the quality of care was substandard.
We were desperate for a change in our lives, so I figured it couldn’t hurt to check it out. What I found is that Heartland Dental has pretty specific criteria for considering an affiliation and that we didn’t quite fit it. Armed with the knowledge of what would make us a better fit, I worked on improving the business side of our practices with the aim of having the option to affiliate our practice. Over the next year, I worked on the areas I needed to affiliate (cutting down on our overhead and travel expenses so we could improve our profitability on paper), and I was soon in a position where earnest negotiations could begin.
As a practitioner in my prime with two profitable businesses, I was definitely going against the grain of the traditional model of “buy a practice, work until you are 60 or 70, sell to a young hungry dentist, and use the money to pad retirement.” The problem here is that the financials of our industry are unpredictable 30 years in the future.
At the time I was researching my options, it was 2016 and I came up with the following: according to the Centers for Medicare and Medicaid Services (CMS), healthcare expenditures accounted for 17.8% of the US’s total GDP in 2015, and they were expected to rise to almost 20% by 2025. While 2023 was 17.6%, the projections still hold true that healthcare will continue to grow as a portion of GDP.
I can see healthcare as a commodity, yet there are significant headwinds mentally for many people seeing healthcare this way caused by our society’s political leanings or feelings about healthcare. At the time, Medicare For All was a popular talking point, and I had no idea how this might affect dentistry. I like to think of healthcare as a business in the same way that Ronnie Coleman, an eight-time Mr. Olympia, thought about bodybuilding: “Everybody wants to be a bodybuilder, but nobody wants to lift no heavy-ass weights.” In this case, everybody wants healthcare, but nobody wants to pay for it.
It would be wonderful if we could treat all of healthcare as a free and basic right, but the aforementioned debts my wife and I held required us to get paid for our services—not just to cover our own debt payments, but also for our living expenses, retirement planning, and a premium for the fact that we have skills that not everyone has. There has to be some incentive for people to go through the rigorous schooling and training required to attain these skills. The counterargument sounds something like, “Are you just going to leave sick people dying in the streets?” Of course, nobody wants to do that. But the public discourse playing out at the time seemed like a very deep risk to our long-term financial success.
I personally believe having only catastrophic insurance would help reduce the cost of healthcare by helping commoditize it. If people are directly paying their fees for checkups, medications, and minor or routine procedures, there would be competition. Fees would come down and become more uniform. Currently, though, insurance seems so opaque to most people that price discovery and value for cost are difficult to assess. Price pressure primarily comes from government and insurance companies. The government decides what amounts it will pay. This is presumably not enough to economically sustain many institutions, and so it charges an individual a rate that is higher than a market-driven rate to make up the difference. Insurance companies then pay somewhere in between, and based on the efficiencies of the institution, they may choose to participate or not with the plan based on whether it makes economic sense.
I’m glad to see that there are some medical facilities that are stepping out of this model and going straight fee-for-service and charging fees that are much more reasonable. I do not, however, see this taking over anytime soon, because the current system is so entrenched. How this process will play out in my life is another very deep risk.
At least for the foreseeable future, we will have a system that is highly unpredictable. Will the emotional element win out with a groundswell of political force that changes the entire system to a single payer one? Will the power of insurance companies to dictate fees and care increase? Will another economic crash drastically change the available dollars for healthcare expenditures? Will Medicare and Medicaid go defunct and cause some other kind of drastic restructuring? No one can know for sure. The only thing I knew for sure was that I would have years of debt service with deep risk of an entire industry upheaval. That thought caused me to lose a lot of sleep.
More information here:
Why More and More Dentists Are Going ‘Out of Network’ — And Why That’s Actually Good News
Is Dentistry Worth It? Comparing It to Being a Pediatrician, a Planner, and a Plumber
Thinking About Selling to a DSO
In the smaller space of dentistry, which in 2014 accounted for 3.4% of total medical expenditures according to the CMS, the times they were a changing. For a long time, dentistry had a nice little niche from a practitioner’s standpoint. Insurance was a minor part of the payer base, if at all, and market forces set fees at a point that allowed some of the older generations of dentists to make financially and personally rewarding livings in an industry with relatively low overhead and regulation.
Technological changes, increased government regulation, and a growth of insurance company rules and participation had shrunk the profit margin achievable for the small independent practitioner. This was concerning to doctors with more career ahead of them than behind them. As I looked ahead, I felt as though the future would involve increased supply and compliance costs, decreased insurance company payments, and uncertain economics which would affect year-to-year the available money people were willing or able to pay to take care of their dental needs. Staring at this uncertainty vs. the certainty of our debt service, transitioning into the realm of a Dental Service Organization (DSO) became more appealing.
What Is a DSO?
Before we go any further, let’s talk about how a DSO works (at least in my case).
There are different types and structures. I know Heartland’s best, but there are differences with other DSOs.
For Heartland, the DSO is contracted with a local state corporation that employs the doctors of that state. The doctors practice according to their license in their state and have complete clinical autonomy. The Heartland DSO takes care of many back-end services that a dental practice needs—like supplies ordering, negotiating with labs and suppliers, ensuring compliance with state and national regulations, payroll, mentoring and education offers for affiliated doctors, marketing, and HR.
I have not worked for another DSO, but I hear from colleagues that some others are much more restrictive on issues, like which supplies or labs you use, and that some try to influence your clinical decisions in ways that make doctors feel uncomfortable.
DSOs can be owned by one or a few doctors; sometimes, they’re majority private equity with as little as one doctor, if required by state law.
Our DSO has many doctors and employee stockholders. KKR purchased a majority stake in Heartland in the last few years. There are still many doctor-owners, and it has been woven into the fabric of the company by Dr. Rick Workman, the founder of Heartland, that doctors continue to have the ability to purchase an ownership stake.
In many ways, I view this as a mutual fund of dental practices. In a sense, you are buying a share of all of the affiliated offices instead of having all of your risk concentrated in your own single office.
The Benefits of a DSO
Here’s what a DSO could provide for me as the owner of a dental practice:
- No more concerns about payroll, unexpected expenses, or embezzlement: Having a large company to be a part of mitigates risk. If a snowstorm shuts down my office for a week or blows down some trees and closes us for a month, our staff will still get paid—thanks to the other practices that are part of the company. If a hurricane closes an office in Florida, my productivity can help it out while they clean up and rebuild. The shutdowns during the early months of COVID proved this; I slept like a baby knowing I was part of a team of incredibly bright doctors that would band together to figure out the best path forward.
- Eliminate the debt load and access equity now: My wife and I had been aggressively paying down our debt, but there was no guarantee that our economic situation would remain unchanged and that we could even pay it in the future. There was also no guarantee that the practice would be an asset that I could sell in 30 years. As the DSO space grows, including starting new offices, I believe that the economics will dictate that practice values decline because it will be cheaper to start a new practice than to purchase an existing one. Combine this with the increasing debt load of recent graduates of dental school, and the pool of available buyers will also decrease. A student with $500,000 in debt and a skill set that is not as advanced as a dentist with years of experience under their belt will not be able to finance or sustain a thriving practice. Working for a DSO that can provide guaranteed income and mentorship will be a bigger and bigger percentage of first-career choices for new graduates.
- Eliminate much of the headache of managing the business of dentistry: The DSO has already accumulated many “best practices” through years of experience and the brain trust that is created by so many doctors sharing the ideas and practices that have worked for them.
- Lower cost of healthcare for my family and employees: While I believe a market-based healthcare system would be better and less expensive, being a part of a larger group means that we can negotiate better rates within the current system. I couldn’t afford to pay for employee healthcare as a solo practitioner, but all of our team members became eligible for a nice health insurance plan when we were affiliated.
- Maintain profitability better than on my own: As part of a large group, we can negotiate better prices on all of our expenses that were not available to me as a solo practitioner. In short, there is power in numbers.
Making the Jump to a DSO
I started to research what it was like to work with Heartland. In all, I talked to more than a dozen different doctors who had been working for the company for different amounts of time. I got some great perspectives and what I believe were candid responses to my questions. One thing I heard in the process was, “I know I sound like I’m drinking the Kool-Aid, but I like the taste of the Kool-Aid.” Ultimately, we worked out a deal that eliminated our business debts, merged our practices, paid off my wife’s remaining educational debt, and left us with just our home mortgage as a debt.
Could we have sold for more in the future? Maybe. Could we have done a lot worse? Definitely.
I had the opportunity to purchase Heartland stock as part of our sale. We opted instead to pay off the nearly $400,000 in other debt that we had. A portion of the sale price was paid out over the following five years. This money was at risk if I had chosen to leave employment before the end of the term. As an affiliated doctor, I worked in my original practice for four years. My wife’s practice was merged with mine, and she began working part-time.
All Heartland-affiliated doctors are paid in the same way. We have a base salary and then have a profitability bonus. Just like the spread of intraspecialty pay in medicine can be quite broad, doctors who offer more services or are more productive can be compensated well for this.
No employees were laid off with our merger. Actually, we grew and hired more employees. Our hard work in growing our practices and improving our profitability while aggressively paying down our debts allowed us to accumulate a significant amount of illiquid equity. The sale allowed us to access this equity at a time when it served our family better by improving our quality of life. A few years later when our dental practices were shuttered by the COVID pandemic for more than two months, I thought back to how glad I was that I had pulled those chips off the table instead of continuing to let it ride into my 60s.
I spoke to other doctors who found themselves in tough financial situations made worse by the economic shock of the pandemic as they tried to evaluate if an affiliation with Heartland could help them as well. Perhaps I would have mathematically done better by grinding out a couple more years, but I prefer to be early than late, and I have no regrets about the timing of my sale.
Once the deal was all lined up, we began trying to start a family. Nine months later, we were blessed with a little boy, and my wife took off three months to spend with him while not worrying about business or educational debt. Our practice grew, thanks in part to the support and the best practices education that all of us have received. I traded feeling tired and being up late doing books for late-night diaper changes and feedings. I couldn’t have been any happier with the decision. I get home from work earlier, and aside from the odd emergency call, I do not have any work-related responsibility outside of normal office hours.
More information here:
Selling Your Practice to a Private Equity Firm
Why I Still Sleep Well
I had one nagging thought in the back of my mind. I felt like at some point I may be asked to compromise my ethics and I would have to find a new job. Eight years later, how’s it all going? I’m still working for the same company, and I’ve never been asked to compromise my ethics. I realize how foolish that thought was. A company cannot grow and sustain growth by shady dealing. I’m a better doctor. I am more engaged with my patients (QuickBooks no longer calls me to the back office to worry about the overhead). I have moved to a different state, saying goodbye to the snowy Maine winters that no longer feel as good on my aging joints. I have taken on a role as a mentor to other doctors where I get to help them grow clinically and share the financial wisdom that The White Coat Investor freely shares. I am even more convinced I made the right choice.
The growth of DSOs has continued, and while current valuations are still good for selling a practice, my concerns that the values will diminish by the time I’m 65 seem more valid. Technology is rapidly growing in dentistry. Lasers, artificial intelligence, 3D printing, and robotics are normal parts of our conversations, and they aren’t free. Regulation has continued to increase, and payers have continued to clamp down on reimbursements.
I continue to sleep well having chosen to be early instead of late selling my practice.
I imagine I’ll get some hate mail about being part of a big bad corporation. Before you hit send or submit, realize that you have the right to choose a different path. There will likely still be at least a niche of private fee-for-service practices. Maybe we will see a complete return to the old days. I doubt it, but maybe. The tide is coming in, and I believe DSOs are the future of dentistry.
If this article makes you consider transitioning your practice, I urge you to do your due diligence. Not everyone is a fit for the DSO life. If you really like having control over every aspect of your practice, you’re probably not going to like being part of a group. If you find yourself wishing you had more helpful colleagues to guide you and encourage you, you may love it. It’s your practice; do what you want with it. All I know is that in 2015 and 2016, I was getting so burned out I was focused on FIRE and leaving clinical practice altogether.
After the relief of stress I found working as a Heartland-affiliated doctor, I took the approach of cutting out the parts of the work I enjoyed the least while growing in the work I enjoyed the most. As part of a large network, I now have the opportunity to work with many other doctors through our educational offerings as a teacher, mentor, and coach. I could spend my time being more financially productive, but the time I spend working with younger doctors, helping them achieve their goals, is something I believe will fill my cup for years to come.
Today, my version of “making it” is working on perfecting a life from which I do not want to retire. I can care for my patients, volunteer at a local indigent clinic, mentor and teach colleagues, and be a more involved husband and father. Our practice sale was a blessing for my family, and I hope that the insight shared here can help other docs with one of the most important decisions of their professional lives.
[Founder’s Note by Dr. Jim Dahle: The title of this piece is slightly misleading, but bear in mind that titles are mostly designed to draw you in to read the article. Being accused of writing clickbaity titles is one of the greatest compliments that can be directed at our content director. Dr. Hallissey certainly sold his practice, but as he explained well in the article, that may or may not be right for you. As a general rule, I’m a big fan of ownership, whether it’s owning your own home, owning your practice, or owning stocks and real estate as investments. Owners get control and, when things go well, the lion’s share of the benefits. There’s a lot of value in that. But as Dr. Hallissey explained well, there’s usually plenty of hassle and risk to go along with that value. Sometimes, it makes sense to reduce the risk and the hassle, even if it means giving up some or even all of the benefits of ownership. But you better go in with your eyes open to selling a practice, just as much as when you go into buying or starting a practice. Who the new owner is really makes a difference, and not every new owner/company/DSO/private equity is the same. “Private equity” (which is an incredibly vague term, of course) has a terrible reputation for harming doctors and decreasing the quality of care. Just as I warn employers, “If you treat doctors like labor, they’ll start acting like labor,” I also warn doctors, “When you give up ownership, don’t be surprised when you’re no longer treated like an owner.” Hope you enjoyed the post.]
What do you think? Are you considering selling your practice? Would you ever sell to PE? Would you ever want to work for a PE-affiliated office? Comment below!
[Editor’s Note: Dr. Brendan Hallissey is a Heartland Dental-supported dentist and doctor mentor in South Carolina. This article was submitted and approved according to our Guest Post Policy. We have no financial relationship.]
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