Selling a Practice to a Dental Management Service Company
If you have a practice and are considering easing out of the practice into retirement, and have been approached for a potential sale to a dental management service company there are a number potential pitfalls you should consider before taking that course of action and not a regular sale to an associate or another dentist. The contracts for sale are complex and must be reviewed carefully, the provisions for economic stability and return on investment should be scrutinized, quality of care issues may arise, and state board regulations may conflict with the corporate set up of the new entity.
If the company is promoting the possibility that you could still earn a reasonable share as a partial owner, with the company providing management services or becoming a partial owner, look at the figures closely. Many management service companies charge 25% or so of the gross collections for their services. That requires an increase in revenues to result in a profit to a dentist who is relinquishing a great deal of control over the practice. Continuing to maintain a partial ownership role in a practice which has unrealistic expectations of a dramatic increase in a patient base may expose the selling dentist to being involved in a failing enterprise. Sometimes the dentist may be offered a compensation of 25% or so of gross collections. That again is a bet the dentist may not be willing to take, particularly if it involves an extended contractual requirement to continue practicing. Any dentist who stays on at the new company should negotiate a minimum compensation rate not tied to the overall financial viability of the new practice.
A complete sale is sometimes better than working for a practice which the dentist no longer has control over and which may change its operational style or delivery of services in a way which the dentist is not happy with. If there is a period which the dentist agrees to stay on at the new entity, it is advisable to insert a clause for a quicker exit strategy of 60-90 days in case the company is making moves he or she doesn’t agree with, or is not as profitable as anticipated. Definitely get paid as much cash as possible from the outset so you won’t be tied to whether or not the practice continues earning a profit.
The company may not treat your former employees as well as they were accustomed to when you owned the practice. Protecting your present employees from wage reductions or terminations may not be possible with the transfer of ownership. Production requirements for associate dentists may be increased, with the result that the quality of services is sacrificed for the sake of profits for the company. The legal problems of countless dental corporations across the country is a major issue in dentistry, with state boards and legislatures trying to control the practice of dentistry by non-dentists, and the courts sometimes even stepping in when patients complaint about poor quality of service.
State boards of dentistry are now coming down harder on non-dentist ownership of dental practices, with stricter rules on the interference with the quality of dentistry provided at corporate practices. Laws are changing, some in favor of continuing the corporate dentistry market, and other laws being passed which are trying to maintain the practice of dentistry in the hands of licensed dentist-owners only. Make sure and have an attorney check the board regulations and state laws having to do with non-dentist ownership of dental practices, since many of those laws are on the books but are not being enforced yet.
Corporate dentistry will continue to provide an avenue for beginning dentists to earn a decent living while paying off their dental school loans, so they have a place in the market, and many are high quality operations. But any dentist-owner who is considering giving up control over a practice he or she worked so long to build up must make sure all the complexities of those management company contracts are favorably written before selling the practice and losing an ownership role and control over how the practice is run.