Solo practitioners increasingly are selling out to private-equity-backed groups
As he went through dental school at Creighton University in Omaha, Neb., Dr. Alan Acierno spent all day long studying molars and incisors, cavities and root canals. He never was offered a single business course that might have taught him how to negotiate equipment purchases, manage personnel or bill an insurance carrier.
When he went to work in Schaumburg some 15 years ago, Acierno was one of four dentists in a professional office building. Within a few years he had consolidated all but one of them into his own practice, which he eventually named DecisionOne Dental Partners. Then, he kept acquiring, with his group growing to 25 offices and some 34 dentists.
"We've done four deals just this year so far," says Acierno, 43, who runs the firm as CEO with his brother Michael, 45, a dentist with the title of chief medical officer. "I never knew I had an entrepreneurial streak in me," Acierno says. "It seems to have come naturally. At one point, I thought we'd grow to five offices and we'd be satisfied with that. But we weren't."
Luckily for Acierno and other buyers, more and more solo practitioners want to sell out. Hard-pressed to pay off dental school loans, buy equipment and set up offices, they're turning to so-called dental service organizations like DecisionOne that offer to take over practices (for undisclosed sums) and run the business side while allowing dentists to concentrate on their patients and clinical decisions. Some will even arrange to pay off the school loans.
Chicago and the rest of the state have emerged as the epicenter of the consolidation, with firms such as Webster Dental Care, Chicagoland Smile Group and Grove Dental Associates rolling up practices at a fast pace. The two biggest groups of all are Heartland Dental, based in downstate Effingham with 800 dentists in 36 states, and Aspen Dental Management, which in the past month has moved from East Syracuse, N.Y., to Chicago's West Loop, in a 50,000-square-foot space across the street from McDonald's new headquarters.
Aspen's reach is staggering: In a little over 20 years it's grown to a network of 1,250 dentists working out of 700 offices, with a new office opening every five days. It will recruit 600 graduates from dental schools this year—about 15 percent of all new dentists—and its practitioners will treat 25,000 patients a day, or nearly 7 million in all of 2018.
This growth, and the growth at other DSOs, hasn't come without controversy, as Aspen has been accused by more than one state attorney general of overcharging patients for procedures they didn't need. Most of the legal actions were settled out of court. "That's all behind us," says Robert Fontana, Aspen's CEO.
Fontana got into the business because he was intrigued by how Pearle Vision and LensCrafters had transformed optometry, and by his own experiences. "I found too many dental offices were difficult to get in, pricing was a challenge while they accepted limited insurance plans and their hours were limited. We filled a void by offering longer hours and we were willing to accept all insurance coverage."
The U.S. has some 200,000 dentists, and it's estimated that close to 10 percent are currently allied with a DSO; some project that share will rise to 25 percent. Growth is being driven by opposing forces: students graduating from dental schools with academic loans totaling as much as $400,000, and baby boomer practitioners who have hit retirement age and have nobody to buy out their businesses.
"Young dentists' personalities are changing. Many are graduating from school with no desire to run the business side of a practice," says Dr. Dave Preble, a senior vice president at the American Dental Association in Chicago. "Most DSOs will take over accounting and human resources and legal and purchasing—running things that dentists never learn in school. That's very attractive to many doctors."
The fuel for these acquisitions and the advent of centralized organizations with sizable back offices has come from private equity. Almost every DSO has a financial backer, with DecisionOne being aligned with Beverly Capital in Evanston, which has taken a minority stake. Aspen's investors include Ares Management and Leonard Green & Partners. Private-equity giant KKR bought a majority interest in Heartland Dental in March.
Chicago-based Shore Capital partnered with Chicagoland Smile Group three years ago when the dental practice had three offices. It has since grown to more than 450 employees at 29 locations scattered around the suburbs. "We want to get to 40 offices by the end of the year," says Justin Ishbia, chairman of Chicagoland Smile and a managing partner at Shore Capital, which has capital of $600 million. "We intend to keep growing this business."
Chicagoland Smile doubled in size in June when it acquired Advanced Family Dental, itself a budding DSO based in Crest Hill, near Joliet, with 14 offices. The head of Advanced Family was Dr. David Rubis, a dentist in business since 1978. "I'm a practicing dentist, and as Advanced kept growing we were faced with having to hire a CFO and a COO and a controller with a whole new skill set," Rubis says. "By merging with Chicagoland Smile we got all that. But it wasn't an easy decision—we got a lot of interest from other dental management firms."
Dr. Steven Rempas, a dentist since 1976 who has expanded his DSO, Webster Dental Care, to a dozen offices from his headquarters in Chicago's Edison Park neighborhood, is adding at least one location a year. "I get calls all the time from dentists who are 66 and ready to sell out," he says. His formula is often to take a solo practice grossing $750,000 a year, with the dentist netting perhaps $250,000 from that, and adding a junior partner dentist along with more treatment rooms and boosting the gross to $1.5 million and more, with an extra $50,000 to $80,000 dropping to the bottom line to be shared by DSO owners.
This article originally published at Crain's Chicago Business