Definition of DSO is changing

Transcription

1 Definition of DSO is changing FORCES OF CHANGE INCLUDING CORPORATE DENTISTRY Neither I nor members of my immediate family have any financial interests to disclose relating to the content of this presentation. Dentistry at a Crossroads 1

2 Dentist Earnings Dentist Earnings BUSINESS DOWN BY UP TO 50 % WAIT TIME FOR APPOINTMENTS DOWN BY 50 % 2

3 Utilization of Dental Care CHILDREN UP ADULTS DOWN Utilization of Dental Care 50 TO TO TO 34 3

4 Utilization of Dental Care T0 64 <21 Shifting Dental Benefits 4

5 Cost as a Barrier to Care Source: LACK NADP INSURANCE Consumer Survey, FEAR COST NOT NECESSSARY OTHER Sea Change in Care Delivery and Financing 5

6 Sea Change in Care Delivery and Financing Sea Change in Care Delivery and Financing Dentists need to be Health Gatekeepers 6

7 Increased Consumerism in Health Care Increased Consumerism in Health Care 7

8 Increased Consumerism in Health Care 8

9 Dentistry at a Crossroads IS CORPORATE DENTISTRY AN ANSWER? FINDINGS OF THE: AGD CORPORATE DENTISTRY INVESTIGATIVE REPORT 9

10 A Few Definitions Dental Support Organization (DSO): OLD :DSO works with one or more professional groups of dentists who oversee the clinical aspects of the practices affiliated with the DSO NEW: DSOs offer practitioners support in a range of administrative, financial, technical, marketing and managerial matters This is a new model Still influences some clinical aspects What does Support Mean? Supply Management Employee Management Marketing Equipment Physical facility Practice Consultant DENTIST CONTROLLED These can all be controlled and/or owned by the dentist himself for a fee The dentist can control direction change advisors and philosophy, labs, material, change employees, Have assets of value when they retire DSO CONTROLLLED The DSO is not working for free They own the depreciable assets They set policies, goals, logistics and materials Employees loyal to the one who pays the check The Question? The Dentists pays someone to do much of this regardless If the DSO s say the Dentist controls everything, then they are only advisors, why do the advisors hire the dentist instead of the other way around? 10

11 A Few Definitions Practice Ownership: o In almost every case, when a DSO talked about the opportunity for dentists to own a dental practice, they were referring to ownership of patient records only o Ownership generally does not include the building or equipment A Few Definitions EBITDA and EBITA: o Earnings Before Interest, Taxes, Depreciation, or Amortization o The way equity firms (for-profit) determine market value o Resale value in five years or so versus net revenue 11

12 DSO With Internal Management Group Doctor Mentor Practice Doctors Board of Directors President Chief Administrator Regional Operations Manager Practice Managers o Dentist practice owners are the shareholders of the DSO o Common mission, values, guidelines/protocols set by Board o Business management through a centralized, internal team Collaborative Practice Management Team DMSO (With Management Contract) Without Outside Equity Owners MSO Business Services Contracts PC/DSO 1 PC/DSO 2 PC/DSO 3 Dental Office 1 Dental Office 2 Dental Office 3 Dental Office 4 12

13 DMSO (With Management Contract) With Outside Equity Owners Equity Firm(s) Business Services Contract DSO/ MSO Dental Office 1 Dental Office 1 Dental Office 1 Dental Office 1 Dental Office n SURVEY DATA/FINDINGS (AMERICAN DENTAL ASSOCIATION) Choosing between DSO and non-dso 13

14 Reasons for Choosing DSO or Non-DSO Source: American Dental Association, Group Practice Survey, Unpublished Data, January 2012 Reasons for Choosing DSO or Non-DSO Source: American Dental Association, Group Practice Survey, Unpublished Data, January

15 SURVEY DATA/FINDINGS (AMERICAN DENTAL ASSOCIATION) Large Group Practices Fewer Corporations, More Establishments, Greater Market Share Wall T, Guay A. Very large dental practices seeing significant growth in market share. Health Policy Institute Research Brief. American Dental Association. August Available from: 15

16 SURVEY DATA/FINDINGS (AMERICAN DENTAL ASSOCIATION) Job Satisfaction by Type of Group Practices: Dentist Owned/Operated (DOO) Vs. DMO Affiliated (DMOA) Dentist Owned/Operated Group Practices Dentist Owned and Operated Group Practice (DOO): An aggregation of a variable number and/or type of dentists in a single practice that may be located at a single or multiple sites completely owned and operated by dentists, Usually organized as a partnership or professional corporation. Starkel R, Guay A, Losasso A, Vujicic M, Warren M. Job satisfaction among dentists varies by type of large group practice setting. Health Policy Institute Research Brief. American Dental Association. August Available from: VERSUS 16

17 DMO Affiliated Group Practices Dental Management Organization Affiliated Group Practice (DMOA): A group practice that has contracted with a dental management organization to conduct all of the business activities of the practice that do not involve the statutory practice of dentistry, sometimes including the ownership of the physical assets of the practice. There are several types of dental management organizations and there can be significant variations in the nature of the agreements between the dentist and the dental management organization. Starkel R, Guay A, Losasso A, Vujicic M, Warren M. Job satisfaction among dentists varies by type of large group practice setting. Health Policy Institute Research Brief. American Dental Association. August Available from: 17

18 SURVEY DATA/FINDINGS (AMERICAN DENTAL ASSOCIATION) Satisfaction by Practice Size: Solo v. Small Group v. Large Group 2015 American Dental Association. Published by Elsevier Inc. All rights reserved. 18

19 DSOs say they are an arm s length from the practice of dentistry. Yet, we know they establish production quotas and bonuses upon employee dentists numbers. Every doctor s production metric is monitored on a daily basis. They usually determine and control clinic scheduling, staffing, as well as purchases for dental materials, dental laboratories, and dental equipment. 19

20 Dentists employed by DSOs have complained of high-stress environments that prioritized profit-making, according to the CEO of the American Dental Education Association (ADEA). o DSO employee dentists are subject to service agreements or service contracts, which largely place the DSO in control of dental clinics. o Most of these service agreements stipulate a designated nominee owner, usually a duly licensed dentist. This doctor is subordinate to the DSO. 20

21 Bubble and Inflation 1) The first major effect of inflation on DSOs will likely be a slowing of their growth. As the DSOs cost of capital both debt and equity increases, their acquisitions effectively get more expensive. With higher costs of capital, the additional economic value added by new acquisitions or de novo offices will decrease. Bubble and Inflation o 2) The second major effect of inflation on DSOs is a decrease in private equity s interest in them. DSOs are extremely attractive investments so long as they can leverage low interest rates for growth o Great EBITDA does not look so great when the I (interest) is high. Interest coverage is important for highly leveraged companies, and in 2013 Moody s anticipated Heartland s times interest earned (TIE) to be

22 Bubble and Inflation o Many employees are not staying long term o Creates the need to have to reload the employee pool constantly o This ultimately creates a ceiling which reduces growth ADEA praise guaranteed income, regular hours, few managerial headaches and a pathway to ownership criticism too much pressure to produce and loss of professional autonomy, sometimes leading to overtreatment and substandard care. 22

23 At the 2014 ADEA Annual Session & Exhibition presented findings of a study they conducted to determine the advantages and disadvantages of working for a DSO.. Only a quarter of those who had tried DSOs stayed more than two years, suggesting that employment is seen by many as a stepping-stone to joining or setting up a private practice down the line. Others who had worked for DSOs complained of high stress, profit-oriented decision-making and questionable ethical standards. o From the ADA Health Policy Institute The big shakeups in dental practice: The value agenda (Michael E. Porter (with Thomas H. Lee)¹ shares The Strategy That Will Fix Health Care in the October issue of Harvard Business Review. The article builds on everything that Porter has written on health care in the past to provide a solution with sheer simplicity at its center: Maximize value for patients by achieving the best outcomes at the lowest cost. What is not simple is that it requires almost everything about the organization of, delivery of, and reimbursement for health care to change, effectively killing health care as we know it. Increased consumerism Shifting demand patterns Increased collaboration Practice consolidation DSOs part of practice consolidation. 23

24 o From the ADA Health Policy Institute(HPI) HPI defines DSO affiliation as: One or more locations of the dentist s practice being a member of ADSO, ADP, Kool Smiles, or Western Dental [these last 3 are the large DSOs that are not yet members of ADSO, as of Nov. 2015] o From the ADA Health Policy Institute Data findings [As of Nov. 2015] about dentists affiliated with DSOs (as defined above to mean affiliation of at least one practice location with ADSO, ADP, Kool Smiles, or Western Dental): 7.4% of U.S. dentists (7.7% of general dentists vs. 6.4% of specialists (but pediatric dentists at 8.1%)) are affiliated with DSOs (in ADA s view, this is probably a lower bound) Female (10.2%) vs. Male (6.2%) (16.3%) vs (9.8%) vs (3.4%) vs. 65+ (2.5%) 24

25 o From the ADA Health Policy Institute Massive variation across states (17.5% of AZ dentists and 15% of TX dentists, vs. 0% of dentists in AK, DE, MT, ND, SD, and WY) Note, for dentists under age 30, even greater variation (30.3% of AZ dentists associated with DSOs). Interestingly, TX is not significantly different for under age 30 (18%) Massive variation across dental schools in terms of graduates affiliation with DSOs (from 23.6% of Midwestern University graduates down to 1.9% of University of Nebraska graduates) 38% of U.S. dentists participate in Medicaid or CHIP for child dental services. Similar to DSO data, women more likely to participate in Medicaid/CHIP than men. Younger dentists more likely than older. Looking at this 38% of dentists that participate in Medicaid or CHIP (See Dentist Participation in Medicaid or CHIP)Finding: DSO dentists significantly more likely to participate in Medicaid and CHIP than non-dso dentists! (HPI does not yet know why) 25

26 o From the ADA Health Policy Institute The big 3 suppliers (Benco, Patterson, Henry Schein) have indicated that the large DSOs are growing up from around 750 big DSOs to 1,000 or so and that real DSO participation numbers might be larger. Marko V. was careful to distinguish the DSO model with the dentist-owned large group model that do not contract with big DSOs. Marko noted that these would be classified differently, and the large group non-dso dental practices ought to not be included in these calculations. 26

27 o From the ADA Health Policy Institute Reasons for discrepancies between dentists: Dr. Thorne noted that higher-dso-participation states are more business friendly states with lighter regulation of DSOs. Also, Pacific Dental is looking at marketing data, real estate data, etc., to migrate to states that are seeing overall population increases as well as growing availability of the dental workforce (which follows the population growth). o From the ADA Health Policy Institute Why are young dentists going to DSOs? Dave Preble: When you have debt, the idea of borrowing more to start a practice is daunting. Also driven by growing availability of options to be an employee in a dental practice. Opportunity to take the time to learn how to be a practicing dentist for a while, while paying down debt. Both a stepping stone and a career choice Marko: Note, HPI is researching DSO turnover rates and will have that data in In Australia the average time of employment is around two years with a large percentage done by year five. 27

28 o From the ADA Health Policy Institute Dr. Thorne (Pacific Dental Service (PDS)): DSO are doing more in the last few years to support students. In the last two years, PDS brought in 300 new graduates from dental school. When you look at recent graduates (going out another 12 months), that number is doubled. In 2017, 250 additional dentists (in addition to new graduates) joining PDS. Agrees that student debt is an issue. Regarding attrition, once a dentist gets into the owner program (which is where the dentist is an owner, not just employee), turnover is just in the low single digits. At PDS, turnover is inversely related to productivity. As an associate doctor s productivity goes up, turnover goes down. Gender gap? o From the ADA Health Policy Institute Dmitry: cited work-life balance as a reason for more women in DSOs Correlation between Medicaid and DSOs: Participant asked if states that have greater Medicaid enrollment have more DSOs? Marko noted that HPI hasn t done that analysis. However, looking at the data, there does not appear to be that correlation, although it s not certain. Marko: The DSO world is very heterogenous (noting various types) Correlation between schools having high concentration of graduates going to DSOs and states with high DSO participation? Does appear to be correlation. Marko noted that the data suggests that most graduates of a school do decide to practice within that state. Dave: Appears that way, but not sure if there s cause-effect relationship 28

29 o From the ADA Health Policy Institute Big picture question - Why should we care about all this? [Question framed my Marko, based upon participant question posed in chat] Are there implications for patients? What are the implications for dentists? With regard to implication with dentist, satisfaction (work-life balance, etc.) does indeed vary between small groups and large groups and DSOs. Dmitry: Impact on manufacturers will be quite profound, in terms of how equipment will be sourced, how we service, etc. Preble: Dentists are more diverse that ever in their practice choices, and that affects decisions of the ADA on how to provide genuine value for varying practice models. Steve Thorne (Pacific): Dental industry needs a unifying body, and I think that unifying body needs to be the ADA o From the ADA Health Policy Institute Prediction for what the DSO participation number will be in 5 years (currently 7.4%): Preble: Wouldn t be surprised if the number doubled (to 15%). Not expected to be more than that. While many go into DSOs, many are also coming out. Steve: 25% Dmitry: 20% Remember the BUBBLE DISCUSSION 29

30 SOME LITIGATION o The New York Attorney General s sanctioning of Aspen Dental was a step in the right direction, but the required overhauling of the way it does business and the $450,000 fine is nothing for a company of its size. o To make an impact on this practice, dentists employed by a PC with a DSO agreement need to be free to resist pressure from DSO employees without fear of termination by the PC o An investigation of five corporate dental chains by a U.S. Senate committee found evidence that some DSOs have failed to meet quality and compliance standards, providing unnecessary and sometimes painful treatment to children, often without consent, and overbilling Medicaid for these procedures. o A number of states are also investigating DSOs (and individual dentists as well) for Medicaid fraud, and a few states have introduced or passed legislation in an effort to clarify how DSOs may operate in their jurisdictions. 30

31 Some Legislation o Assembly Bill 368 (AB 368) would move Dental Service Organizations (DSOs) under the regulatory purview of the Wisconsin Dentistry Examining Board. o With more than 50 bipartisan co-sponsors, AB 368 passed out of the Assembly Committee on Small Business Development 31

32 o On June 14, 2015, Texas Governor Greg Abbott signed into law Senate Bill No. 519, which imposes new registration requirements on dental support organizations ( DSOs ). o The new law does permit the Board to monitor their activities in an effort to increase transparency and strengthen the Board s ability to assess DSOs impact on the practice of dentistry in Texas. Sunday, January 08, 2017 Aspen Dental Complaints Top $1.7M in Claimed Losses by Consumers One would think Aspen Dental would have cleaned up their act after it was one of the chain clinics featured on FRONTLINE s Dollars and Dentist in However, over at Pissedconsumer.com complaints about the horrible dental care, upcharging and down right fraud from patients continues to grow now topping 2,000 (the additional me too comments to the posted complaints is off the charts). In addition, patient claimed losses is nearing the $2M mark. With the average loss: $3, 300 each. 32

33 Dallas, TX Thursday, January 12, 2017 The law firm of Baum, Hedlund, Aristei & Goldman announces the resolution of a whistleblower lawsuit that helped the federal government and the state of Texas recover $8.45 million from Texas-based MB2 Dental Solutions (MB2) for allegedly submitting fraudulent claims to Medicaid for pediatric dental services that were never provided, were tainted by kickbacks, or misrepresented the individuals who performed the service Washington SB 5322 was enacted in June, The law clarifies that licensed dentists have the option to contract for administrative support services, and to lease real or personal property, provided that unlicensed persons or non professional entities do not interfere with dentists independent clinical judgement. Some of the activities the law prohibits non dentists from engaging in include: Limiting or imposing requirements on the length of time a dentist spends with a patient or performing dental services, or otherwise placing conditions on the number of patients a dentist must treat in a certain period of time or the number of certain types of procedures a dentist must complete in a certain time period Limiting or imposing requirements on the decision of a dentist regarding a course or alternative course of treatment for a patient or the manner in which a course of treatment is carried out by the dentist Limiting or imposing requirements on the manner in which a dentist uses dental equipment or materials for the provision of dental treatment Interfering with a dentist's right to access patient records at any time 33

34 Maryland In Maryland, HB 1292, which is similar to Washington s SB 5322, was heard by the Health and Government Operations Committee, but did not advance out of the Committee. The bill was reintroduced for the 2018 session as HB 438. Wisconsin Legislative attempts to move Dental Service Organizations (DSO) under the purview of the Wisconsin Dentistry Examining Board failed in 2015 and However, SB 258 was passed into law in December, expressly prohibits the practice of setting quotas for the number of patients seen or the number of procedures performed Provides that a person who manages or controls a dental practice, regardless of whether or not they are a licensed dentist, shall preserve patient records for ten years, and is responsible for turning over patient records at the request of the patient, or the Dentistry Examining Board. The law passed in 2017 does not specifically put DSOs under the purview of the Board, but clarifies some issues regarding patient records, and addresses prohibition of quotas. 34

35 SOME Great NEWS Dentist shortage in the US to worsen WASHINGTON, USA: The demand for dental care services in the U.S. is projected to grow on a national level, mainly owing to demographic changes. However, a new report has forecast that all 50 U.S. states will have a shortage of dental professionals in the near future. Based on dental workforce data from 2012, it is predicted that the excess growth in demand in relation to dentist supply will result in a national shortage of approximately 15,600 dentists in SOME Great NEWS Dentist shortage in the US to worsen According to the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services, which issued the report in February, about 190,800 dentists were active in the workforce in the U.S. in The supply of dentists is expected to grow to 202,600 in The demand for dentists, however, is projected to increase from 197,800 in 2012 to 218,200 in California, Florida and New York are the states expected to experience the greatest shortfalls in the number of dentists in 2025, with 1,234, 1,152, and 1,024, respectively, fewer professionals than needed. 35

36 SOME Great NEWS Tax reform could greatly help pass-through businesses like dental practices Banks are loaning to graduates again Dentists are one of the lowest default clients for business loans Many new grads have started from scratch and are doing very well Third straight year, Best Profession, also Best Health Care Profession and 9 th best income among all professions o o Responsibility Regardless of who holds the responsibility for business decisions, o YOU, as the dentist, hold the responsibility for your clinical and ethical decisions, whether before a state dental board, a court of law, or the court of public opinion. Every dentist should consult with his or her own independent attorney, accountant, or other appropriate professional who is familiar with varying modalities of business practices in health care delivery, regardless of the modality of practice that he or she may be considering. 36

37 THANK YOU FOR YOUR ATTENTION!! Any Questions Contact Carter Brown 37