INTRODUCTION
There are numerous service delivery models found currently in dentistry, notable among them being the fast-emerging category of small group practices (SGPs). Although we have no agreed-upon definition for the SGP or reliable estimate of how many exist, there’s no question it is a growing segment that’s creating new opportunities and challenges.
Defining the SGP
With the definition of an SGP is still very loose, I choose to think of it as an organization of 4 to 24 offices connected through some type of legal entity. There are many varieties of SGPs, ranging from those in which each office is owned by a different doctor to those where a large number of locations are owned by one doctor. There can also be outside investors, partnership arrangements, buy-in opportunities, etc. As a defining factor, the legal structure of the SGP does not matter as much as the number or practices involved.
Opportunities for SGPs
I had the privilege of being the kick-off speaker for the ADA symposium on SGPs, “BIG Idea: Small Group Practice,” in Denver during 2016. Following my presentation, I was asked by a number of doctors whether or not they should launch an SGP. Their motivations ranged from seeking greater financial rewards to protecting their future as private practice clinicians. I explained to each of them that private practice is alive and well, and that many private practices are performing at excellent levels. I then went on to explain that the decision to launch an SGP has to be based on a realistic appraisal of the opportunities that exist.
SGPs evolve in a multitude of different ways. Often, they’re created by the acquisition of additional practices, either as a strategic plan or simply through serendipity. For example, I am acquainted with one SGP that came together as a result of buying a second practice from a dentist who died, acquiring another from a family member who retired, yet another that went bankrupt, and finally purchasing one from a would-be partner who eventually decided to sell. A different scenario is a 14-office group of practices that came together on the basis of demographic analysis and an overall growth strategy.
The variety of SGPs is as broad as the range of opportunities, which include the following:
- Investment Opportunity—Adding practices can yield a reasonable return on investment. Dentistry, despite the increasing supply of dentists and a growing number of dental schools, remains a profitable business in most cases, even when practices are not particularly well run. An SGP represents a relatively safe investment in comparison with most of the traditional alternatives.
- Competitive Opportunity—Adding practices may provide a competitive advantage and protection for the future. When it’s possible to achieve economies of scale—amortizing labor and other expenses across a number of offices—an SGP owner can often create a wider profit margin.
- Growth Opportunity—Any dentist who wants to build a bigger business should consider putting together an SGP. Whereas such entrepreneurial ventures in other fields typically involve significant risk, a dentist’s knowledge of dentistry and how to run a dental practice makes an SGP strategy a safer way to attain financial rewards. For a dentist, building an SGP can also be a source of considerable enjoyment and excitement.
- Transition Opportunity—Some dentists create SGPs with the goal of selling them to fund a better lifestyle and retirement. In essence, they are growing a business as a major part of their exit strategy.
- Career Change Opportunity—There are dentists who reach a point of not wanting to practice dentistry. They find that if they can build up an SGP, they can spend their time managing rather than being chairside. I have talked with many dentists who have a strong interest in this career direction, and an SGP creates the opportunity for such a change.
Challenges for SGPs
Creating a successful SGP is not as easy as some dentists seem to think. Like any business, an SGP requires that certain standard actions be taken. Until recently, an SGP could do well financially based on the dynamics of the dental industry; however, those dynamics have changed. The dental market has become more competitive and demanding than ever, so dentists will be disappointed if they think they can cobble together a successful SGP without a business plan, a financial plan, or an understanding of what steps they must take in order to grow to the desired size and level of profitability.
Following are several of the most common barriers to success faced by SGP owners:
- The Need for More Advanced Business Skills—Dentists who acquire practices without sufficient analysis or preparation often end up experiencing high stress and financial challenges. I am seeing more SGPs that have some practices performing well while others in the group are not. Typically, dentists do not know how to fix underperforming practices, and this challenge is even greater when those practices are part of an SGP. One or more offices in decline can not only undermine the success of a group as a whole but also drain human and financial resources. If you have ever experienced the stress of dealing with one underperforming practice, imagine how challenging it would be to try to manage multiple offices that fall short of expectations.
- The Need to Synchronize All Systems Within the SGP—As SGPs add offices, it becomes virtually impossible for one owner or CEO who is still functioning as a full-time clinician to control the entire organization. Typically, the practices perform at different levels and do not follow any set protocols or systems as a whole. In some cases, the practices in an SGP do not even have the same practice management software because they are still using what the practice had prior to purchase. In other words, many of these SGPs are poorly run and the practices operate very differently. This lack of standardization results in widespread stress and inefficiency. Even protocols and systems put in place when an SGP is smaller will not work sufficiently as the SGP grows. It will eventually reach a size where it needs a completely different set of systems that all offices need to use in the same way. This is very similar to how franchises work. In addition, as an SGP grows, there are many opportunities to centralize administrative functions, such as call centers, human resources, and purchasing. For example, it doesn’t make sense from a management or a financial standpoint for a 14-office SGP to have 14 human resource departments. Consolidating multiple departments across multiple offices requires planning, leadership, effective communication, and teamwork.
- The Need for Management Training—A significant challenge for many SGPs arises when each office is typically managed by an individual who may or may not have the skill set to properly do so and who does not operate the same way as the other office managers in the organization. All office managers in a SGP should be trained equally to (1) understand the SGP-wide systems that should be implemented in each office, (2) know how to coach the dental team to use those systems properly, and (3) learn to measure and track results.
Doctors often relinquish management roles in SGPs and have a strong desire to come to work, perform dental procedures, and leave. This means that office managers have far more responsibility in running an office that is part of an SGP than they would in a solo practice, so they also need significant leadership training. This is also the best management model as it maximizes the use of doctor productivity and enables office managers to handle all administrative functions for the practice. However, without reproducible systems, there will be breakdowns within the practices and the organization on a regular basis.
All systems need to be documented for current and future training purposes. SGPs typically have a desire to continue to grow, adding offices and staff. As this happens, the new offices and staff must shift to the established SGP systems, moving beyond the way they operated in the past. Businesses that expand always become slightly more decentralized, which means that having reproducible systems with excellent measurement and tracking is critical. Otherwise, SGPs will not reach their potential.
- The Need for Doctor Compensation Adjustments—Another challenge relates to employee doctors. There are practices where doctor compensation is not aligned with doctor production and would be disproportionate within the SGP. When they become part of an SGP, the new owner is afraid to restructure the compensation plan for fear of losing the employee doctors. This makes it extremely difficult for the SGP to create the right profit margin and reach a sufficient level of profitability.
- The Need to Retain Doctors—Doctor retention is also a challenge in many SGPs. Many young doctors who will take jobs in SGPs in order to pay off some of their heavy debt have no intention of remaining employee dentists throughout their career. It all depends at that point on whether the SGP has a buy-in opportunity and if that buy-in is viable, given the student loan debt that the employee doctor already faces. Each employee doctor has different motivations, which may not be properly addressed in the compensation or buy-in models that exist in most SGPs.
CONCLUSION
As the number of SGPs grows, many dentists will give at least some thought to following this service delivery model. If you are among that group of entrepreneurial doctors, or those who might consider becoming a SGP employee doctor, you need to take the opportunities and challenges discussed here into account. Providing oral healthcare through a small group of practices may not be right for you, but if it is, your chances of success will be far greater if you familiarize yourself with the risks and rewards.
Dr. Levin is a third-generation general dentist and the chairman and CEO of Levin Group Inc, the premier dental management and marketing consulting firm in North America. As a leading authority on dental practice management and marketing, he has developed a scientific, systems-based consulting method that increases practice production and profitability while lowering stress. He can be reached at rlevin@levingroup.com or through levingroup.com.
Disclosure: Dr. Levin reports no disclosures.
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