Growth for the sake of growth

It’s a question I get all the time. How big do you want to get? It is also the universal ego-measuring yardstick in the DSO space – how many locations do you have? It seems like every time I get together for a drink with a colleague, I hear about how so-and-so just acquired another ten locations, or that they have a friend who knows a guy who made it to forty locations in 5 years.

Interestingly, but not surprisingly, in all of these conversations I’ve had pertaining to DSO growth and location count, I never hear anyone ask about how the patient experience has held up, or marvel at the group’s perfect 5-star rating on Google.

Know why? It’s because organizations that espouse an acquisition strategy to achieve scale often sacrifice customer experience in the pursuit of growth. Here’s the dirty little secret that our industry doesn’t really talk about. Investors, particularly private equity investors, don’t care about our patients. I’ll repeat that: the investors that are backing most DSOs do not care about the patients. They care about returns to their investors, which in turn will garner more investment, yielding higher returns, and the cycle continues ad infinitum. Don’t fault them for their capitalist endeavors – it’s part of their job.

I’m sure this will rile some I-bankers out there, and they would argue that they empower their acquired practices to provide greater patient care to a larger patient base. In many cases that may be true, but when push comes to shove, I can promise you that 99% of capital partners out there would never consider missing their projected returns in order to increase the quality of care or patient experience. That’s just not how the money game works.

Don’t believe me? Just go look at the google ratings of dental offices acquired by DSOs. In most cases, you’ll see that number slowly start to creep down, and typically end up hovering around a 4.6 or 4.7. I’m sure that a 4.6 rating on Google is a tolerable patient experience, and in the restaurant business that would be just fine. But in our industry, we are dealing with kids. A 4.6 rating should cause us to lose our minds. While an independent dentist would logically focus all of their resources on increasing their rating, the private equity investor would divert all efforts to “same-store growth” – a term you will hear a lot from the DSOs now that the M&A space has cooled off.

Brief sidenote – if you want to peer into the minds of PE executives and corporate raiders, read the book Barbarians at the Gates. It’s about the RJ Reynolds (yes the cigarette company) purchase of Nabisco (yes the food company).

So when I hear about a group that is scaling quickly, or a group that has 50 locations, the first question I ask is this: How is their patient experience? How happy are their providers?

Over the past 7 years, just about anyone could create a DSO, find a capital partner, and lasso together 20 or 30 locations. It really wasn’t that hard. Just like real estate investing wasn’t that difficult in 2007. We all know how that party ended.

The groups that impress me are the companies that stuck to their mission at the expense of short-term gains and focused on patient care and provider experience. Show me a group with locations that average 4.9 stars or above on Google and I’ll show you a group of providers that are in it for more than just a quick rollup and cashout. I’ll also show you a group that is most likely not backed by private equity, but rather owned by the doctors themselves. The irony is that these providers will end up making significantly more money in the long run than their DSO-backed counterparts and will have a much healthier relationship to their profession and to their patients.

As for my answer to the question how big do we want to get as Alcan Dental Cooperative? It’s simple, and it’s never changed. As long as we maintain our incredible patient experience across all our partner locations, while remaining doctor owned, we will continue to grow together with our partners.

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