The Group Dentistry Now Show: The Voice of the DSO Industry – Episode 13

Our podcast series brings you dental support and emerging dental group practice analysis, conversation, trends, news and events. Listen to leaders in the DSO and emerging dental group space talk about their challenges, successes, and the future of group dentistry.

In this episode, Paul Lamendola, Chief Development Officer and Executive Vice President of American Dental Partners, Inc., discusses the history of American Dental Partners, provides guidance to dental practice owners looking to partner with a DSO and also explains what AAAHC accreditation is and why it is important to American Dental Partners. He also gives us his take on where the industry is headed.

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FULL TRANSCRIPT

Audio:
Welcome to the Group Dentistry Now Show, The Voice of the DSO Industry. Kim Larson and Bill Neumann talk to industry leaders about their challenges, successes, and the future of group dentistry. Visit groupdentistrynow.com for more DSO analysis, news, and events. Looking for a job, or have a job to fill? Visit joindso.com. We hope you enjoy today’s show.

Bill Neumann:
I like to welcome everybody to the Group Industry Now Show. I’d also like to welcome everybody to the last podcast of the year, and the last podcast of the decade. I’m actually excited, very excited about this one. I’m going to talk business development, and we have Paul Lamendola from American Dental Partners here. Hi Paul, how are you doing?

Paul Lamendola:
Hey Bill, good morning. Good to be with you.

Bill Neumann:
Yeah, thank you, I appreciate it. Paul has been in the healthcare space for 29 years. He’s worked exclusively in management, mergers, and acquisition roles for healthcare service companies. He’s been involved in hundreds of practice transactions. We’ll talk to him a little bit about that, both on the buy and sell side. Throughout his career, he joined American Dental Partners back in 2016, and he was really brought in to primarily rebuild the M&A function, the processes, the integration of the practices, then also build out that team, that business development team. He’s the Executive Vice President and Chief Development Officer at American Dental Partners, his responsibility is for overseeing the company’s mergers and acquisitions, and growth strategies throughout the country. Steve’s responsible for direct support of the growth initiatives for American Dental Partners affiliate dental groups. We’ll talk about what the affiliate dental groups are and what that means to American Dental Partners. Again, thanks for being on the show today.

Paul Lamendola:
My pleasure, Bill. Good to be here.

Bill Neumann:
Okay now, it’s your turn. Can you give us a little bit of history? A history lesson on American Dental Partners. Take us back, because American Dental Partners has been around a while. Take us back maybe to the start, then bring us up to speed to 2019.

Paul Lamendola:
Sure. Yeah, happy to. American Dental Partners was founded about 25 years ago and it was founded by a gentleman who is still active in the company today, Greg Serrao. His theory at the time was that he wanted to actually build a business first, then go out and start to affiliate with dental groups around the country. The important thing to him was to build good processes, to have good teams in place, et cetera, before we went out and actually started to affiliate. I think many in the business today, and it certainly works well, I think for them, will start to run a practice or two, then expand. Greg’s idea was, “Let’s build the infrastructure first and then go out and start to affiliate with groups.” That was the thinking at the time, it worked well. We think about that a lot today actually, as we run the business. As we add more groups, as we get larger, and we want to make sure that the foundation of the business, and the support functions that we offer is solid.

Paul Lamendola:
Yeah, that’s the history, started in smaller markets, mid size markets. That’s really the focus for us today as well. We don’t necessarily look to affiliate in large markets, New York City, LA, Chicago, we like the mid size markets. That was Greg’s theory at the time, and it still is the focus of the company today.

Bill Neumann:
Okay, let’s talk a little bit about… You’ve got these independent groups in different States, right?

Paul Lamendola:
Right.

Bill Neumann:
How many locations do you have? Does American Dental Partners manage right now, or support?

Paul Lamendola:
We manage about 300 around the country. We have 23 dental groups that we provide services to, and they service 33 distinct markets within those States. Our general thinking is that we want to… Well, when we move into a new market, we really we like a hub and spoke strategy. Our preference is to affiliate with one group, with one entity, provide the support they require, then help them expand. That’s how we think about our business.

Bill Neumann:
Okay. As far as how that works, you’ll look for a group to work with, and in a market maybe you’re not in, then really you’re providing the support, then you help them grow, you give them the infrastructure. You’re right, it seems you’re not growing just for growth’s sake. You’re building out the infrastructure, you’re taking your time as you acquire a practice, or bring that practice into the independent group. You’re integrating and you’re taking the time to make sure they fit in well, then they start to prosper.

Paul Lamendola:
Exactly. Yeah, we do a lot of work on studying. There was a tool that we used called Antalytics. There’s a lot of good data around demographics, around income, et cetera. We look at that, we use that data to determine growth strategies in a market. But yeah, it’s all about what is important to that group, that’s what we think about growth. For us, growth is not just about numbers, it’s about developing strategies with the groups that we support. Based on the needs they have, and based on the market dynamics will determine the type of acquisitions we do, how much capital we’re going to deploy, et cetera. But, those are very unique strategies in each of those 33 distinct markets that we support.

Bill Neumann:
Okay. Is it strictly acquisitions, or do you do de novos as well, once you establish that presence in a particular market?

Paul Lamendola:
Yeah, we’ll do both. Again, I think it’s all about the strategy, will drive our decision making, and we’re very comfortable with de novos. We’ve built a lot of the de novos over the years. We’re very comfortable with GP acquisitions, we’re comfortable with specialty acquisitions, it really just depends. For us, the playbook is wide open, but again, it’s going to be exclusively driven by the market or dynamics, and the strategy in those markets.

Bill Neumann:
Okay, that sounds good. Can you give us a couple examples of some of the independent groups that you support?

Paul Lamendola:
Yeah. Every one of the groups that we support do have local, distinct brands. We’ve got a large group in Minnesota, one in Wisconsin, Texas, Arizona, North Carolina. These are independent groups, again with our own brands, Carus Dentals in Texas, Metro Dentalcare in Minnesota, ForwardDental in Wisconsin, et cetera. These are all owned by dentists on the ground. Again, a single PC, a single entity, and as we expand, those shareholders of that entity, that single entity will then have ownership in those newer practices as well, whether that’s through acquisition or de novo. We really like the model, we think it’s good for the business, I think it’s good for the shareholders, and we actually think, in the end, it’s very good for patient care as well.

Bill Neumann:
That’s great. You have the most important thing. You may have already touched on this a little bit. What do you think makes American Dental Partners unique? In this huge growth, in DSOs and group practices and the models all seem to vary, some wildly, some are very similar. You’ve got giant DSOs out there with close to 1,000 locations, you have some that are DSOs, that had a legal structure, and might have three locations. Tell us why you’re a little bit unique, or a lot unique.

Paul Lamendola:
Well, I think part of what I just described, I think makes us unique, that we believe in a single entity within a market. A single PC owned by dentists. We do think, that’s again, good for the business, great for patient care, but maybe I’ll take you back a little bit. As you said from the outset, I’ve been in healthcare a long time, and when I first got into healthcare I was amazed about how fragmented the market was, and how dysfunctional it was in terms of communication between providers. In fact, one of my family members just went through this last week, where he needed a referral to a specialist from his primary care physician, went to the specialist, and realized the specialists have none of his records. They didn’t really know why he was there, other than he was referred to that doctor. You, in effect, start over, right? All this new patient paperwork needs to be filled out, that doctor, that specialist had none of his records. That lack of coordination still exists today, in our view, it exists within dental.

Paul Lamendola:
I think one of the things that makes us unique is that a single entity, a multidisciplinary coordinated care model, that, to us is really critical. It’s at the foundation of who we are as a business, it’s what are our dentists around the country believe in. We think that makes us unique. We’re much more concerned and focused on that patient care model, than we are on the business. We believe the business will take care of itself, if that model, the patient care model is sound. We also think a lot about, “Well, what’s the future for dentistry?” I know maybe we’ll get into that a little bit later, but as the economy perhaps softens after a 10 year bull market run, the question is, “Where is dentistry going?” We really believe that unless you build a business around coordinated care, you’re not prepared properly for the future. We think that’s what makes us unique. As we look to acquire practices, or dentists assess our groups, perhaps, they want to sell to us and join one of our groups. We think that they are concerned about the future and about that patient care model.

Paul Lamendola:
What we’re finding is a lot of them, as they study our groups or a model, do find that there are big advantages to joining us. It is that coordination, that we think makes us unique.

Bill Neumann:
Okay yeah, that’s great. I think yeah, we will touch on what the future of dentistry and future of DSOs will look like towards the end of this podcast. What do your independent groups look for? What does ADP look for when you’re acquiring a practice?

Paul Lamendola:
Yeah, I think it’s about… We explained to them, “Hey, we’re here talking to you as a potential seller.” Someone that’s going to want to join one of our groups for two reasons. One, we have a strategy in the market, we actually explain the strategy, and why we think they fit into it. Because, we find that a lot of sellers do want to hear about that, they’re interested, and they seem generally intrigued by the notion of, “Hey, you’re actually here and talking to me, because there’s a strategy behind it, not just because you sent me a mailer, and I called you.” That’s one. I think two is we do talk about the patient care model. Now, when we go in and talk to potential sellers, it is a joint effort between the company, American Dental Partners, and the leadership of our groups. The leadership of our groups will want to talk about their care model that I described earlier, and want to make sure that there’s good alignment between our group and the seller. We do a lot of our work on the front end.

Paul Lamendola:
We’ll sign an NDA certainly, fairly early in the process, but we don’t want to collect data, we’re not going to do valuations, we’re going to make offers until we feel like there’s good alignment. A lot of people say that, but I’ll tell you, about half of the work that we put in is on the front end. While, most of these will take three, four months to court people, to get to know them, and eventually close on an acquisition, but about half of our time is on the front end, just getting to know them, making sure that alignment’s there. To us that’s critical. What we don’t find, if there’s good alignment, doesn’t mean that they’re bad dentists, they’re operating a bad business, it just simply means that our groups like to function a certain way, we believe in that. If there’s not a good fit, let’s acknowledge that early and move on.

Bill Neumann:
That’s good to know. Tell me a little bit. How many practices do you think you talk to? Interview in a year for potential partnership? Do you have any idea?

Paul Lamendola:
Yeah, we talk to about 100 a year.

Bill Neumann:
Okay.

Paul Lamendola:
We have a good idea, because we collect all the data, we analyze the data, we know how many practices we interact with initially, how many sign an NDA, how many eventually move on to LOI, and how many have actually closed. We have all that data, we actually study that quite a bit, want to understand why there are certain trends? We’ll actually study by market, those phases, if you will, in terms of how many doctors we talked to, and how many have actually leaked to LOI. We’ll actually put those into groupings by market.

Bill Neumann:
Okay.

Paul Lamendola:
We study that, and we just want to understand, “Are we having better success in one market versus the other? If so why?” But yeah, we talked to a lot of dentists, but I would say that, where we decide to part ways, and once that we seek collectively to us in our groups, we usually do that early in the process.

Bill Neumann:
Mm-hmm (affirmative).

Paul Lamendola:
We think we run a fairly efficient process because generally when a relationship gets to the offer stage for us, that generally does lead to a close. I’d like to say we want to kill bad deals early. Again, it doesn’t mean they’re bad dentists, it just means that maybe there’s not a good fit.

Bill Neumann:
Awesome.

Paul Lamendola:
Let’s try to acknowledge that, and just separate as early in the process as possible.

Bill Neumann:
Maybe we can… The audience out there, we have a lot of DSOs that listen to what we do, we also have a lot of dentists that have single practices, maybe small groups that are looking to partner possibly with a DSO. Can you give them any tips? I mean, what should they be looking for? Whether it’s ADP or another DSL, are there certain things that they should be looking for? Is there a way they should prepare? Are there certain things that they should have, so when they start to talk to you and other DSOs out there, that they’ve got the information that you need to make the right decision?

Paul Lamendola:
Yeah, that’s a great question. I think, for me, and I think if I’m an owner of a practice, or a few practices that I may want to sell or partner with the DSO, for me, it’s about the stability of the business. What we find when we study practices or groups that we’re looking to acquire, we find that there are a lot of them tend to go through this ramp up period, and that’s interesting, that generally that may drive valuations up. The question though that we ask is, “Well, how sustainable is that?” In other words, if that practice has been there for, and existing for 15 years, and they saw relatively, modest, same store growth year over year, then sometime in the last few years, the growth has tripled. Well, you wonder is that by design? Or, is that something that’s unique, or how should I think about that as a buyer? In my advice to dentists that are looking to sell, just make sure your business is stable, don’t try to drive up your revenue just to drop evaluations, because disciplined buyers will see through that.

Paul Lamendola:
I talked a lot about predictability, I have these conversations with sellers. I said, “Look, I want to give you predictability in value, in your future after you sell, but I would like that as well.” As a buyer, I would like predictability. I think that if I’m a seller from an owner of a practice, it’s important to run a stable business, make sure that the stats that you’re providing to a buyer are provable, they’re grounded in good facts that are not made up, or it’s just hard to digest. That also was true of the staff and of the patient base. We may see high patient, new patient numbers, but if retention’s low, I wonder why. That, I mean, you may not see it in the financials, but that usually is a red flag for us. We study the staff a lot, and we’d like to see a good stable staff with good tenure, well credentialed, et cetera. If we don’t see that, we just wonder why, and we question how stable the business is. To me, a owner who’s going to sell, should think about one thing, and that’s stability.

Paul Lamendola:
If they focus on that, and they can prove stability, then they’re going to be okay in terms of a transaction.

Bill Neumann:
Okay, that’s great advice. I would guess that some of that, and you talk about driving up the revenues. I mean, it’s probably not all just that the dentist or the practice owners, they’re probably hearing that from some of the brokers out there that may be representing them as well.

Paul Lamendola:
Right, exactly. That’s right.

Bill Neumann:
Yeah.

Paul Lamendola:
Yep.

Bill Neumann:
Okay, let’s talk a little bit more about ADP. As an approach to growth at the independent groups, specifically on the acquisition side, how do you approach that?

Paul Lamendola:
It’s maybe a little bit about what I discussed earlier. It’s all about strategy for us. We do spend a lot of time, it’s really through the budget cycle for us. At the end of the year, as we look forward into the following year, we’ll create budgets in conjunction with our groups. Part of that process, we’ll also bring a lot of data in about the markets. We’ll look for holes in their existing footprint, but we’ll also look for our expansion opportunities. Then again, that’s what drives our actions in that following year. But well, we like to talk to a lot of people, because we don’t want to assume that the data tells a full story. We’ll approach dentists, we do that in the traditional way through brokers, or just our network, or relationships that we have through our own dentist, within our own groups.

Paul Lamendola:
Yeah, we take on this, and I think we’d probably approach the market in a very similar way, just in terms of sourcing opportunities. But ultimately to us, it’s just about a fit, because we have a fairly well designed strategy. We don’t tend to deviate from that, because our dental groups have a very well thought out clinical care approach and model. They’re not likely going to deviate from that either. Yeah, to us, it’s just about a good fit, and about making sure that we’re buying businesses that are stable, and we have a reasonable degree of predictability about how that business is going to function post-close.

Bill Neumann:
Okay, you mentioned it earlier, you talked about comprehensive dentistry. I’m assuming that means multi-specialty.

Paul Lamendola:
Right.

Bill Neumann:
Is that one way you looked at, when you’re looking at growth in a market? If you go in, maybe you’re looking… When you say multi-specialty, is that everything is ortho, pedo, perio? Everything’s you name it? Or…

Paul Lamendola:
Yeah. Yeah, we’ve done, really just in the past couple of years, we’ve done endo acquisitions, ortho, oral surgery. Yeah, we’ll do it all. Again, the playbook’s wide open, but that is what ultimately we want to do. We believe in the hub and spoke strategy, we think that that’s good for coordinated care for patients. I talked earlier about my relatives experience walking into a specialist office. This is outside of dentistry, but the question is, “Why doesn’t that exist in dentistry?” It exists within ADP, that’s just who we are at our foundation. I don’t know that it exists elsewhere in dentistry, that to me is concerning a bit, in terms of how inefficient healthcare continues to be. Yeah, I mean our strategy is to add GPs, to add specialty. By the way, one thing I had mentioned earlier, Bill, is we have a common IT platform that we operate under. It’s something that we created 20 years ago. It’s proprietary, it’s unique to our network of dentists.

Paul Lamendola:
If you happen to be one of your relatives, one of mine, and you get referred… Actually, one of my relatives was referred to an oral surgeon. I live in Maryland, my family goes to Fusion dental, who’s an American Dental affiliate in Maryland, DC area. My relatives was referred from a GP within that group to an oral surgery, oral surgeon rather, and all the records are there. He doesn’t have to fill out new patient paperwork. All the doctor notes from the GP were there, the x-rays were there. He had to go to a different location, but when he got there, it was seamless. It was good coordination between the specialist and the GP within our group. That’s how we think about building the business. All of our groups are like minded, in terms of that approach to care. We think that’s just a smart way to do it. We’re also very much focused on preventative. My favorite role in the companies are the hygienists, they do great work. It’s at the core of how we think and how we operate the business as well.

Paul Lamendola:
Yeah, that’s how we think about it. We’ll continue to really just build that foundation, because we think it’s the best thing to do for patient care, for costs, and for the future of the company.

Bill Neumann:
Right. Well that’s great information. Let’s talk a little bit about this, this accreditation. This is interesting, because I don’t think it’s well known in the dental space, but certainly much better known in medicine. Let’s talk about the AAAHC-Accreditation that all of your dental groups, then all of the practices within those groups, they have to have this accreditation. I think when we talked about it before, it was within 90 days, right?

Paul Lamendola:
Right.

Bill Neumann:
Of associating, or becoming part of AADGP, or one of the independent groups. Talk about that. It’s a prestigious national accreditation, and it’s recognized as excellence in service and care to their patients, but why don’t you go into the details on what the AAAHC, what that stands for, and then what it is.

Paul Lamendola:
Yeah, it’s a mouthful. It’s the Accreditation Association of Ambulatory Health Care. The majority of our groups are accredited, not all of them, I just want to be clear about that. What this is, this is a… Yeah, it is the joint commission in medicine. If you walk into a hospital, you see the gold seal of approval, if you will, in the lobby of a hospital. It’s very similar to that in dentistry. It’s interesting that my three and a half years or so in dentistry, I’ve talked to a lot of people about this accreditation process, and the vast majority have just simply never heard of it. Really, what it is, it’s simply a way for our groups to hold themselves accountable to uphold the highest standards of clinical care. Auditor’s from this independent agency will go into our practices, will assess documentation on patient care, will do a full assessment of labs, of supplies. Are there any expired supplies, infection control, and prevention processes, adverse events. How do we treat adverse events? If there is an adverse event, what’s the documentation, what’s the process? Are the staff trained on how to deal with that?

Paul Lamendola:
What about the providers, whether they’re hygienist doctors? Are they properly credentialed, and do they have just the proper credentialing, in general, to treat the patients that they’re treating? Yeah, that’s what AAAHC is. It’s a very rigorous process that we go through. Each of our practices have to go through that once every three years. As you mentioned, when we add new practices, they are required to go through that in 90 days as well. It’s an independent assessment, we believe very strongly in it. It’s a way for us just to validate that we are holding ourselves up to that higher standards of clinical care.

Bill Neumann:
Yeah, that’s, that’s great that you do that. I mean, I’m sure that’s a ton of additional costs, but the value that it provides to the providers that you have, then also to the patients. You also mentioned, it’s not just every three years, but they will come in, and can spot check from time to time, right?

Paul Lamendola:
Yeah, they will. It’s interesting, I go around the country a lot and visit our practices. It’s just something that people just believe in. Once you become accredited, you understand what’s important, and you simply maintain that level of commitment toward that accreditation. Even the spot checks, though they might be a little uncomfortable, we generally don’t have a problem, because it’s just ingrained in our culture of what we do.

Bill Neumann:
Yeah, that’s great. No, it’s important. That what it’s supposed to do, right? That’s wonderful.

Paul Lamendola:
Right.

Bill Neumann:
All right, we’ve got a couple minutes left. I’d love to get your thoughts on, as we finish out the decades. Let’s try and take a look into the future, maybe five years. What do you think that DSO space, and maybe the dental industry is going to look like?

Paul Lamendola:
Yeah, we think a lot about, as I think most do, about consolidation. I think the level of consolidation, or just the growth trajectory will continue. But what we think about a lot is, “Well, what about the economy?” And, “What happens when the economy softens?” Right? That day’s coming, whether it’s in a year, two years, three years. I think what we’ll likely experience is what we experience in dental all the time. There may be patients that don’t have dental insurance, because the economy is soft, people are losing their jobs, they don’t have the disposable income that they had six months, a year ago. But I think more than that, it’s about the capital markets, the access to capital. Will the DSOs that are 15, 20 locations, will their lenders start to put more pressure on them as returns start to decline, as the business of structure struggle, et cetera? What we see is that the level of consolidation, as the economy softens, will likely increase in numbers. I think you’ll see fewer of the one or two doctor acquisitions, and more of the larger mergers happening.

Paul Lamendola:
We’re 300 locations around the country. It wouldn’t surprise me, as the economy starts to soften, if you see us acquiring or merging with mid size or larger DSOs as well. The sheer number of offices, if you will, practices that are under some type of group structure, I think will actually increase pretty dramatically in the next five years. Even in a softened economy, it’s just going to do so in a different way.

Bill Neumann:
Yeah. Yeah, that’s an interesting perspective on things. I will say that you’ve seen a couple of larger transactions, a large group buying another relatively large group, or sometimes a smaller group buying a larger group. Part of what we’re hearing and seeing on our side, and we talked a little bit about this earlier, it sounds like it’s part of your strategy is that some of the growth seems to be for growth’s sake. They’re adding practices, but they’re not necessarily being integrated correctly, or there’s not the infrastructure there to integrate, right?

Paul Lamendola:
Mm-hmm (affirmative).

Bill Neumann:
Everybody’s on different systems doing different things, in the end, it really is because it doesn’t create a lot of value. Certainly doesn’t create a value for the providers. I think what we’ve seen is some of those organizations that maybe weren’t necessarily integrated correctly, or they grew too fast through acquisition, are now being really acquired by companies that have built the infrastructure up the right way.

Paul Lamendola:
Right, exactly. Yeah, you can imagine when the economy does soften, what the business of those groups that haven’t integrated fully is going to look like. It’s probably not going to be a real pretty picture, but it may create opportunities also for companies like American Dental.

Bill Neumann:
Sure. Yeah, that’s great. Well, we will look forward to seeing what’s going to happen in the near future, and see if some of these predictions come true, but thanks for taking some time with us today.

Paul Lamendola:
My pleasure.

Bill Neumann:
I think I’ve learnt quite a bit about the organization. Again, I think your thoughts on what the industry is going to look like a couple of years from now are right on. Thanks everybody for listening and watching us. Again, thanks to Paul Lamendola from American Dental Partners for being here, and we’ll see you all in 2020.


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