Orthodontic service organizations are growing and it’s time to understand what that means for a practice that’s been operating on its own for many years.
By Jane Kollmer
The decision to affiliate with an orthodontic service organization (OSO) is one that many orthodontic practices are facing. The growth of OSOs and the consolidation of the field was a foregone conclusion, said Greg White, DMD, MS, president and CEO of PepperPointe Partnerships and owner of White, Greer & Maggard Orthodontics in Lexington, Ky.
The housing and lending crisis of 2008 combined with increased education expenses made it impossible for newly graduated orthodontists to afford to buy into established practices. This left doctors at retirement age unable to sell their practices, explained White. Enter OSOs, many of which are funded by private equity companies because of the $12 billion orthodontic industry’s attractive revenue potential.
It is hardly surprising, therefore, that a practice that has been operating on its own for many years would be apprehensive about joining an OSO. When a practice changes hands, worries about the changes that could be implemented are enough to cast fear and doubt on the future.
The loss of ownership on the clinicians’ part is troubling to White, who ultimately decided to form an organization with his orthodontist colleagues. He noted that by joining an OSO, providers still make clinical decisions but no longer have control over business decisions.
“It’s like having a rental car or a rental home for beach vacations in that you just don’t take care of it like you do your own,” he said.
What should practices expect to change in the day-to-day operations? The answer is not so straightforward because every OSO is different; but in general, the most significant change is who is in control of the business. Partnering with the right OSO is, therefore, is of the utmost importance.
According to some practices that have already gone through the transition, the on-the-ground changes are not major.
“Besides financials, the biggest concern orthodontists looking into joining an OSO face is if the organization is going to come in and change things,” said Zachary Casagrande, DDS, MS, of Northern Virginia Orthodontics. “If you’re doing things right, running a profitable practice and treating patients well, the OSO is going to be hands-off.”
“Our office operates the same way it always did,” he said. “We have a huge resource now at our back so that when we need help, they are there to help us.”
Removing the overhead burden of administrative tasks
Some orthodontic practices may prefer relinquishing certain aspects of practice management to a business. Many of the administrative tasks relating to accounting, human resources, finance, legal, and marketing can be handled by the OSO. Orthodontists and their staff are then free to focus on treating and interacting with patients and their families.
“The partnership allows us to focus on what we do best as doctors, which is treating patients and changing their lives, so we really shouldn’t be spending time on administrative tasks,” said Groth. “When you have an OSO like Smile Doctors, they are the tip of the spear; let them do what they do best, which is support doctors.”
Casagrande agrees, adding that some doctors don’t want anything to do with the day-to-day, so offloading administrative tasks could contribute to overall job satisfaction and work-life balance.
“It’s a big weight off their shoulders to make things easier,” he said.
Taking care of staff
Although giving up control of administrative tasks may be a welcome change, the impact a transition has on the staff is a major concern that many orthodontists share. They want to ensure that their team members won’t lose their job security, pay rate, hours, and benefits.
“I was worried about my staff,” said Casagrande. “I’ve had the same staff that have been with me for years, since we first opened.”
He said it was important to find an OSO that would be hands-off and allow him to manage his team as he had been. As an employer, he favored an incentive-based pay structure and professional development. Through the transition, there were no changes made to the staff except that there was more room for growth. He said someone could work their way up from sterilization tech to clinical assistant to treatment coordinator to office manager.
“Team members are not only able to increase their pay, but also what they’re able to do in the practice, which allows them to grow in their own careers,” Casagrande said.
Groth reported a similar experience. He said no change is easy, and his staff was initially concerned. And with the COVID-19 pandemic preventing an in-person gathering, he had to break the news over Zoom. However, once he explained the new partnership, the fears dissipated.
Neither Groth nor Casagrande lost team members as a result of the transition. Groth was pleased with how sensitive the OSO was to the individual needs of the office. For example, the OSO went above and beyond for an employee diagnosed with cancer who had not elected into short-term disability. The OSO paid her full wages through treatment.
“They took care of her because it was the right thing to do,” he said. “For us, this was a good indicator that they are not about looking at the bottom line only.”
Making a broader impact
Many OSOs cover a large geographical area or are even spread out nationally. This large footprint opens up avenues that would not be possible for practices on their own. For doctors who are early in their career, this could be a whole new ballgame.
“You can only do so much as one person,” said Casagrande, who was the sole owner of his practice. “My mindset—and that of other successful practice owners I’ve met through Smile Doctors—is that I want to make a bigger impact.”
As an early adopter of clear aligners, Casagrande built a regional reputation for expertise in treating complex orthodontic cases. With Smile Doctors’ 270 locations, his staff across four locations in the Northern Virginia/Washington, DC area is now able to make an impact across the country.
“We’re spreading what we were doing in my market through best practices all over the place and growing our Invisalign business,” said Casagrande. “It’s not so much about size, but about what you can do when you bring together that many really good orthodontists.”
Seeing eye to eye
Joining an OSO may not necessarily change the day-to-day operation of a practice, but owners may still feel like they are giving up a lot by selling to an OSO. For White, he decided giving up control of his practice was not worth it.
He and his colleagues did not take private equity money and used their own money to consolidate their individual independent practices into one group practice. In doing so, they are able control their own destiny and preserve the old transitional model where a practice would get passed along to the next associate.
“We created a model where you can live out your core values and still get full compensation and recognition for what the practice is worth,” he said. “It just requires a little bit of education, vision, and courage.”
Groth added that partnering with an OSO is not the right decision for some people. For example, he said if they don’t want to be part of a group, they won’t thrive in the OSO partnership. His own practice was the complete opposite. It already shared patients and information with other practices, so having a like-minded OSO was an easy transition for them.
“Everything is a collaborative effort,” he said. “If you want to be a dictator, that’s not going to work in a group.”
One thing that should never change is the patient-centered care that defines a successful practice.
“If you believe in treating people well, good things are going to happen,” Groth said. OP
How to Know if an OSO is the Right One for You
If you’ve already decided the route you want to go with for your practice is joining an OSO, how do you know you are affiliating with one that will make a good fit? Here are some tips to consider:
A large part of making the deal is evaluating the offer. Most OSOs will offer cash at closing, performance-based incentives, and a share of stock in the company. “It’s important that you pick a good one because if there are red flags such as the OSO is really small or not established or doesn’t have great management, then that equity piece is worth nothing or not as good as it could be,” said Casagrande. “If it’s a good company with good doctors or practices, then that equity piece is going to continue to pay over and over as time goes on.”
Groth recommended that orthodontists surround themselves with the right team.
“We had a really great attorney, accountant, and financial advisor who helped us from the legal and financial standpoints,” he said. “The money spent on legal and accounting was well worth it so there were no surprises in the end.”
Ask questions about what the partnership would look like. Would the OSO provide back-office support so that you can focus on the patients? How much freedom and autonomy would the OSO allow? Groth, who works in the same Michigan town he grew up in, appreciates the flexibility to maintain his practice’s identity.
“I want to continue to serve my neighbors, friends, and families in the way that this practice has been doing for almost 35 years,” he said.
Of course, timing also comes into play. White has often seen the stampede effect where one practice joins an OSO and then all of the nearby practices immediately look to sell. It may not be the right time for a practice to make this sort of transition. Consider where your practice is now—is business growing, stagnant, or declining? How do you and your associates envision the future for your careers? Just because OSOs have begun reaching out to talk doesn’t mean you have to feel pressured to act. It is much more worthwhile to spend time exploring all of your options until you find the best fit. OP
Jane Kollmer is a freelance writer for Orthodontic Products.