Many Roads To Specialty Practice

Nov. 1, 2003
Where to practice has become a more complicated decision for specialists. Consider these factors to guide you in the right direction.

by W. Paul Radman, DDS

As more dentists complete residency training in the various specialties, the decision of where to practice has become clouded. In the recent past, a specialist completing training could open up an office almost anywhere and be assured of instant success. Those days are gone.

While there are many opportunities for the new specialist, most are in the smaller communities of the country. That's because the major metropolitan areas are becoming saturated with many of the specialties. This makes for a difficult choice — 1) open a practice in a smaller community or 2) fight the crowded large cities. As a result, an increasing tendency for some type of transition into an existing practice is taking place in the large cities. While the transitioning of a general practice is a well-established and often-accomplished procedure, the specialty practice is a different and generally more complicated animal. This is true whether there is a buy-in or a buy-out. The buy-in procedure is more common among specialty practices than in general practices.The reason for this is a growing tendency for specialists to work in a group setting. However, this does not negate the fact that there are many great buy-out opportunities for the young specialist.

All specialty practices are not the same. Both the valuation and transitioning of an orthodontic practice are very different from that of a pediatric dentistry practice. The same holds true when comparing a periodontal practice with an endodontic or oral-maxillofacial practice. They all have different characteristics. Let's examine and do a quick analysis of what makes these types of practice different.

Pediatric dentistry is probably the most similar to a general practice in that the patient typically returns for periodic examinations, radiographs, fluoride treatments, or sealants, and most of the procedures are performed in the office. In addition, there may be a hygienist who will produce income for the practice. A pediatric practice is effectively a general practice that knows every patient will leave the practice at age 16, plus or minus a few years. Since every patient is in the practice for a finite number of years, it seems logical that a pediatric practice is worth less than a general practice with the same volume of patients and net profit. How many general dentists would buy a practice knowing that every patient would be gone in 12 years or less?

Orthodontic practices pose greatest challenge

Orthodontic practices provide one of the greatest challenges to the transition specialist. In a general practice, you have income and accounts receivable (both collectible and otherwise). It is pretty straightforward regarding what is income, what falls in expenses, and what constitutes receivables. Orthodontics, on the other hand, is a completely different story. The practice will have accounts receivable (money due for work that has been done), but it will also have "contracts receivable" that represent the fees that are payable as treatment continues. This can be further complicated by the opposite situation, where the entire fee is paid upfront, and there might be a year or more of treatment due from the new orthodontist for which he or she will receive no additional fee.

Orthodontics is also different, since it describes a child who is observed for the proper time before initiating full treatment and who then becomes an additional future revenue source. Major adjustments must be made here in establishing the final sale price of the practice.

Periodontics, endodontics and oral-maxillofacial surgery have similar characteristics, but each remains distinctly different. Periodontics is more similar to a general practice than the other two specialties because the patient returns periodically and hygiene care often is alternated with the patient's general dentist. Since there is a continuity of care — albeit in a limited area — and hygienist income, there is more for the periodontist to transition to a new periodontist than in the two other two specialties.

Oral-maxillofacial surgery is in a gray zone between dentistry and medicine, irrespective of whether the oral surgeon has one or two degrees. There are a few distinct types of practices, which will have an impact on the value of the practice. Some of the practices have a large trauma component and are less profitable as a result of the managed care issue. This service has been deleted from many practices as a result. The third- molar and implant-heavy practices tend to have greater monetary value.

Endodontics — the area in which I practiced for 40 years — is probably the least valuable percentage-wise of the specialty practices. New technology has greatly improved the efficiency of the endodontist and enabled him or her to complete a case better and faster. In this author's opinion, there remains less for the endodontist to transfer to the new doctor than in most of the other specialties. This usually results in a smaller valuation, dollar for dollar, than for other specialty practices.

In each specialty area, the two most valuable assets are the relationships with referring doctors and the specialist's reputation in the community. These assets, along with the professional talent of the individual doctor, the trained staff, and the existing cash flow (profitability) of any specialty practice, offer the best opportunity for a transition to be a true win-win transaction for both parties.

Joining or buying out an existing practice — especially in a highly competitive area — is quite often the best choice for a new graduate in light of the increasing number of specialists being produced by our schools and hospitals. In this situation, the selling doctor must make a sincere and concerted effort to transfer his or her goodwill to the purchasing doctor. If the selling doctor does not do this, the buyer is not getting what he is paying for.

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