Dentistry turned scalable: the graveyard of private practice
digital technology rocks - Private Equity takes over dental chains - dental practitioners go broke

The strategy was: a Starbucks coffee shop at every corner in town. Lower prices and pretty enviroment. To get people socializing enjoying the same coffee. To make the average coffe shops go broke. Finally to get the monopoly of coffee-business (No Logo - Naomi Klein 2000). Dental chains are doing the same: a silent but steady take over of the market. They were low-cost initially. Now turned medium.

On Facebook frustration is all around. Dentists are disappointed. Feel in some way betrayed. Deep in self-denial. Staining fillings. Desperately attending courses to keep up. On social networks we are hammered by advertising of marketing courses. The refrain is still the same: "7 days on the Canary Islands to learn how to turn your office in a 7 zeros business".

No clue of what's going on.

Dentists are hitting the bottom of the crisis.

Chains's revenue is skyrocketing.

Why?

One simple reason: Dentistry has become Scalable.

Exactly 2 years ago I wrote the opposite. Nassim Taleb wrote the opposite. He nailed down in his writings how the dentist - like the prostitute – has limited energy and time. That is, their business is not scalable.

What means "scalable".

Let's put it simple: the production of a tool for domestic use like a toilet paper roll holder. The producer (the maker) draws the project with a CAD. It takes 1 hour of work. Then he sends the file to a 3D printer and starts production. The printer works day and night. If the maker wants to increase production he needs just to buy more 3D printers. The same project (the same hour of work) will provide thousands of pieces if not millions.

A craftsman who manufactures the toilet paper roll holder by hand can not compete. He goes broke.

Digitalization 2.0 in dentistry

Digital transformation of the traditional hand-made (analogic) work-flow made dentistry scalable. We got standardized procedures and protocols. Machines, computers can replicate better than humans.

The first victim was the dental technician. Digitalization was supposed to improve the quality of his work and to boost economy performances of the dental labor. Indeed performances improved. Quality not. Dental technicians have been wiped out. Decimated. CAD-CAM equipment and robotic CNC machines mill Zirconia crowns day and night without union requests, illnesses, breaks for eating, mistakes. The quality is medium-level but what hits the pocket is when the job is repeatable. That is: scalable. A newly-qualified dental technician can be productive in a very short time. Nonetheless he may forget to open his own business in the near future.

In a world were AI (artificial intelligence) is changing everything the dentist thinks he is immune to scalability. He believes in his own immortality.

Corporates charmed us for over 1 decade with the digitalization process 1.0: intra-oral scanners sized to the mouth of a kangaroo and absolutely inaccurate, CTBC as big as a room, primitive 2 axes CAD-CAM, milling machine good only for our children playing at the primary school, two-dimensional DSDs good for photo editing of vacation photos and lately 3D printers that, as I said above, work well to produce toilet roll-holders. We seriously supported with our money the 1.0 experimental step of digitalization. We paid for Master Courses on Digital Work Flow. For DSD. For Guided Surgery software.

From the US a fresh-landed chain of digital-processing-centers focusing only on dentistry. Those people work with professional 3D software and top-gun computers: you send pictures and TC-scans and they return you the ready final project. The lovely DSD, the fashion photo-studio with Nikon, twin flashes and umbrellas, the sexy Apple PC, all that stuff already obsolete. A waste of money and time.

A self-funded suicide.

Around 2010 digital corporates got more deep into the digital-game. They invested our money switching to the 2.0 digital era. Scanners have been improved. Milling machines as well. CAD software is now more precise. 5 axes tools appeared. The CTBCs have been reduced in size and a simple software allows even a newbie of implantology to plan a guided surgery.

We dentists celebrate: more implants in less time and at full ease.

The focus can't be on quality. Quality is by definition not scalable. Mediocristan (Nassim Taleb) can quickly become "productive" in prosthodontics and implantology: the two key disciplines for big numbers in dentistry.

Dentists go into entrepreneurship. Dental offices grow into big facilities. The dream of "too big to fail" turns real. A 10 or 20 chairs clinic becomes a reasonable target. Employees and management costs soar. Marketing courses for new dental entrepreneurs flourish.

Dentistry cheers to digitalization.

But a much more voracious and fierce predator is lobbying in secret behind the scenes :

Private Equity Funds

Private Equity Funds are financial institutions of professionals involved in the management of risky investments. People handling billions of euro.

Why the Big Money is interested in the dental chains?

To understand the why, we need to go back in time.

Dental chains were born silently in the US in the early 90s. Mainly a franchising. In Europe Vitaldent takes off in 1991 in Spain and subsequently landed in Portugal and Italy. Start-up of franchised chains is not easy. Professional associations all over the world rise a solid shield against them. Advertising is forbidden. The chains suffer. Start to fail.

In 2008 the turning point: the financial black swan marks the beginning of the worst global economic crisis in history. Banks fail. The real estate market collapses. The hard core of many financial products (including derivatives) turns to a deadly trap. Financial colossuses like Lehman Brothers fail. Money in the bank get's you only negative interests. Government bonds are dangerous because sovereign states are at risk of default. The real estate bubble has become the recurring nightmare of those who have invested in the brick. The euro is bankrupt. If the euro blows up the home mortgage doubles or triples.

The economic black-out affects everyone. Even the dentist. The costs rise. Revenues are disappearing. Bureaucracy increases. Taxation is rampant. There is no way out from the crisis. The financial situation of professionals worsens. Today, in 2018, opening a studio with 3 operating units in Europe costs an average of 520,000 euros (without walls). The new graduates - like the neo-dental technicians mentioned above - can not afford it. They can only work as a pieceworker. The increasing number of female dentists is a symptom. As a nonsalaried a woman can at least devote herself to the family.

Even franchised chains need to cope with the crisis but they have different perspectives. They have a buyer with big money: Private Equity.

An enormous amount of cash needs to be invested. The only growing industry is healthcare. Dentistry included.

In the US Dentistry is 90.000.000.000 dollars enterprise (2017).

Analysts of Private Equity funds do the math very well. They say the profit margins of a standard dental office with 3 armchairs in the worst scenario ranges from 5% to 7% of net profit. Preposterous gains compared to any other financial investment.

Private Equity first knocks on the door of the dental chains and subsequently purchase them.

In the US Provident Healthcare Partners, a financial advisory firm that bills billions, dealt with mergers and buy-outs between the major American dental chains and private equity funds. Some examples: Great Expressions Dental Centers' 2008 with Audax Group (300 offices), Baystate Dentals' 2013 acquired by North East Dental Management, Laser Dentistry for Children's 2015 capitalized by Webster Capital, and Children's Dental Health Associates' 2016 recapitalised by DFW Capital Partners. Aspen Dental Management with APG Partners (550 offices). Mergers and acquisitions have marched at a fast pace over the past 10 years. There are proprietary chains of 800 to 1000 offices. They expect to reach a global turnover of 170,000,000,000 dollars in 2022 in the US in front of an unstoppable economic recession for the general dentist.

In Europe, giants such as the German Jacobs Holding AG (a coffee empire worth 1.000.000.000 euros in Germany) or the Swedish Altor Equity Partners or again from Sweden the Swedish Financial Investor EQT capitalized for 6.000.000.000 euros each, are just some examples of acquisitions of dental offices and dental chains.

In Italy the trend is only at the beginning; the first case was in 2015 with the merging of Summit Partners with DentalPro (for 58% of the shares) and Vam Investments (minority shareholding). Subsequently, other brands have been interested in investment funds, such as Primo (again in 2015 ArchiMed acquires a minority stake in the Group), Caredent (in June 2016 the L-Capital fund - which is headed by the French group of Lvmh luxury - with an 80% stake), Vitaldent (70% owned by JB Capital Markets since November 2016), DentalCoop (in March 2017 acquired 75% from the Dutch fund Bencis Capital Partners Bv). More recently, in May 2017, new involvement of the DentalPro brand, with the entry of equity funds assisted by BC Partners.

The figures are mind-boggling.

Meanwhile:

  • many dentist are on the market under-employed or unemployed.

  • digitalization allows good scalability of average performances.

The business plan is ready. The chain market is still largely based on franchising, fragmented and disordered. It will be acquired and unified through acquisitions and merging. Franchise will disappear. Some dentists and dental technicians have shrewdly thrown themselves on the new business: to create small chains to be re-sold already packaged to Private Equity funds.

Professional orders are powerless. Liberismus in the US and Europe advocated deregulation in the medical sector. A non-medical share-holder may be owner of an SRL that provides dental services. The chains have moved from franchising to direct capitalization. Not even single successful professional offices are immune from being capitalized by big money. Private equity becomes the owner of the dental office. The dentist no longer matters. He becomes a performer.

The next step will be dentistry on the stock exchange.

A dentist with 7% profit does not survive. He get drowned in debts. A holding company flies high.

The secret of the chain's success lies in the creation of individual production units (dental offices) that can be completely replicated. Like MacDonald or Starbucks.

  • A first dental office is set-up as a pilot-model: business volume, organization, medical staff, layout, digital and traditional work-flow, cash flow and administration.

  • The size of facility must be average. The quality must be average and repeatable. The operator must be average. A "soloist" like Maradona is not suitable. The good average dentist is easy replaceable!

  • Once the first "unit" takes off, the schema can be replicated n-times through investments in new facilities, acquisitions and merging with other chains.

  • Centralized accounting, material purchases, staff management, marketing, communication, the dental labor (independent dental labor will disappear) generate a huge costs optimization.

  • Prices below average make competitors (traditional dentists) "choke" because of the great cash-supply from Private Equity. The normal dentist at first trying to catch-up lowering prices and speeding up the work-flow. Finally he surrenders exausted.

  • His burial is celebrated by reciting the funeral prayer: "but digital technology improves life!".

  • The market is monopolized: chains are deciding who, how and when.

  • Chains CEO negotiate directly with the new marketing-partners: Dental Corporates. Like Danaer who has taken over Carestream, Leica, Nobel Biocare etc. Corporate relates directly with a chain of 500-1000 offices. The target is to make profit for their shareholders. No one cares about dentists or patients.

We dentists are employees. Like medicine doctors who work for hospitals which have in their assets Banks and Corporates.

Chains showed off for ophthalmology, dermatology, orthopedics, spinal surgery (the disc herniation is a business), psychology, medicine, permanent epilation etc.

Investors make big money.

Doctors and dentists are pissed off. Totaly incredulous.

It's a slaughter.

Before us Pharmacists have gone the same destiny. Until 60 years ago they were drugs producers and dealers. Big Pharma took over the business. Becoming a financial giant. Pharmacist is now a shopkeeper. A retailer.

We try to compete taking classes about marketing and enlarging our offices. But Private Equity plays a 9 zeros game.

Maybe it's better to be a dental assistant. Fixed salary. No responsibility. Work for a chain. As long as it lasts. Because the future looks not pinky even for them. The 3.0 Digital Transformation is already there: AI and androids are ready. Just as robotic implant surgery is ready (Nobel Biocare is marketing yet the navigator for virtual assisted surgery). The android-dental-assistant will soon be there too. It costs a lot, but a large investor has no cash problems. By the way: androids they do not get sick, do not get pregnant, do not make mistakes and above all never complain!

Oh yes, we liked it so much to play with the DSD or with our new CTBC. Instead of playing with our children we spent Sundays planning PC-guided surgery. We dreamed of becoming billionaires and financed our own burial.

But maybe it's good. So we can go back to our job without caring about staff, accounting, office management etc.

Or maybe not. If the economic purpose is exacerbated, health becomes a business and no longer the target of a caring-profession.

Patients have less and less money. They are innocent victims of hidden persuasion. Advertising works but is expensive. We can not afford it. Dental chains for sure.

What can we do? How can we avoid being cannibalized? Is our destiny to work in chains? Do we become like pharmacists?

 

massimo mazza

 

PS

Last year in my previous article I got it right just on one thing: the dentist (and also the dental technician) will not make money and not even in the near future. Not even the hybrid: the dentist-entrepreneur. Rather, dentistry and the whole dental industry they do. A bunch of money. Beyond our imagination.

PS 2

Nassim Taleb was wrong about prostitutes. With the new androids-prostitutes, this ancient profession has also become scalable!

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