Private equity has provided the dental industry with an influx of capital, leading to new practices, dental equipment and technology.
When executed properly, private equity investment can have a positive effect on dentistry, but investors may have to change their strategy, according to one dental CEO.
Robert Rubino, CEO of Sharon, Mass.-based Qualitas Dental Partners recently connected with Becker's on the impact of private equity in the dental industry.
Editor's note: Responses have been lightly edited for clarity and length.
Question: How has private equity impacted the dental industry?
Robert Rubino: From a purely objective and clinical perspective, private equity investors have brought fresh, third-party capital into the dental industry. This capital has supported investments in new and expanded practice facilities, dental equipment and services, continuing education, and direct-to-patient marketing. It has also been used to acquire existing practices, often at purchase prices higher than those offered by associates. Private equity-facilitated acquisitions have enabled more rapid scaling of business operations. Leveraging that scale has allowed dental practices to achieve greater buying power in negotiations with suppliers and service providers. Additionally, private equity has introduced greater reporting requirements, increased oversight, consistent examination of business metrics, and financial transparency in the dental industry.
Q: Has private equity been a net positive or negative for dentistry?
RR: This is a complex question that requires a balanced response. Private equity continues to play an important role in dentistry, offering new sources of liquidity to advance the industry and ensure continuity of care for patients long after an owner transitions into retirement. This is particularly beneficial for associates burdened by high levels of debt from dental school, who may be unable to buy into practice ownership.
Providing leverage and scale to negotiate better supplier terms is another positive aspect of private equity, provided those savings are reinvested in the business rather than pocketed for short-term margin gains. However, the track record here is mixed, often reflecting a financial investor's misunderstanding of how the dental sector operates.
The financial investor’s approach should not be applied uniformly across a portfolio of dissimilar businesses. Too often, there is a strict adherence to efficiency for efficiency's sake. Reducing costs, especially staffing costs, is frequently the first move, but it is not always the best strategy in dentistry. This approach can negatively impact dentists and their teams and fails to capture the engagement of healthcare providers who deliver patient care. When done thoughtfully, with aligned interests, teams can help drive efficiencies over time. Building trust, communicating well and reinvesting savings are key to motivating staff.
Dentistry is about patient care, not the same business model as manufacturing or technology. Dentists are both owners and producers, and their teams focus on delivering high-quality care. This human-centered approach contrasts with industries that focus on production. Investors need to appreciate this mindset and adjust their strategies accordingly. Unfortunately, there is a high degree of skepticism among dental providers toward corporate dental models and their private equity owners. Many feel disenfranchised, with efficiency gains not reinvested into practices or compensation. This leads to high turnover and inconsistent patient experiences.
While private equity offers substantial benefits to the dental sector, it often lacks the necessary nuance for those running clinics and providing care. This oversight can lead to underperformance. Ultimately, only models that prioritize patients, dentists, and their teams will be deemed successful by all stakeholders, including investors.