18: For Boards, Executives and Investors of DSOs

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Hello everyone and welcome to another episode of DSO Secrets. I'm your fearless host, Emmett Scott and I'm so excited to bring you this episode today. I thought we need one specifically for non clinical investors, boards and executives. As I've sat on several boards, talked to different PE firms and executives coming into the DSO space, really coming into healthcare for the first time, I noticed that there is a big gap in understanding how to align with our dental and clinical leadership and what that takes to create a successful DSO at the top level. You know, we live in a knowledge based economy. I think that's the first place we have to start. We're not an agrarian economy and we're not in the industrial age anymore. What does that mean? Well, obviously in the agrarian economy we had people out on farms and the critical part there was, you know, how do you farm this land and have the right workforce to make all of that happen? It was about putting in time and making sure that you had the labor and that they were putting in enough effort in order to get the work done. We move into the industrial age and really that was a consolidation of a lot of the farming workers and opened up entirely new industries and factories. What's interesting is it was still dependent upon time and effort and labor forces. And we came up with things like pension funds where if you'll work for me forever, 30 years, 25 years, then I will pay for the rest of your life once you retire. Of course, the rest of your life was only a couple years, so it wasn't that big of a commitment. I think the average life expectancy during the industrial age was around 62, which is why Social Security was set at 65. Well, now we've moved into this technology and knowledge based economy where workers have so many options, it's difficult to make promises to keep them around forever. They want flexibility and what they really want is they want alignment. And what I've noticed is that Those who come into the healthcare space trying to use industrial factory based concepts. It just doesn't work. Especially with our millennial generation being driven by technology and flexibility. So let's step back and look at the industry that we're in. We're not in a factory organization where things are dependent upon the machinery working right. And like I said, the time and effort being the critical component. We're not even in a service industry. Some people like to put dentistry as a service industry. We're really not, because service industries are things like attorneys and restaurants and CPAs and they have, they have a workforce and motivating that workforce is critical. But at the end of the day, the product that they produce is some inanimate object like a hamburger or a form, a legal document, etc. Tax returns. Health care industry is the only place where there are humans at every level. And we are trying to take care of the humans that are leading the organization. We're trying to take care of the humans that are providing the services and the health care, and we're trying to take care of the humans that are the product. And so I think the level of emotional intelligence, the level that is required of empathy and being able to align with everyone in the organization is, is critical. You know, if you think about this from a business perspective of investment, you're really not investing in some kind of hard asset, real estate or equipment. You know, you could say that the dental chairs are worth something, but we all know in a fire sales situation, they're not worth much. So what is it that private equity is investing in it? What is it that banks are loaning into if it's not a hard asset? Well, you've got the cash flow, so you could look at that. But what's producing the cash flow? You know, what's interesting is you drill down on this, you're investing in the motivation, the capability, the ambition of the lead clinician and the management team that supports them. You know, you can't provide healthcare without the clinician. It's interesting because in other spaces you can replace management or other leadership capabilities with somebody else that you know, has some capability or a degree somewhat similar. But you've got regulatory guidelines as well as just core capabilities that keep you from being able to say, well, listen, we don't like this clinician, you know, we'll just have the accountant start doing the service. It doesn't work that way. So staying aligned with your clinicians is critical. Now that sounds obvious, but here's the thing. As an investor and as A bank. You look and you say, clinicians are our most expensive asset. Is there any way that we could cut back the cost of not having to pay the clinicians as much? Or what are the benefits and other things that are having to go to the clinicians? Is there any way to cut costs? This is normal business thinking. We all think about ways to cut costs to reduce drag on the organization. It's just so dangerous when we do that with the clinicians. Think what's difficult is that you might even be able to find a clinician who's willing to do the services at a lower cost than your current clinicians, but you get a totally different product from that clinician. Now this seems obvious. I mean, humans are not all created equal, but within the clinical world it's even more pronounced because you have this thing called standard of care. And really what it is, is. And not being a clinician, I'm going to give a business perspective on this. But standard of care is the standard deviation by which clinicians can choose to service the patient. So for example, if a patient walks in, one clinician might say, this is bacteria that needs to be removed today. And you're not leaving this practice until it's removed. And I can do X, Y and Z treatment to get this done for you today. Another clinician might look at it and say, this is bacteria that should be left for now for this, this and this reason. And we're going to watch it and we're going to have you come back in this time. So you've got two clinicians, both trained within their specialties of care, but they have this judgment within standard of care that they can make and they're making these nuanced judgments every day. And frankly, it's based on patient flow and time and effort and their confidence and capability to do that care. So when I start thinking about changing clinicians out, changing an associate out, I have to have a way that I organize what their capabilities are, what their confidences are, where they're where they are determining standard of care. And then say, if I bring in another clinician, where will they land? I think too often, and I see this even among dentists, they treat associates at times like they are a cog in a machine and that you can simply replace them with another clinician and have a similar result. I think anyone with experience knows that there's a ramp up time that exists for dentists coming out of school. But frankly, there's just a different capability among clinicians in general and, and different mindsets and perspectives as well. And so it's never a one to one replacement. The other piece we have to be cognizant of is motivation is going to drive the outcome. If a dentist is being paid straight on a salary, you'll get a certain type of clinician with that and typically they're going to want to be home by five o' clock or soon after. And there's a certain amount of effort that's associated with that. That's capitalism. Right. And so when we give people certain compensations, we get certain results for that. Doctors who are paid on production may more closely align with the organization to try to treat that patient and ensure that they have a total package of care. Now what's interesting is when you roll this up into a DSO organization, you now have layers of standard of care that are happening and have to completely align. Let me tell you what I mean by that. You have a standard of care that's happening at the practice level. In other words, a judgment of care that's happening from every clinician. They're determining with that patient what treatment is most appropriate. You then have a layer of dentist leadership or clinical leadership primarily and generally driven by the practice owner. So let's assume to keep things simple, that I have one practice owner and that practice owner has four practices. And in those four practices he has or she has two dentists in each practice. So I've got four practices, I've got eight dentists, and I've got one owner over them. So how is clinical standard of care determined? Well, it's interesting because if we really dig into it, there's two layers. One, the practice owner, practice owner is going to say, I feel comfortable with these clinical care, this, this level of clinical care being provided in my practice. Dentists might raise their hand and say, hey, I'd really like to do this capability or specialty. I'd like to do implants. I'd like to see kids. I'd like to be able to do sedations on adults. I'd like to be able to do sedations on kids, whatever it might be. I'd like to expand my oral surgery capability. I'd like to start being able to provide aligners, I'd like to be able to start do direct bonding, indirect bonding, all of these different capabilities. Dentists can raise their hand and ask the practice owner, I'd like to do this within the practice. Now the practice owner can say, no, I'm not comfortable with that. They have a right to do that, to keep it kind of a Standard, if you will, a standard of care within their practices that they feel is comfortable for the risk that they're taking on as the practice owner. So there is kind of a lowest common denominator that the practice owner can set. Now, what's interesting, let's suppose that you have a practice owner that is entrepreneurial, that is opportunistic, and looks at the level of care that patients are getting and says, listen, we need to be able to provide more. And so they say we want to provide all of those services or some subset of services. But let's suppose that those eight dentists, we had, the four practices and two dentists in each one. Let's suppose among those eight dentists, they have different skills, capabilities and comfort level. Some of them have done implants before, feel very comfortable, others don't. And so they're going to refer those out. Now, ideally, they might refer those out to the dentists that are, that are doing that care within this group of practices, but maybe that's not feasible or they just don't oftentimes. So you've got these eight dentists, each with their own, I'm calling it standard of care. You could call it clinical capability. But each of them are going to have a comfort level of what they're willing to do. You might have dentists who have pediatric backgrounds and experience, and so they're going to feel very comfortable doing pediatric sedation, and maybe they've done a lot of that. Others feel like that's the most dangerous thing in the world. So all of this different clinical judgment is having to be led by the practice owner. Now, ultimately, if the practice owner feels like a clinician is going outside the bounds of where they feel comfortable, they can have conversations, they can persuade, and they can say, you know what? I don't feel comfortable with you working here anymore. What's interesting is if that clinician is, let's say, under treating the patient, not doing the full. And again, I'm using some clinical terms here, but give me some poetic license to use them as kind of broad terms here. But they're under treating from the perspective of the practice owner who wants to provide more clinical care. The practice owner cannot go down to those dentists and say, you need to be doing this, this and this treatment. It doesn't work that way in the clinical world. See, in the business world, I can walk over to an accountant or to a call center and say, listen, you need to use this scripting, you need to book things this way. And it totally makes sense in the business world that you need that level of leadership. But the judgment down at the patient level cannot be dictated to that kind of intensity that you typically see in the business world. And the reason being is because each patient situation is different and each clinical capability is different. We don't want clinicians doing things they're not comfortable with, not capable of doing. It's one thing to say, I've never used that script before on a phone call. Can you show me how real quick? It's another thing to say, you know, I've never booked that journal entry that way before. Can you show me? And it's a totally different thing to say, I've never sedated a kid. Can we do that real quickly? So you know these things. When we really start thinking about being in health care and that we have humans at every level and the amount of alignment that has to occur, it's critical as business people come into this space that they appreciate the clinical standards of care and how those layer within an organization. So you can see why I say you can't just take an associate or take a practice owner and replace them and think to yourself, okay, that wasn't working out well, let's get another practice owner in here, or let's get another associate in here and not be cognizant of the fact that you are changing the entire capability set. Now, you might be upgrading it, you might be improving the patient experience, and there is clearly times when you feel like something really negative on the patient is happening throughout the organization, that it is worth working with your clinical leadership to say, we've got to have a change here. And typically the clinicians will all rally around that to help that happen. But if you're simply driving for new leadership or new clinicians because you're not getting along or you don't like how they do X, Y and Z, I would strongly suggest you rethink that and really understand the opportunity cost that happens when you replace and change clinicians. You know, at the end of the day, DSO stands for Dental Support Organization. It's built around the skills and talents, typically of the lead clinician who started the practices and what was the capabilities that they wanted to bring to the marketplace. So if they're general dentist and they have a very narrow niche market that they're servicing, then the DSO is going to go around that narrow niche and they're going to create the resources to support and scale that service. If you've got a specialty duck and they've got their niches, then all the DSO Resources, everything from accounting to marketing to operational support is going to center around that. As you can imagine, if you've got practices that are taking Medicaid, then all of the compliance and the billing that goes along with that, the DSO is going to morph and create to support those clinical outcomes and to ensure that the legal and regulatory pieces are fully staffed and supportive for those clinicians. So if you're planning on being on the board or the executive team, or investing in a DSO or an emerging dso, groups of practices led by a practice owner, here's what I would be thinking about. One of the things I would get very educated on is the clinical scope of work prescribed and completed on a patient in those practices. And what is the mindset of the practice owner? Are they looking to have a very niche mindset and do a lot of practices around that niche? And they say, we're going to have clinicians and they are going to do this set of capability and we're going to provide them the support and the CE and the onboarding, training and the mentoring to be able to do that set of capability. And we're going to do a lot of practices doing that. Or is this a clinical leadership that says, listen, we want to be able to service a broad range of patients, or we want to be able to go deeper with our patients by adding these layers of specialty so that they can have a complete level of care. And we're going to do that and we're going to scale that, understanding that leadership piece and that mindset. What is the clinical scope of work that is going to exist within the organization at the leadership level? And what is it going to take to have the associates that can rise up to whatever that standard is? I think that's a critical aspect to look at on top of the P and L and the organizational structure and the DSO agreements, etc. At the end of the day, the DSO agreement and the P and L, if you really look at the assumptions and drivers that hold all of that together, what makes revenue actually happen? What's going to drive expenses low or high in order to support the organization or the practices? It's going to be driven by the clinical scope of work that the lead clinician has in their mind and their ability to have other associates rise up or meet those standards. Even the agreements between the DSO and the practices really only work with total alignment between the DSO and the clinical leadership. Remember, this is different industry in so many ways. I mean, in most states, you cannot legally own a dental practice unless you're a clinician, so you have a bunch of structural components that have to be in place. But on top of that, the alignment that needs to happen between the dso, the dental support organization, and the clinical team is absolutely critical. If someone said to me, I have this incredible marketing plan and I've got all of this money, my only issue is I can never seem to get aligned with my clinical team, I would say, you are on a road for disaster. If you said to me, listen, me and my clinical team are like hand in glove. And they just love what we're doing to support them. They feel like the effort they're having to put in every day goes down as we grow as a dso. And they just love the level of support. But we're struggling with X, Y and Z marketing, patient experience, getting the accounting right, whatever. I would say those things can be solved. There are plenty of resources to help to increase patient flow, to get the accounting structure in place. So if there was one thing that you want to ensure that you get alignment around, it would be between the DSO and the clinical team. Now, let me leave you with this. One of the ways that I solve this tactically every week in executive meetings or on board meetings, is coming back to remembering that we are a DSO dental support organization. I think I've said that several times in this episode. It's just such a great term to kind of lead us as a North Star. So when I'm in those executive meetings, if I see us as business leadership, outrunning the clinical team, coming up with ideas that are beyond where the clinical team has thought of, I will come back to them. Even if they're amazing ideas, and typically they are, they're awesome things that could be helpful, I come back to them and to their priorities. So out of anything that we can be working on as a dental support organization, the first thing we should be always prioritizing is what do the clinicians care most about? What are they most concerned about? Because if we're solving for that and we just continue to work to solve to support the clinicians, then we solve our mission. I mean, ultimately, as a dental support organization, the patients aren't our customer. The clinicians are. The patients are the customers of the clinicians. So oftentimes we're helping them with their customer, which is great. But we have to remember that our customer is our associates. Our customer is the clinicians that we work with. And to this extent that we're supporting them, then we are going to be very successful. And to the extent that we have misalignment. It's going to be very painful. So hopefully this is helpful. Some of you are going are saying to yourselves, you know, duh, of course this is a dental support organization. It needs to align and support the clinicians. But I can tell you that I've seen many outside industries come into this space and the nuance of how that alignment happens and how critical the clinical team is to the success of the organization as a whole oftentimes gets lost and they think of them like they do other departments with a level of respect, but not quite the level that's needed in order to be successful. So hopefully this was helpful. For all you non clinicians out there, I'd love if you have additional questions, please join us on our DSO Secrets Facebook group. And until next time, keep smiling. 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