The role of private equity in dental continues to grow, but its future isn't so clear.
Jason Faler, director of operations at Sunset Oral and Maxillofacial Surgery in Portland, Ore., spoke with "Becker's Dental + DSO Review Podcast" to share his thoughts on private equity and corporations in dental.
Note: This is an edited excerpt. Listen to the full podcast episode here.
Question: Where do you see some of the biggest opportunities for [private equity and consolidation]?
Jason Faler: If I zoom out and I look at it from a little bit more of a macro perspective, I think private equity will continue to grow. I think corporate will continue to grow and consolidate. You know, I think some people probably don't see a difference between private equity and corporate. I see some pretty significant differences in a couple of areas. One of them is that private equity — and I'm sure that some of my colleagues on the private equity side of the house would take issue with what I'm about to say — but my concern with private equity is that the health and well-being, the clinical outcomes of our patients is not necessarily what is at the center.
I don't think that there are many folks investing in private equity who are investing in oral surgery or dental practices because they have a particular interest in patients being treated as efficiently, effectively and with the best outcomes possible. Of course, if that's a byproduct of private equity and consolidation then I'm sure that they're happy to see that, but they're looking for a return on their investment. And I mean, very specifically financially. So I do think that there are some things that private equity firms can bring to the table and the management companies that are backed by private equity.
I think some of them are gonna do a great job in terms of standardizing, do some great things in terms of making [things] more efficient and more effective. But at a certain point it almost feels like, because these private equity companies are really flipping these practices every three to seven years, my concern is that it's going to be a lot like flipping houses. But you can only extract so much value out of a particular practice. At some point, my concern is that safety, quality and outcomes will suffer. I think it's going to be a bit of a curve. I think they'll improve for a bit until we're trying to squeeze blood from a turnip. At some point we've maximized all of the efficiencies that we can get and maximized the outcomes that come therewith.
At a certain point now we're just trying to do more throughput, more revenue, and I think at some point that curve starts to reverse is my fear and … our patients will suffer. So that's a concern that I have with private equity and … we'll see how that plays out. But I do have some concern with that, and that's where I do see a dichotomy or a distinct difference between the private-equity-backed groups and the large corporate entities that are growing, consolidating, etc., because those are entities that intend to exist into the foreseeable future. Of course they want to be profitable, but they intend to exist and they're not trying to just flip practices for a big capital event and cash out. They're there to run those and to be a resource and yes, to be profitable of course, but they're intending to be there for the long run.
So I think that's the difference between the corporate and the private equity organizations that are on the landscape and of course growing at this point. So time will tell. I would not be surprised if we start seeing some legislation at the state or local levels relating to private equity investments or even corporate investments. As we've sort of seen on the medical side of healthcare, some pretty dramatic consolidations happen and we've seen some state legislatures respond to that in various ways as well.