How to Make General Dentistry and Periodonist Combination Work in Dental Practice

Hi.

I need your help and guidance.

How can a GP and a periodontist enter into a fair agreement? I have been practicing for 21 years in a small FFS office. Current lease is up and moving into a new 6 OP office. He is a young up and coming periodontist. We both have similar goals and standards and believe that we can build and expand together.

Your input and advice is greatly appreciated....

Thank you

I think the periodontist will have a problem. Where do periodontists get their referrals from? Generally from GP's I imagine.

You're a GP. If you want to refer to a perio would you refer to one who shares an office with another GP or would you refer to one with their own office or sharing with other specialists that don't compete with you?

I think this "up and coming" perio will find it difficult getting referrals from other GP's. Then again, maybe you can keep them busy 3-4 days per week with your perio referrals. If that's the case then you can chat with someone who has done partnerships with other doctors and especially between GP's and specialists as they are a different breed of partnerships for sure.

I have a client owned by 4 docs, one pedo and 3 GP's. One of the GP's also does pedo and ortho. They have an ortho, OS, endo, perio, etc. They are open 7 days a week and service the complete family from A to Z.

All the doctors (owners & non-owners) are employees of the practice and get paid accordingly, no stark issues.

Unless the perio has interests in other locations (as the majority of the non-owner docs do in the example above) then it could work for him; however, I suspect ONLY with the patients the GP refers.

I can assure you that the GP's around the client I mention above do NOT refer to this group of multi-specialty doctors for their specialty referrals. They are referring to those specialists that have their OWN office so that the patients come back to them...hopefully.

So my point is that this GP/perio "venture" could work; however, I think the perio will need to have other work in other locations to feed their family.

He will be running the Hygiene and Perio in my office. We are trying to figure out what is a fair percentage on his perio production?

Generally 35-45% for perio. It’s usually closer to 40-45%.

As for what percentage on Hygiene? 10% - NOT more than 15%. Even that might be a stretch on their hygiene production. Remember, you have hygiene compensation, hygiene supplies and of course OH.

Thank you

This first appeared on Dentaltown.

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Merging Two Dental Practices with Differing Amounts of Debt

I share a building with another dentist and his associate. We have discussed merging our practices. My concern is that I have much more practice debt than he does. Some of the debt is equipment/ operatory related and should not be an issue. But I have significant other debt related to start up and cash flow issues in the past.


Are your practices similar with respect to revenue?

How can this issue be reconciled should we elect to merge?

It depends on how you decide to "merge". You could simply decide to maintain your separate practice entities and form a third entity to be the main operating entity for revenue and shared expenses. You could elect at this time to keep your assets and debts in your separate entity until such time as the debt is no longer an issue. Similar to a space sharing arrangement, I would think. Any new asset acquisitions would go through the new entity.

We have a great location and if we combined and marketed the practice as a whole it could be very profitable I believe but I am just not sure how the difference in debt can be overcome.

I'm not sure it needs to be "overcome" at this point, you have yours, they have theirs. You form the new entity and decide how net profits will be split after operating expenses. You'll receive your share and use it to pay back your debt and\or any of your personal professional expenses and they'll do the same.

It doesn't have to be that complicated. It just needs careful planning and a lot of due diligence. The other benefit of keeping your assets and debts separate initially is that IF the merger fails, it should be easier to know which assets go where and the only assets you'll have to worry about are those that were purchased after the merger.

The point that I was trying to make was the logistics of the deal. All three doctors will have to form a new corporation and their compensations will have to reflect what debt each of them has.

I think you mean they'll have to form a new entity and I agree (corp, LLC, etc.).

However, I'm not sure why their respective debt would HAVE to determine their compensation. I think their compensation can be driven by their production, as is the case with most "partnerships" and in this case, how they "contribute" to the new entity and "what" they contribute will most likely impact their respective "ownership" interests in the new entity moreso their compensation.
Our friend, Jason Patrick Wood, the Dental Attorney adds:

Why do you keep saying "three"? The original post is owner and associate. I don't let associates into my business without paying, I don't think this doctor would either which leads me to the conclusion there will be 2 owners, not 3.

I also agree with Tim. Debt shouldn't even be a consideration when entering into a compensation formula, unless the debt is at a level which may materially interfere with the value of the asset being transferred into the partnership.

Another question I have however is, where is the cost savings? What are you going to do with your respective practices? What is the short/long term goal after the merger? If you are just going to tear down a wall and merge your practices, great. However, you still will most likely be overstaffed which should be another fun discussion. All of these issues IMO need to be worked out before you even start contemplating an actual agreement. Partnerships, when formed correctly, take time and openness to create a model that will work for you.

Yes, I meant that all three of them will form a new entity. And once their compensation agreement is set up, the doc with debt could use his salary as pre-tax dollars to pay off that debt. What're your thoughts?

Each partner (who could still maintain their existing entities to form a new one) could use their respective profits from the "partnership" to pay their respective debts and professional expenses. The expenses would naturally be tax deductible, debt would not.

This first appeared on Dentaltown.

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Merge Dental Practice in with a Specialist?

In my situation, things would be a bit different than the typical merger. I am mostly ortho with some general dentistry. I would like to do ortho only and refer the general dentistry to my partner. I get a lot of general work from people coming in for ortho so that would help feed that and the partner would have his general practice that is merging into my higher visibility more modern location.

Aany feedback or suggestions?


Merger? No.

I am in the middle of a transition though where the seller has been doing some of what you're doing and TMJ stuff. So my client, the buyer, who has been associating for 5 years and only does general dentistry is buying the general dentistry portion of the practice. The seller will remain and promise to do ONLY ortho and TMJ while the buyer promises not (and has no interest in) to do ortho and TMJ and they will enter into a space sharing arrangement.

Seller originally wanted my client to purchase a 50% interest into the entire practice I asked the buyer "so what happens if the seller retires or becomes injured, who’s doing the orhto and tmj stuff?" He said "don't know, never thought about that, I just thought it was time to become a partner".

Needless to say I talked him out of that real fast, no need to buy what you don't want and the seller may as well sell what he doesn't want....win win for both. They each have their own practices, they'll refer to each other, and seller cashes out on the general dentistry portion of the practice and will see what happens 5 years down the road with his practice. Who knows, by that time my client might gain an interest in that stuff and purchase his practice at that time, OR have the gumption to hire someone to do it and buy it, he's under no obligation to do either....

So would it be better to sell to him and then associate or work out some type of space sharing deal? How would you handle compensation on the cross referrals if it is just space sharing?

Can’t say it would be better in your case. In my case, the seller is only looking to work another 5, maybe 10 years max at maybe 2 days per week doing only those specialty procedures and the buyer has no interest in those specialty procedures.

I don't think it is kosher to receive compensation for referrals, maybe that's a state to state thing. In terms of compensation, what you produce, you keep. In my case buyer has no interest in doing certain procedures so why not refer them to seller? Seller has no interest in doing general dentistry, so why not refer them to buyer? The attorney did include some sort of referral agreement in the legal documents along with language that says as long as these two doctors are sharing space they agree to refer those procedures to each other unless specific treatment planning medical-dental guidelines dictate otherwise and they agree NOT to perform the types of procedures the other does.

How did they value the GP portion?

In terms of value, I chose to carve out the specialty work as though it didn't exist, so we were left with only the general dentistry revenue and direct expenses. Ran the numbers for the past 3 years and developed what I believe to be a reasonable range of value for the general dentistry portion only.

This post first appeared on New Docs.

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Dental Practice Merger Question

I am thinking of a looking for a local dentist to merge his/her practice with… I don't really know much about this legally, contractually, etc. but I need some advice on how to start my search?

What to do?

Well, first things first, why? This will drive your decision on where to start and how to proceed. It’ll drive the type of legal agreements you need and the structure of the arrangement.

For example, if you're looking to "beef" up your existing practice with additional patients and you don't need another doctor, you'll look for a retiring doctor or near retirement and buy their practice. Whereas if you're looking to reduce overhead and you can't handle more patients (excess space, etc,) where you need a doctor to continue to work in the space, you want someone who is probably going to be around awhile where you're space sharing or forming a partnership.

If it's the former, you could send a letter out to all the doctors asking if anyone is looking to retire now or soon and see if they want to transition their practice into yours. If it's the latter, send a letter out asking if anyone’s looking to reduce their overhead by "merging" their practice into yours in either a space sharing arrangement or a partnership.

So, first things first, why?

Why?...

To more efficiently use an existing space by combining patients and some staff plus having more patients being better able to have a profitable hygiene department.

OR.......

In the instance of a partner, to be able to have an infusion of money that would make the practice debt free, free up some time for me while better using the facility....we would effectively have to add one more employee and we would be set.

Ok, so it's the latter of my previous post, looking to have another more "long term" doctor using your facilities with you to help reduce overhead (i.e. "more efficient", "more profitable, "more time off", "better using the facility").

So you need to decide if you're ready and willing to do either one, Have a partner or two, share office space, or three, be the sole owner with the associate doctor slot coming and going (assuming most associates look for a place of their own so they will come and go). Numbers one and two seem like your best bet.

Anyway, either you, or your adviser can send a letter out to all the doctors in a specific area asking for someone that may be looking to share facilities and\or partner up with another successful doctor. Maybe include some of the specific hi-points about your facilities, location (not specific, just whether or not you believe it's a great location), technology, size, staff, ops, etc., how long you've been there, how long you've been practicing, maybe even some specific procedures you do and don't do, enough information to help someone determine if there's a fit.

In terms of contracts, legal structure, you might want to sit down with a dental specific adviser who has done many different types of transactions to get some ideas of approaches. That could be an attorney, CPA, transition consultant, etc., someone that will help guide you to a specific approach that seems to be what YOU want to do.

If number three above suits you better you could also check with a broker in your area for someone looking to sell and begin looking to hire an associate, or, send out the letter asking for those ready to retire.

Good luck.

This post first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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