Disrupting the DSO Status Quo Common Issues with the Group Dentistry Business Model, and How to Fix Them

Anne Duffy with Ian McNickle, Co-founder and CEO of ICON Dental Partners.

The following interview was conducted by Anne Duffy with Ian McNickle, Co-founder and CEO of ICON Dental Partners.

Anne: I’ve been looking forward to this interview. I met some of the women from your executive team at the DeW conference. They were really excited about ICON, but before we discuss your business, I’d like to learn more about you.

Ian: Yes, I’d be happy to tell you about my background and passion for this industry. I began my career as a mechanical engineer working in the high-tech industry. My first position was as a process engineer making semiconductors. In that role, my job was to own several processes on the manufacturing floor and work with other departments to optimize our product capabilities, reduce costs, and improve yields. That world was all about figuring out what the fundamental items driving performance were and how we can optimize them.

A good deal of the issues were related to the manufacturing process itself, but an equal number of issues were related to people. I had some good mentors early in my career who helped me quickly understand the importance of teamwork, culture, and getting everyone on the same page. When I started focusing on the people aspect of my job, the results were amazing.

Going from engineering to the dental industry, how did that happen?

I’ve been asked that question more than a few times. I quickly realized that while I enjoyed figuring out engineering challenges, I actually enjoyed leading teams and developing people even more. Towards the end of my time in high-tech, I got an MBA, which helped me gain a much broader understanding of business.

After 10 years in high-tech, I decided I wanted to be an entrepreneur, so I quit my job with no clear idea of what I was going to do, but quickly landed on business consulting. I started a regional consulting company that did alright, but my first real success was co-founding a national marketing agency called WEO Media in 2009. By 2011, we decided to focus exclusively on the dental industry, and I’ve been working in this industry ever since.

That’s an interesting route you took. How did you go from marketing to building a dental group?

One of my former clients at WEO was a general dentist named Jeromy Dixson who started and built a regional DSO in the Pacific Northwest. He successfully scaled and sold that business with investors, and after a year-long sabbatical, he had a number of his dentist colleagues from around the country ask him for help to build groups as well. That was in 2017, so he decided to start a DSO consulting firm, and shortly thereafter asked me to be his business partner.

We consulted for small, emerging groups all over the country. It was a lot of fun and very interesting work, but after a few years, I talked with Jeromy about building our own group. He agreed, and we began laying the groundwork for ICON.

How did you go about building ICON? How did it start?

One of the key things I learned from the DSO consulting experience was that the most important thing we needed to figure out was how to recruit and retain great doctors. When I was building WEO Media, I spent a good deal of time researching and interviewing doctors to find out what they were looking for in a marketing agency. That approach was very successful, so I did the same thing with ICON. Over the next 18 months, I started doing a bunch of interviews and initial recruiting for ICON.

I spoke with over 200 general dentists and specialists, and asked them things like: What stresses you out about private practice? What things would you delegate? What would an ideal group look like to you? I also asked questions like: What horror stories have you heard about groups? What would prevent you from joining a group? And so on. It became clear after a while what the main issues were, so we spent a good deal of time innovating solutions to common problems in most groups.

So, it sounds like your business model is focused on this feedback from doctors. What does ICON look like today? Tell me about your group.

ICON operates as a DPO (Dental Partnership Organization), which is a significant improvement over the traditional DSO (Dental Support Organization) model. Our approach is truly a partnership. In fact, we put doctors in control of the Board, and everyone on the Board is a doctor except for me.

In our model, doctors continue to fully own their practice entity and continue to own the patient records and charts. Our partner doctors have complete control over all clinical decisions and practice staffing decisions. Likewise, they fully control the work schedules for themselves and their practice team. I often tell our doctors, “I am not your boss, I am your business partner. The Support Team and I work for you to support your practice, not the other way around.” This is how it should be, in my opinion.

The ICON support team handles all of the non-clinical services like HR, recruiting, payroll, bookkeeping, accounting, marketing, IT, cybersecurity, paying the bills, etc. We also collaborate with our partner practices to provide additional support around collections, procurement, vendor negotiations, vetting new technology, and so on.

In addition, we’ve implemented some truly unique innovations that don’t exist in most groups. For example, one common problem with most groups when it comes to holding company stock is that there is a disconnect between individual practice performance and the stock performance. The problem is that if one practice grows and another does not, they both get the same stock gains.

To address this issue, we implemented a really innovative process to reward doctors with additional stock each year based on their increase in profitability (EBITDA) that year. This creates a fair system that properly incentivizes doctors to perform and rewards them for doing so. It also means doctors never leave money on the table by joining us during a growth phase, since they always get rewarded for current and future growth. This is not normal in group dentistry.

Another common issue with many groups is the aggressive clawbacks that come into play when doctors want to retire. Without going down a legal rabbit hole, I’ll just keep it high level and say we have implemented fair and transparent processes to give doctors an excellent scenario to be able to cash out the full value of their shares, much more so than in traditional group models.

Your business model sounds very favorable for doctors. As you continue to grow, how do you ensure things stay this way for the doctors and don’t change over time?

By putting doctors in control of the Board, key elements of the business can only change if they approve it. When we launched ICON, we had a couple of dozen doctors who functioned as fellow co-founders, so we carefully designed every aspect of the business with their input and approval. We literally drafted the legal paperwork with the doctors and the attorneys, all working together as a team to produce an excellent framework that is favorable to doctors. The end result is a business model that doctors love!

One of the coolest aspects of building ICON these days is that after I explain our model in detail to a new doctor, they tell me, “This sounds too good to be true.” I always smile when I hear that, and I tell them, “It should sound really good because our model is based on the input of what hundreds of dentists and specialists told me they wanted. So, we built it for them. That’s why it sounds so good to you.”

If we step back for a minute and look at the bigger picture. Do you have an idea how many doctors have joined groups? What is driving the trends to join or not join?

Yes, the ADA has a division called the Health Policy Institute, and they periodically publish data showing the industry trends for private practice vs. group practice participation. Their most recent data shows that around 15% of doctors across the country are now in some sort of group practice model. I have seen other studies with slightly higher numbers, so my guess is we’re somewhere between 15% to 20% of doctors who are in some sort of group.

I think there are two main factors that entice doctors to join a group. One factor is to get the help and support that comes from being part of a larger organization, such as delegating non-clinical support items to a centralized support team, clinical skills development, team training, gaining negotiating leverage with vendors, and collaborating with other partner doctors. These are common benefits that doctors can enjoy.

The other major factor is that the financial potential is significantly higher in a group model than in private practice. I teach a course on this topic, but I’ll keep it brief for our conversation.

Historically, when a dental practice is sold, the practice valuation is based on a percentage of collections, typically around 70% - 100% of collections. However, investors and groups value practices on a multiple of the practice’s EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). This is an accounting term to describe the cash flow in a business. Investors like this metric because it helps them analyze margins and compare investment opportunities within an industry, and between industries.

A single private practice is typically valued around 4 to 6 times the practice’s EBITDA, which often equates to around 70% to 100% of collections. The key financial force driving industry consolidation is that as a group scales, the multiple on the EBITDA generally goes up. For example, a group with $10M in EBITDA might be valued around 10 times EBITDA, and a group with $50M in EBITDA might be valued around 12 to 14 times EBITDA.

Imagine a group that is worth 10 times EBITDA acquires a practice for 5 times EBITDA. The minute that practice is acquired onto the group platform, it has literally doubled (or more) in value. As you add more and more practices to your platform, the incremental valuation gains become huge. As long as a group can continue to grow its EBITDA in a financially responsible manner without huge loads of debt, the potential financial returns can be enormous, far exceeding what is possible in private practice.

Where do you see ICON going? What are you trying to achieve in the industry?

I repeatedly tell our partner doctors and support team, “We are doing group dentistry the right way, for the right reasons.” Many of the larger groups in the country are quite corporate in their approach, and often create environments that doctors and teams do not like. We are trying to do our small part to move the industry back towards a focus on doctors, teams, and patients.

We are like any business with challenges, ups, and downs. However, we keep focused on our core purpose and values, and that allows us to pull together as a group and continue to perform at a high level. I have worked in and around many companies throughout my career, and the culture we have built at ICON is the best I have encountered.

My co-founder, Jeromy, likes to say, “ICON is the capstone of our careers”, and many of our executive team members feel that way as well. We have been able to recruit an incredibly talented and experienced executive team, largely due to this vision of what we’re building.

I often get asked what my goal is for how big I want the company to grow. How many locations am I shooting for? Those are the wrong questions to ask. Our goal is to build a great company that doctors, team members, and our support team can be proud of because we are focusing on patients and providing great care. It’s not about the number of locations, revenue, or margins. If you build a company the right way for the right reasons, your revenue growth and margins will be good, and ours are really good. As I learned at the beginning of my career, when you focus on people and process, the results can be amazing! That’s what we’re building at ICON.

Thank you Ian, I am excited by what you are bringing to the industry.

Thanks Anne. It’s been a pleasure chatting with you today.

If you would like to learn more about ICON, please contact Ian McNickle at ian@icondentalpartners.com, or online at www.icondentalpartners.com.

Ian is the Co-founder and CEO of ICON Dental Partners (www.icondentalpartners. com), a uniquely developed multi-specialty DPO (Dental Partnership Organization) with practices throughout the country. Prior to ICON, in 2018, Ian partnered with Dr Jeromy Dixson to build a national DSO consulting firm called The DSO Project. In 2009, Ian co-founded WEO Media (www.weomedia.com), an award-winning dental marketing agency.

Ian has been named a Top CE Leader and Consultant by Dentistry Today for five consecutive years. He’s written numerous articles for industry publications, and published his first book “Mastering Practice Growth – The Definitive Guide to Growing Your Dental Practice or Group”.