Associateship Goals vs. KEY Employment Considerations!

In Business by Dental Entrepreneur

Associateship Compensation Needs vs. What Today’s Employers are Willing to Pay

The majority of today’s dental graduates, after their primary dental-school education, general practice residency and/or any specialty school training if applicable, will begin their dental careers as an associate. At Henry Schein’s Practice Sale Division or from Schein’s Associate Placement Division, one of the most frequently asked questions we receive is what associates should be looking for in compensation and benefits for an associateship position?

Before answering, there are two questions that need to be addressed before we discuss a response to what can an associate expect as compensation in today’s marketplace. The first is, “What are the associate’s primary goals for the position they are seeking?” and the second is, “What type of practice are they interviewing for or with?” This discussion will provide answers to what is being offered in the marketplace for the different types of practices and which type of practice delivery model will best suit the personal needs/goals of the applicant.

Goals of Employment

From a compensation perspective, there are two primary goals any new dentist must consider. The first is income with no future ownership, and the second is income with a possible future ownership opportunity. Compensation includes both salary/compensation considerations and additional desired or needed “fringe benefits.”

Compensation is typically structured as 25-35 percent of expected dollars generated as a result of services performed on behalf of the employer. This percentage is applied against “collectible” production/collections. If the practice provides services to a number of “discounted dental plans,” the employer cannot afford to pay the percentage on services that have a base fee that is different than what the employer will actually receive in payment for those discounted services.

As an example, at a compensation of 30 percent, if the fee for the service rendered is $100. But after a 20-percent discount is applied, the “collectible” fee is $80, and the associate earns 30 percent multiplies by $80, or $24, for that service. This is the basic compensation structure for most employment agreements.

Most new dentists desire a guaranteed fixed salary because they need immediate income. They simply cannot afford to take a position that does not guarantee some minimal fixed monthly salary. While for general dentists, few employers can offer strictly a fixed salary, many specialty practices can and do. For general dentists, most employment agreements structure this income guarantee need through a “guaranteed draw” against the anticipated actual earned compensation.

Monthly guaranteed minimum compensation draws range from $5,000-$10,000 per month for general dentists and $10,000-$15,000 per month for specialists. The amount of this draw is dependent on the type of service provider (private practice versus corporately owned practices), whether potential future ownership will be offered and what the practice owner feels they can both afford to pay versus what the marketplace is paying to secure associates. For private practices and MLSP’s, initial draws are typically lower than DSO/MSO and guarantees end after 6-12 months for all practice categories.

In addition to base compensation, required/desired fringe benefits are another consideration for every new dentist. Most common insurance needs include health and malpractice insurance, but unless the practice has group coverage for all employees, disability and life insurance are typically not available. Another consideration is some type of continuing education cost allowance/reimbursement.

While most employers cover the cost of personal protective equipment, uniform allowances are sometimes covered, but with annual cost limitations. Most practices allow vacation and/or personal time off, but because there is no production during these periods, the time is unpaid. Some DSO/MSO groups offer, as part of their base compensation, limited profit sharing. While some practices have some type of retirement plan, participation is typically at the cost of the employee through an offset to their earned compensation or lower beginning compensation percent.

Secondary non-compensation goals of the associate are the second “goal related” consideration. Most common goals, after compensation, include developing clinical service skills, increasing speed of service delivery and learning new skills. All practices offer this. The other most common goal we see are a desire to learn the “business” side of practice and practice ownership, including dealing with insurance companies, accounts receivable management, understanding profit and loss statements versus the costs of operation, personnel and human resource management, required operational and personal insurance needs, and embezzlement protection methodologies. While these are common secondary goals for most new dentists, the reality is that few employer dentists are willing to provide this training as part of their employment offer.

Classification of Service Providers

Today’s dental service providers are broken down into three types. The first type is the traditional Solo/Small Group Practice. The Small Group practices typically have 1-3 owners and 1-3 practice locations. Traditionally, about 80 percent of all practicing dentists have operated dental practices in this manner. Many, but not all, of these types of practices will look for associates who are not just interested in employment, but also want future ownership. Many will consider hiring an associate in anticipation of selling their practice and retiring from ownership and/or totally retiring from clinical practice.

The second type of dental service providers are large, corporately owned practices. These practices are commonly referred to as Dental Service Organizations (DSO’s) or Dental Management Organizations (DMO’s). Their growth in the marketplace typically follows one of two paths. The most common is through practice acquisition, and the less common method is through start-up (de novo) practices. Many of the companies that started in the marketplace as de novo practice groups, in an effort to speed their growth and market share, have added practice acquisitions to their growth model.

These corporately owned practices offer professional management systems, and have “branded” their organization under one name. They typically have 20-200-plus practices under one ownership group. As a result of their size and success in the marketplace, most have unlimited capital resources to fund their growth. These groups have also become the largest employers of new dentists. Some of these groups have been around for 20-30 years. Most of these large groups offer employment only and no promise of possible future ownership, but some may include stock or similar ownership in the entire organization as a means of practice ownership.

After seeing the success of the DSO/DMO groups, the marketplace has seen the emergence of the newest group of service providers. Most are owned by entrepreneurial dentists who have entered this field as “Mid-Level Service Providers” (MLSPs). These groups are defined by both their ownership model and the number of practices under common ownership, typically 3-20 practices. Their market is typically more local (usually within one or two states or limited to one large city and immediate surrounding area), as compared with the DSO/DMO practices which typically cover 2-10-plus states. Funding for future growth of the MSLPs is almost always a challenge, and subsequently many of these MSLPs offer future ownership possibilities for their associates. This is not only the newest group but also the fastest growing group.

As a result of the popularity and growth of the DSO/DMO/MLSP organizations, the number of dentists continuing to practice as solo practitioners or small group practices has been in a steady decline. While historically 80 percent of all dentists have practiced that way, it is currently estimated that this number today is closer to 60 percent.

Comparison of Goals vs. Practice Ownership Models

The following chart compares the typically seen employment offers with the various employment group types. This will allow the new dentist seeking employment to compare their goals of employment with the various types of possible employers. It is designed to allow a new dentist to compare these employers and determine which type of employers will best match the needs of the new dentist.

Final Considerations

To protect their practices, all employers will require non-compete/non-solicitation agreement. For this reason alone, a legal review of any agreement is advised. In addition, as noted by this discussion, the specifics of any employment agreement are complicated and associate candidates should have any employment agreement carefully reviewed by an attorney familiar with dental practice employment agreements before signing and entering into any employment agreement.

From a cost perspective, the typical review cost we have observed is $500-$1,000, and at the start of your career, this is one of the best investments a new dentist can make. Important note: before hiring any attorney, make certain what the cost will be. You are asking the attorney to review the agreement and let you know any concerns they may have. You should not allow the attorney to “negotiate” the agreement. This will not only add considerable cost for their review, but also exponentially increase the chances that the employer may withdraw their offer of employment.

Dr. Eugene W. Heller is the Vice-President of Pro- fessional Practice Transitions, a nationwide dental practice sales and consulting organi- zation. He can be reached at 1-888-477-8552.