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Due Diligence When Purchasing a Dental Practice: A Risk and Compliance Perspective

Posted Mar 3rd, 2020 in the wire, thought leadership, 2020

Julian Perez, Vice President, Risk Management & Compliance, dentalcorp

Purchasing a dental practice can have a lasting impact on a dentist’s career and is one of—if not the—largest investments of a lifetime. Acquiring the right practice can provide a dentist with meaning and satisfaction for years to come; however, buying the wrong one can leave a dentist worse off than owning no practice at all. Such an important decision requires careful deliberation, attention to detail and due diligence.

Due diligence is the process through which buyers determine whether a practice—taking into account its potential perils—matches their present and future needs. While there are a number of important factors to consider at the outset, one of the biggest areas often overlooked or superficially addressed is the costs and risks associated with regulatory compliance. And yet this component can greatly impact the short and long-term success of a practice. With today’s dentists under pressure to meet increasingly complex regulatory requirements, it is vital to ensure the clinic is compliant prior to purchase; and if not, one must fully understand the investment needed in order to make it compliant.

In an article published in Oral Health in 2018, John Hardie, BDS, MSc, PhD, noted that “Implementing all of the [RCDSO’s IPAC] Standard’s recommendations will necessitate immediate and long-term capital and labour expenses.” Depending on the extent of renovations needed to provide a dedicated sterilization area with one-way flow, or the equipment required to handle the volume of patients seen by the practice, the cost of compliance can easily exceed $100,000 (excluding downtime for renovations, training and/or hiring of staff, etc.). In the past three years, several provinces in addition to Ontario have overhauled their IPAC standards, meaning the cost of acquiring and operating a practice has increased significantly. The remaining provinces are expected to follow suit in the coming years. Let the buyer beware.

Infection Prevention and Control (IPAC): What to know before you buy

For those looking to purchase a practice, most sterilization areas are out of date—both in design and equipment—and do not comply with today’s more rigorous standards. While some clinics have recently invested in this area, many have not. Dentists on the verge of retirement often make a calculated decision to forego such an investment (and the significant dollars required to make it). While that calculated decision works for someone at the end of his or her career; buying a practice with a deficient steri-centre represents a significant legal, financial and reputational risk for the purchaser.

Continuing to operate such a clinic without making the appropriate upgrades is, in today’s world, professional Russian Roulette. According to a recent study, public health complaints in Ontario rose 470% between 2015 and 2018, with a meaningful amount originating from staff at the clinic itself. Anecdotally, IPAC related complaints are up across Canada, as are practice closures and the damaging media attention they attract.

Purchasers of dental practices must take into consideration the cost of compliance when deciding:

  1. Whether to buy the practice;
  2. How much to pay for it;
  3. If significant improvements will be required; and
If so, who is responsible for the cost of those expenses.

The regulatory landscape and other related risks

As demonstrated, healthcare is heavily regulated. Indeed, after aviation, it is the most heavily regulated industry. Although quantifying the regulatory risk posed by the clinic you are considering purchasing is a tall order, the task must be attempted. Failing to ensure the practice holds the appropriate sedation and radiation licenses, for example, can result in business disruption, not to mention a logistical nightmare.

The same can be said of overlooking the importance of the practice’s privacy and data security systems. As you read this, somewhere in Canada, a practice is experiencing a ransomware attack—or worse—having their data stolen surreptitiously. When a new dentist is getting acquainted with a practice’s patients and staff, demonstrating confidence and competence is essential. Having to explain to patients that their data was stolen or encrypted is the last thing a new owner needs.

Fortunately, the risk of facing these scenarios can be greatly reduced if you approach buying a practice intelligently and systematically. As is often said, knowledge is power, but you must know which questions to ask and how to make sense of the information you receive. As most dentists only buy one practice in their lifetime, getting it right the first time is a must.

The nuts and bolts of legal and regulatory due diligence

Before buying a practice, dentists should find out whether there have been any recent lawsuits, disciplinary proceedings, investigations or regulatory complaints that may impact the practice’s value.  If after the buyer has reviewed the information, and they still have a strong interest in acquiring the clinic, the next step is visiting the practice to evaluate the location, facility and equipment. During this visit, the buyer should:
  1. Take pictures of the equipment;
  2. Verify that the practice has a preventative maintenance regime in place;
  3. Examine recent reports generated during routine servicing and repair of equipment; and
  4. Ensure any issues identified in the reports have been resolved.
Using a sedation monitor, NO/O2 delivery system, or CBCT machine that is malfunctioning presents both safety and liability issues. Therefore, the buyer or a trusted dental equipment representative should inspect all critical equipment to ensure it remains in good working order prior to the sale, and that the expected remaining life of the equipment is adequate. At the same time, the interested buyer should insist on receiving a room-by-room equipment asset list to ensure they receive everything agreed on once the practice is purchased.

Once all the above information is collected, the buyer will know whether, e.g., IT systems need to be upgraded or whether sedation units need to be replaced—or worse—a new sterilization area needs to be built. Taken together, these legally necessary improvements often comprise a significant investment of money and other resources. Having all of the relevant information is the only way for a buyer to know whether the price they are paying is fair.

A dentist’s mind should be on caring for patients’ health and supporting team members in a safe environment. Approaching the due diligence process in a focused manner and knowing how to identify legal and regulatory risks, will allow the dentist to make a wise purchasing decision: one that will set them on a new and rewarding professional path, while ensuring safe and effective care for their patients.

As originally published in Oral Health.

About the Author

Julian Perez is the Vice President of Compliance & Risk Management at dentalcorp and is responsible for the development, implementation, and oversight of company-wide standards, programs, and systems to support practices in the delivery of optimal patient care. Julian has a robust legal background having worked for a Wall Street law firm in Manhattan as well as a professional liability program providing malpractice defense to over 10,000 dentists. Julian holds a bachelor’s degree from Yale University and a juris doctorate from Columbia University’s School of Law.

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