Dentistry, Oral Surgeons, and the Inefficiency of Small Markets

1. VCs are already doing this. They have offered to buy both the oral surgery practice and the dental practice I use in town.

2. The care they provide turns worse and worse because the model you envision turns a professional (someone who should have a fiduciary responsibility to the patient's best interest above their own) into an employee of a non-professional corporation. All of the pre-and postoperative care that you envision being done by less highly paid individuals in order to free up the surgeon to "generate profit" gets done cheaply and more slapdash resulting in worse and worse patient care. Either the oral surgeon fights back and attempts to maintain the physician patient relationship and gets fired from their own practice that they sold out (pretty common already with Derm and Optho) or they don't and you get the actual medical version of the plastic surgery chop shops common in Miami. This ethical problem is why non-lawyers cannot own a legal practice and yet we failed to recognize the same destruction of the professional relationship when it comes to physicians.

3. Aspen dental is a franchise based venture capital funded organization that already does this.

4. This is where rationalists fall apart. Everything you say makes sense, but it doesn't take into account the sociocultural aspects that make a physician patient relationship different than the value extractive relationship that you propose.

Any time I am faced with this kind of shocking inefficiency, I ask myself a simple question: why was no one doing this before?

Well, as I understand it, the general belief is that...

1. The "scaled up" practices are relatively unpleasant to work in, and make people (who went through a lot of education expecting to get "prestige" jobs, mind you...) feel deprived of agency, deprived of choices about the when-where-and-how of their work, and just generally devalued.

2. The "non business savvy" people who actually generate the value believe, probably entirely correctly, that somewhere between most and actually-more-than-all of the increased income from that kind of scale-up will end up going to MBAs (or to the one or two theoretically-practitioners who actually own of a "medium-sized" practice), and not to them^[1].

3. Healthcare facilities operated by private equity are widely believed, both based on industry rumor and based on actual measurement, to reduce quality of care, and people don't like to be forced to do a bad job if they don't have to?

Why would you voluntarily make your daily life actually unpleasant just to increase an already high income that you'll probably have less time to enjoy anyway?

"there was a model that worked ok, and there weren't enough businesses savvy people who understood enough of the details to really scale the DSO model."

This applies to a lot of the enshittification of the world.  There used to be tons of small/family businesses, where "successful" for the owner was defined as "make a decent living, by working harder than average".  There was tons of value left on the table (or rather, lots of unmeasured surplus went to consumers).  When things started getting moneyballed - optimized financially and reframed in terms of capital and returns, that surplus got squeezed out.

Quality in dentistry has been going down.  The custom work of crowns, quality of fillings, and etc, have been going by the wayside for cheaper options that the consumer doesn't grok the downstream expenses of.  Generally the chain dentists don't even present options.  I found this out recently after getting some miracle filling that just seems so easy and cheap as "technology has improved" but I would have happily paid for gold or amalgam and a more professional job.  Hadn't had one in about 28 years, so I took their sales pitch as fact.  I also understand that Crowns are similar, and vary in expected lifetime, quality, etc.  I made a contact in the industry who actually runs a shop making them, but she informs me the industry is running the other way, towards cheap and will need replacements down the road.

But on the business side, the "Blue Oceans" Strategy (see the book) of removing options, cutting cost, removing details, and making off with a ton of cash like Yellowtail Winery is an easy sell.  It's just that with eyes, teeth, my body, etc, I would prefer a different model.  It's hard to be educated enough for all to be caveat emptor and up to recently I at least trusted a dentist when I walk in.  Now I don't even know how to buy quality or who to trust.

Tragedy of capitalism in a nutshell. The best action is to dismantle the artificial scarcity of doctors. But the most profitable action is to build a company that will profit from that scarcity - and, when it gets big enough, lobby to perpetuate it.

The reason most dental practices were owned by dentists and their families rather than by investors before the passage of the affordable care act is probably that there is no practical way for the investors to tell whether the dentists running the practice are cheating them (e.g., by hiring his cousin to work at twice the rate at which the cousin's labor is really worth).

In contrast, VCs (and the investors into VC funds) can trust the startups they invest in because they pick only companies that have a plan to grow very rapidly (more rapidly than is possible if revenue scales linearly with such a constrained resource as dentist labor or oral-surgeon labor). When the proceeds of an IPO or sale of the company are several orders of magnitude larger than the amount invested, any "self-dealing" on the part of the execs of the company being IPOed or sold become irrelevant -- or at least easier for the investors to detect and to deal with.

Although private-equity funds gets paid mostly by IPO or sale-to-a-larger-company just like VC does, because they don't limit themselves to investments that have the chance of growing by orders of magnitude, they have a more difficult time raising money. They must rely more on loans (as opposed to sale of stock) to raise money, and what sale of stock they do do is to a larger extent to high-net-worth individuals with an expertise in the business being invested in or at least an expertise in the purchase, sale and management of mature companies where "mature" means "no longer has a realistic chance of growing very much larger".

During the dotcom boom, there was a startup out of LA whose plan involved search-engine optimization, but the young men running the startup decided to spend some of the money they raised to make a movie. When the investors found out about the movie, they hired private security contractors who teamed up with LA police to raid the startup and claw back as much of their investment as they could (causing the startup to dissolve). I offer this as an example that self-dealing is possible in a startup, but it is easier to deal with: when a private-equity fund gets together 100 million dollars to buy Kleenex Corp or whatever, then finds out that the execs at Kleenex are spending a significant amount of the corp's money to make a movie (which they didn't tell the investors about) they can't just walk away from their investment: they have to fire the execs and hire new ones or step in and run the corp themselves, both of which will result in an interval of time during which the company is being run by exec still learning about the company, which is a costly undertaking.

There are direct parallels to companies like BetterHelp taking over online mental health. 

The difference is that mental health practitioners make less money than surgeons, customers (or their insurance providers) are willing to spend more on a dental surgery than on therapy. 

The similarity is that once the corporation took over, the corporation is the one who is accountable to both customers and providers, instead of the providers being accountable to customers. If the corporation has monopoly power (or duopoly etc) they can get away with providing mediocre outcomes and mediocre pay to both customers and providers, because they know customers and providers aren’t left with better options in this new world. 

In the dentistry case this might mean providing dentists 50% more pay for 300% more work and shitty bosses, and providing patients with worse care at a 20% cheaper price than what they paid earlier, and lobbying for regulations that make it more painful for a dentist to start a private practice. (I don’t understand the dentistry business myself, this is pure conjecture on my part.)

Someone like Paul Graham might say it’s more profitable over the long run to offer good terms and good behaviour to your customers even if you’re now a founder billionaire. If your objective is world domination he might be right.

But he too agrees you can get away with offering shitty terms and shitty behaviour if your objective is to get rich and cash out your billions within a few years, and not care about what happens afterwards. You will definitely be surrounded by lots of shortterm-thinking investors and shortterm-thinking MBAs who have even less accountability than you as the founder billionaire. Their reputation will get affected zero if your company burns to the ground in the next few years and they too will probably encourage shortterm thinking. 

You can read two sided markets by Sangeet Paul Chaudhary, there is some similarity even with Uber middlemanning drivers and riders or AirBNB middlemanning landlords and renters.