WNY Dental has parent that’s listed on Nasdaq
Publicly held practice is growing fast
Here’s a new investment you can sink your teeth into.
Americans spend nearly $100 billion on dental care every year, but now patients in Western New York might also be able to take stock in their dentist — literally.
In recent years, a publicly traded dental practice management company from Massachusetts has quietly bought up two of the largest local dental practices.
Through its purchase eight years ago of Western New York Dental Group and last year’s acquisition of Barzman, Kasimov & Vieth, the company has assembled a local team of 50 dentists at 16 locations in Buffalo and Rochester. It also owns Voss Dental Laboratory.
That’s a powerful presence for Wakefield, Mass.-based American Dental Partners, an 18-year-old firm traded on Nasdaq.
And it’s derived significant financial benefits from such strength in markets across the country, reaping profits of $3.6 million in the first half of this year on $140 million in net revenues. Profits fell 39 percent, but revenues rose 31 percent from the previous year.
Shares rose 4 cents Friday to close at $12.44.
But the public ownership structure is highly unusual for the medical world, especially in a traditional market like Western New York.
Many of the same dentists still practice at Western New York Dental as before the takeovers, and patients interviewed by The Buffalo News say they don’t notice a difference in service.
And Western New York Dental president Michael D. Ehlers, in a letter included as part of American Dental’s 2007 annual report, credits the relationship with helping Western New York Dental grow from $3 million in revenues and four offices to $34 million and 16 offices.
However, the dentists now work for someone else outside the state instead of a local owner, giving up part of their bottom line to American Dental. And as executives at a public company, the American Dental bosses are ultimately responsible to their shareholders on Wall Street — who want to see higher revenues and profits.
One of American Dental’s practices in the Midwest, Park Dental in Minneapolis, broke away early this year after suing the company and winning a $130 million jury judgment because it wanted to regain its independence.
And at least five dentists from Barzman have already left Western New York Dental, citing a desire to return to a locally run, completely doctor-owned, and more personal practice. They formed their own business, Inspire Dental Group, with offices in Orchard Park and Amherst.
Execs won’t comment
Executives at American Dental and Western New York Dental, which absorbed Barzman, declined to speak to The News, citing company policy not to do interviews about the firm itself. Stuart Barzman, who along with Jerald Kasimov retired after selling their 30-year-old practice for $17.6 million, could not be reached for comment.
But Kasimov, 62, said he and Barzman “did a lot of research” on American Dental and even traveled to Indianapolis to observe what the firm did at other practices and to ensure that employees would be taken care of. He said American Dental had first contacted them eight years ago, but “we were not ready to be acquired.”
“They kept pursuing us. The timing was right, and they gave us an offer we couldn’t refuse,” he said. “We were at an age where an exit strategy was important to us.
“From what I understand, everything is working out very nicely. They’re doing a great job. I’m really pleased.”
The concept of medical practice management companies has grown rapidly, especially in the Midwest, as the business of running medical offices has become more complex. Such firms handle the financial, administrative and related duties of running an office, leaving the doctors to practice medicine.
“Health care delivery is very expensive and it takes a lot of money to develop the delivery systems and comply with all the requirements,” Kasimov said. “It’s very difficult for a single practitioner.”
However, most such companies nationwide today are privately held. A spurt of companies went public in the 1990s, but expanded too quickly, burdening themselves with debt that drove them either into bankruptcy or into the arms of private equity buyers. Only American Dental Partners and Pediatrix Medical Group remain public.
Such structures are even rarer in Western New York, where publicly traded, for-profit health care of any kind is still largely unheard of. Unlike in many parts of the country, all of the area’s hospitals and health insurers are nonprofit. That makes Western New York Dental’s relationship with American Dental unique.
“The fact that it’s publicly owned and for-profit does not equate to poor quality,” Kasimov said. “It’s a high-quality group. It is not a fly-by-night operation. They’re very topnotch.”
American Dental and Western New York Dental say they don’t try to hide the relationship. But they also don’t advertise it. In fact, several patients interviewed outside a former Barzman office said they had no idea of the ultimate ownership, and wanted to know more.
Even Western New York Dental’s Web site has no mention of American Dental Partners.
“We’re not trying to conceal it,” said Dr. Robert A. Gianadda, a dentist who co-founded Western New York Dental in 1972 and served as its president. “[Patients] realize we’re a big company.”
Founded in 1995, American Dental Partners today has 27 dental groups with 554 dentists in 18 states nationwide. Its practices operate 242 dental facilities with 2,097 “operatories” or dental chairs, including 164 in Western New York.
When adding another practice, American Dental typically buys certain assets and signs an initial 40-year service agreement with the practice. The agreement calls for American Dental to administer the non-clinical aspects of the business in exchange for reimbursements and management fees, while the practice delivers dental care.
For the first six months of 2008, total patient revenues for affiliated practices amounted to $201.2 million, of which $125.8 million went to American Dental under the service agreements. That means the practices themselves kept just 37.5 percent of revenues.
Began in 1996
American Dental acquired its first practice and signed its first service contract in November 1996, and has made 95 purchases since.
But its success ran into a brick wall when the doctors of Park Dental, which had been American Dental’s first affiliation in 1996, sued the company in 2006, alleging a breach of the service agreement, breach of fiduciary duties, and violations of state law. The doctors wanted the service agreement nullified or reformed by the court.
A jury awarded the doctors $130.5 million in compensation and punitive damages. In settling the case, American Dental transferred the leases and associated real assets for 25 of Park Dental’s 31 facilities, along with the tradename, back to the doctors on Feb. 29. It also agreed to continue providing interim management services for up to nine months for $19 million in fees, while forgiving $3 million in accounts it was still owed from Park Dental.
Now the company is facing several class-action shareholder lawsuits, accusing management of hiding the true nature of the lawsuit and the likelihood of a settlement. The cases are still pending.
