Ali is the founding attorney of the Dental and Medical Counsel, P.C. law firm and one of the nation’s leading legal authorities on topics relevant to doctors. Since its creation, the Dental and Medical Counsel P.C. law firm has been regarded as one of the preeminent law firms devoted exclusively to healthcare professionals.
Clients seek Ali’s advice on practice acquisitions and sales, creation of corporations and partnerships, associate contracts, estate planning, employment law matters, office leasing and state board defense. He is also the co-founder and Chief Executive Officer of HR for Health, which is a software as a service platform that provides web-based human resources solutions and advice for health care practice owners and managers.
Additionally, he is recognized as an exceptional speaker and educator that simplifies complex legal and HR topics and has lectured extensively throughout the United States, including audiences such as the American Association of Orthodontists, the American Dental Association, and the California Dental Association. He is also a frequent guest lecturer at local dental, veterinarian, optometry and physician societies and study groups. He is frequently quoted and has written articles for numerous magazines and publications. In addition, Ali is the author of “The Strategic Dentist: An Entrepreneur’s Guide to Owning a Dental Practice” which guides dentists to build or purchase a successful dental practice by avoiding costly mistakes.
https://www.dentalcounsel.com/
VIDEO - DUwHF #1057 - Ali Oromchian
AUDIO - DUwHF #1057 - Ali Oromchian
Listen on iTunes
Howard: It is just a huge, huge honor for me today to be podcast-interviewing Ali Oromchian. He's a lawyer at dentalcouncil.com. Ali is the founding attorney of the Dental & Medical Council law firm, and one of the nation's leading legal authorities on topics relevant to doctors. Since its creation, the Dental & Medical Council, P.C. law firm has been regarded as one of the preeminent law firms devoted exclusively to healthcare professionals. Clients seek Ali’s advice on practice acquisitions and sales, creation of corporations and partnerships, associate contracts, estate planning, employment law matters, office leasing and state board defense. He is also the co-founder and CEO of HR for Health, which is a software as a service platform that provides web-based human resource solutions and advice for health care practice owners and managers. Additionally, he is recognized as an exceptional speaker and educator that simplifies complex legal and HR topics and has lectured extensively throughout the United States, including audiences such as the American Association of Orthodontists, the American Dental Association, and the California Dental Association. He is also a frequent guest lecturer at local dental, veterinarian, optometry and physician societies and study groups. He is frequently quoted and has written articles for numerous magazines and publications. In addition, Ali is the author of “The Strategic Dentist: An Entrepreneur’s Guide to Owning a Dental Practice” which guides dentists to build or purchase a successful dental practice by avoiding costly mistakes. My Gosh, thank you so much for coming on the show.
Ali: Thanks for the invite, Howard.
Howard: You're out of San Ramon, California. That's a suburb of San Fran?
Ali: That's right, that’s exactly right. We're about forty-five miles east of San Francisco.
Howard: I'm just so excited that I get to talk to an attorney that's not billing me $400 an hour. I want to keep you on the show.
Ali: Wait, wait, wait. What do you mean? I thought this was billable. I'm out of here!
Howard: You do so many things. Let's start with the advice on practice acquisitions and sales, creation of corporations and partnerships. It's so wild in Wall Street how the big Fortune 500, they're always doing M&A activity. They're always acquiring, acquiring, and Ali, if I named every dental office I know that does four or five million a year, it's because think about it. They were in a small town, there was ten dentists and every time the old guy retired, they thought, "Well, hell, I'm just going to buy his practice and merge into mine," because now you've gone from a pizza with ten slices to a pizza with nine slices and then you divide the purchase price by the number of active patients and usually you're under $150 a head, and then I go into that dentist's office and I look at their marketing and advertising. A lot of times they're paying two to $300 a head and then the other thing is when the old man retires, he had been petering down for ten years and now you want him to sell to some high energetic thirty-year-old whippersnapper who's going to be in the schools and in the parades and hustling. Oh my God, and I know dentists that when they started their practice, there were seven dentists in town and twenty five years later, now there's only four and he's doing four million a year. So my first question is why do you think there's almost zero M&A activity in dentistry?
Ali: Well, that's changing and there is actually a lot of activity these days occurring in that, but I think we call it different things. We're seeing a lot of mid-size to larger DSOs and MSOs buying a lot of these smaller practices because there's just not a lot of inventory out there. And then I think you've got these really amazing entrepreneurial young doctors who like you just described, have one office or have two offices and they see what dentistry can provide on a larger scale and they're going in and buying practices that fit their model. So there's a lot of it, but it's not your typical Wall Street way. It's done the way dentists do it and it's been quite successful. We probably have four thousand, almost five thousand clients and I would say a large majority of them who are thinking about adding practices to their inventory are doing it really strategically, and they're finding the practices that really mean a lot, that are doing well financially, that are in these small towns that nobody may want to live in and they're gobbling them up and adding them to their portfolio, so it's going well. We're seeing a lot of growth in dentistry and there's a lot of upside.
Howard: Now I know all my homies are driving to work right now, so they can't take notes and drive. We always provide a transcript after all these podcasts on Dentaltown, but on Twitter, he's @dentalcouncil. To make it easy for you, I'm going to retweet his last one to my twenty-five thousand homies following me on Twitter. Thanks for following me. Your article that I just retweeted which you just posted three hours ago, "Whether you're a dental practice owner or an associate dentist looking for an opportunity. There are seven crucial things you should consider when drafting an employment agreement". I want to throw a barrage of questions before you start answering that because a lot of the listeners are young millennials. They love podcasts more than old guys like me. I still read books. When you get on an airplane and the guy next to you is reading a book, you don't have to ask him if he has grandchildren; you know he does. But a couple of things. They're told when they go to the big corporates like Heartland and Aspen and Pacific Dental that, "This is a boilerplate contract. We don't make any changes." Is that true or false? And then I have seen … you do a lot of it in HR too. I've seen a lot of people, like a little twenty-five year old girl dentist, graduated in dental school, so she's going to go in with her mom. I mean, what could go wrong there? It's her mom. And then they find out it's a disaster five years later. So the bottom line is- It's the same thing with marriage. Yeah, you should get a prenuptial agreement, but do you really tell the romantic woman you're kissing and snuggling and taking selfies with that you need to see an attorney? Do recommend the dentist get a prenuptial agreement when it's with their own mother going into a practice? Are these contracts negotiable and what are the seven crucial things you should consider? Have I asked enough questions so that one of them might be-
Ali: What you hit on initially, I think is one of the biggest misnomers, Howard, that I always see, which is these big corporations always say, "Hey, this is a standard contract. No one's ever negotiated this contract. Just sign it." And you and I know that when somebody has to qualify something like that by saying this is a standard contract or no one's ever negotiated it, only you, they're trying to hide something. And these big corporations, some of which you named are doing exactly that and because young dentists are coming out worried about student debt, they're worried about are they going to find a job, are they going to be able to be financially independent at some point in their life, because they're worried about all those things, they just sign and we've had some horror stories. We've had people who signed seven-year contracts to go work as an orthodontist in Florida and then their first couple of weeks they're seeing a hundred and fifty patients a day and they're so stressed out that they can't get out and then when they try to get out, the employer threatens to sue them. Why? Because he pushed them into signing these contracts and the same thing happens across the country. But to your point about the prenuptial agreement with your parents or whatnot, when you were coming out of school, I think that's exactly right. You want to do that just so that there's no misunderstandings, because at the end of the day, who knows how financially sound the parent is or how many years they want to work?
Howard: How long have you been in the dental space, Ali? Would you say this is a seller's market for a dental practice or a buyer's market?
Ali: No, definitely a seller's market. Right now, if you're at a place in your life where you want to sell your practice, you can pretty much get top dollar for it if it's a strong growing practice. What we're seeing though, Howard, is that because of the economy and because of things that happened with the downturn, a lot of people have delayed retirement because they don't have enough money set aside for retirement. And so they keep working and working at the problem we see is that at some point, they're slowing down because they're taking more time for grandkids or vacation or whatnot, and the practices are slowly declining, which makes it harder for the dental banks to lend on it, and it makes it more difficult for the buyers to actually purchase. So a lot of this comes down to proper planning if you're in the latter parts of your career and you're getting ready to retirement so you can sell at the peak.
Howard: So if the office five years ago did seven hundred thousand a year and the next year did six hundred, then five hundred, then four hundred, then the bankers are seeing that is trending down and they don't want to go long term on their money on it.
Ali: Yeah, exactly. Usually, the rule of thumb more or less is that if it goes down more than 5% in any one year, the lenders get really nervous. If they see it go down two years or more in a row, then they see a pattern, then their concerns are really high. The problem is that it doesn't really matter why the numbers are down. It could be that they're taking more time off. It could be that they got sick. It could be that they're just tired and not diagnosing. It could be a number of things, but one of the things that we advise is you want to try to sell as you're either slowly going up or you flatline, but as soon as it goes down, it's big problems. And what's sad, Howard, is as a dentist this. They worked so hard for so many years and what ends up happening is that towards the latter parts of their careers, that's when they really start to think about retirement and sometimes it's too late. One of your previous speakers on your podcast, Mark Murphy, one of the things I like about how he approaches this whole retirement approach is that it's all about planning and making sure that you're reinvesting in yourself and then that's what makes it really special and allows them to retire with some sort of financial independence.
Howard: My spin on planning is that every divorce, you cut your money in half. If you divorce one time, you just delayed your retirement a decade. By the time you've divorced three times, you will die at the chair. So just think about that when we see that hot little girl running down the street. And then the second thing on the planning is just dentists, physicians and lawyers just cannot live below their means and it's an ego thing. I mean they get too big a house, too nice a car, too fancy vacations. Their wife's wedding ring is twice as big as all of her sisters. I am hard pressed when I talk to dentists- I just say, "Tell me one area in your life where you live just at the mean." They can't go camping at the late. They got to go to the Marriott at Hawaii. They can't buy a Honda Accord. They've got to buy a Lexus. They can't fly coach. They got to fly first class. They can't have a purse from Kohl's. It's got to be a Gucci. It's insane that their ego is so small that they have to validate their existence, that they are unique and special and important by buying all this material crap. They don't realize how much blood, sweat and tears and they have to pay for all that stuff.
Ali: You know what's interesting about what you just said too, is you're exactly right and you pay the price later in your life for those decisions earlier in your life when you're young and not as disciplined. And so a lot of those things up front that seemed like little thank you gifts for all the hard work and all the things that you did end up costing you down the road. That's where the planning comes in as you mentioned. It's deferring some of that gratification and not buying the $100,000 car in the first five years, but rather paying some debt off or doing some things like investing and buying real estate and buying your own practice and things of that nature, so that later on you could have all those perks and I can tell you there are a lot of dentists who live above their means, but they can afford to because they planned for it and it really just comes to planning.
Howard: And it's another thing that kids do not understand. I mean both Warren Buffett and Albert Einstein both said the most powerful force in the universe was compound interest. So when they get out of school and they buy that boat, they buy that Condo, they buy that Porsche, they can't even understand the math that if they would have put that chunk in a savings account and it had compound interest, what that would be worth when they were sixty-five or seventy is just incomprehensible. It's just amazing. So I asked you if it's a buyer or seller's market for a dental practice. What about if you're an associate and just came out of school? Is it the associate's market or is it the employer dentist's market? Who's got the upper hand when you come out of dental school?
Ali: Well, that that can vary depending on the location of the practice, but here's really what I usually say. In dentistry we have 100% employment, so anybody who's in any way in dentistry, whether you're a hygienist, RDA, DA, dentist, you can find a job if you want a job. There's no one sitting at home saying, "Oh my gosh, there are no hygiene jobs in my town." It just does not happen nationwide. Everybody has a job. The issue is, can you find the position that you're really looking for and where are your sights set? Millennials get a bad rap because people say, "They don't care and they're not devoted and they're not hard workers." That's actually not true. They are all those things. What they aren't though is they don't want to do it the way I did it and the way you did it and the way others in our generations have done it. Rather, they want to do it on their own terms. And so what that usually means is that they're doing it because they're being paid fairly, but they want to have the balance where they are working hard but also playing hard, and that means having a lot of time off to do different things. I think if you're a dentist and you're trained and you're coming out of residency or you've got some experience, you can easily find a job. If you're straight out of school, you just got to find a dentist willing to mentor you because it's going to take you an hour and a half to do that filling still.
Howard: And when you say it's a seller's market, then it's always asked, what is the formula? Is it a percent of sales? Is it a percent of income? Is it a multiple of EBITDA? What are you seeing?
Ali: For a normal practice sale, the rule of thumb, if you're just talking about on very general terms, is anywhere from 55% to 85% of last year's gross. That's kind of a layman's way of thinking about it-
Howard: What percent did you say?
Ali: Fifty-five to eighty-five. So-
Howard: Of last year's gross collections.
Ali: Gross collections. Some areas like Southern California, it's approaching 90% to 100% sometimes whether you're a specialist or GP. In some other areas it's lower, but that's the layman's way of thinking about it. The real formula is based on a multiple of net earnings, of profit because it's total cash flow. The banks look at cashflow, so a million dollar practice that drops 20 points, $200,000 of profit is going to be valued very differently than a million dollar practice that does $500,000 of profit and so it's all based on that cash flow. So one of the things we help with sellers as they prepare to sell their practices is stop taking those deductions that are hurting you in terms of your profitability because you're going to lose it on the earnings when you sell the practice. Every dollar that you take off in terms of profit could be two to three X in terms of the value of your practice.
Howard: I love the millennials because I have four of them: Eric, Greg, Ryan and Zack. I wonder what my grandkids are called?
Ryan: Generation (Nexers? 00:17:29) or something.
Howard: Generation (Nexers?) whatever and by the way they're just all celebrating. My granddaughter's graduating from kindergarten. Can you believe they have a graduation ceremony at kindergarten? My God, when we were in school, I couldn't imagine asking my dad to go to my kindergarten graduation class. He probably would have slapped me just for asking something that stupid and ridiculous. But the one thing I always tease the millennials the most at is like you come to Phoenix, Arizona and they all want to go to downtown Scottsdale. They want to live and practice there where there's a dentist on every corner. And I'll say, "Hey, just thirty miles south of here in Casa Grande or Eloy or Maricopa, there's a dentist for every thirty-eight hundred and you're going to go to downtown Scottsdale where there's a dentist for every eight hundred." Gila Bend only has one dentist. If you drive from Phoenix to L.A. on the California-Arizona border is the city of Blythe. It doesn't even have a dentist and I'll say, "Why don't you go set up in Maricopa?" And they say, "I don't really want to commute to Maricopa." And I'm like, "Dude, your mom came from Pakistan. She came fifteen thousand miles for you to have a better life and you can't go thirty minutes out to America?" So my question to you is, do demographics matter?
Ali: Demographics matter in terms of the success of a practice?
Howard: Yeah. If you're a kid coming out of school and you're going to buy a practice, do demographics matter?
Ali: Absolutely. Yeah, demographics matter and it's a difference between how you define success. Some millennials define success by being able to pay their bills and being able to take their vacations and not necessarily putting money aside and so for them, working in downtown L.A. or having a practice there is sufficient. For some success means having all those things and then some, and so going to someplace like you're describing where there's not a lot of dentists, there's not a lot going on, but they're the top dog, that's going to make a huge difference because they're going to be able to put more money away or whatnot. I lectured in West Virginia a couple of months ago, Howard, and everybody in the audience, I mean, I can't say everybody, but almost everybody in the audience had owned their own real estate, had a successful million dollar plus practice and they were financially sound and everything I said about financial planning and how to retire properly and all these things, compound interest, everything that you just talked about, they were like, "Yeah, we're doing all this," because that's how they were taught. I do the same lecture in Las Vegas, in L.A., in San Francisco, and it's a different conversation because not everybody can own their real estate, not everyone can all own their practice, and so it just depends on location, but I think demographic is absolutely key. In my book that's really meant for the young doctors, to go back to your point about compound interest, one of the compliments I get, random emails and text messages and all this stuff from people who've read it around the country is they say, "Your point about how landlords charge us more by giving us free money, which isn't really free because it compounds over time," those little nuggets that make the difference between financial independence and suffering through thirty years of employment and not being able to sell when you're seventy years old.
Howard: You're talking about your book “The Strategic Dentist: An Entrepreneur’s Guide to Owning a Dental Practice”. Ryan, can you push that out on our social media today? Your book only has five-star reviews. No one's given it less than a five star review, but what I love the most about your book is on Amazon, it says frequently bought together "The Strategic Dentist", that's you, "The Dental Practice Guide", who's my buddy from Australia, David Moffat, and my book. And Amazon says you can buy all three of these books together for just $65. But I always tell people I have four kids and — I've written three books in the last thirty years; I write one book a decade — that writing a book is like having a child. It takes nine months to make a child and it takes longer than that to write a book. So tell me about your journey. What was going on in your life where you wanted to write a book, “The Strategic Dentist: An Entrepreneur’s Guide to Owning a Dental Practice”?
Ali: Yeah, it's funny you asked that question because it led me down this really incredible path that I never thought I would go down. Just under two years ago, I did a seminar for a group of residents and there were twelve of them in the room and it was me and a consultant and a banker and the consultant asked, "How many of you here in the room want to own a dental practice?" Two out of the twelve, Howard, raised their hand. Two out of the twelve said, "I want to own a practice." Everybody else wanted to work for big corporate dentistry, and that scared me because dentistry is one of the few professions left where you can have a great life, you can have a family, you can work the hours you want and be able to get to financial independence at a point in your life where you're still young and you can use it. So for two of the twelve to say they want to be practice owners, I realized when I was my turn to speak that day that it came down to fear. They feared not knowing how to do it, they feared their student loans, they feared whether they would get money from the banks, they feared the first steps and so the book's intent and I purposely made it short so that somebody could read it on a cross-country flight because that's the attention span that we have these days, especially with the millennials — and that's not a negative thing; it's just how things need to be packaged — but it's meant to demystify the most difficult aspects or the most fearful things that come with practice ownership and empower people to buy it.
My wife is a pediatric dentist here in Northern California, Howard, and when she went to open her practice, the dental CPA said, "You are committing financial suicide by owning your own practice. Go work with someone else." Think about that. Telling a young dentist who's ready to make a difference, especially a pediatric dentist who went through extra school that she's committing financial suicide, can you imagine that? And now she did open it up because she's an entrepreneur and as you said, a lot of Persians are entrepreneurial, and so she went up and opened up her own office and she's very successful, knock on wood and has done great things and changed a lot of lives. But that was the reason why I did the book, and now it's afforded me the opportunity to speak a lot around the country, but we're doing a lot of other great things. We're actually launching an entire new platform, Howard, that will be launched by the end of the year. It's called the "The Strategic Dentist's Dental B School", which is going to be an entire platform for young dentists that aren't going to be able to get the education they want to be able to thrive, so all online. We're really excited about the whole thing.
Howard: Do you and your wife have any children?
Ali: We do. We have three — eleven, nine and six.
Howard: Because I figured if your wife's a pediatric dentist, she got all of her fill of children at work and then when she comes home, she says, "No, I've had my fill for children for the day," but she still wanted more punishment after a long day of treating kids?
Ali: Oh, absolutely. She wanted even more kids. We had to stop at three.
Howard: I have to tell you, the pediatric dentists, they only have one really contentious debate amongst them, and it's silver diamine fluoride. It seems like it's a very polarizing issue. Some pediatric dentists love it. Some don't like it. Ask your wife if she has strong thoughts on it. Either way refer her to come on this show because on Dentaltown, we have fifty categories. One of them is legal, one of them's pediatric dentistry, but that is the deal with them. They're arguing a lot and intense. And by the way, I can't find URL for Strategic Dentist School.
Ali: No, it's not launched yet, so we're launching at the end of the year. We have a lot of people doing our videos as we speak and I'd love for you to be on there as well. We're excited. It's going to be launched hopefully by ADA this year in Hawaii.
Howard: Oh, ADA next time is in Hawaii?
Ali: Yep, this year.
Howard: And what is it? Do the date on that? Is it October?
Ali: Yeah, it's October. I don't know the exact dates, but I can find it for you.
Howard: Yeah, Google that for me, Ryan, when the ADA is. The thing is Hawaii though. You want to go in the summer. That's when the blue whales are there, which is the largest animal that ever lived on earth. They're forty tons. It's bigger than any T-Rex, it's bigger than any dinosaur that ever existed. They're forty tons and when you go in the winter and you got the sperm whales. They're big and you think they're big, you really think they're really big if you've never seen a blue whale, but when you see a blue whale, it is an "Oh my God" moment. The pupil in their eye is bigger than your head.
Ali: I've never seen one.
Howard: Oh my God, it's like a swimming semi-trailer. So I want to ask you- This is Dentistry Uncensored. I don't want to talk about anything anybody agrees on, but we know when you and your lovely wife get married and you have three amazing children and life is just perfect. It ends in divorce 50% of the time, so what happens when a dentist marries another dentist and they don't have those glues of loving and kissing and children and holidays and vacations, they don't have any of that glue. Do you think that marrying a dentist is like marrying a spouse that has about a 50% divorce rate? What is your thoughts on marrying a dentist with no snuggling, kissing, children, glues that bond you together?
Ali: I don't know if the dental portion of it would impact the percentage of divorce or not, but I would say, me and my wife, we do- Obviously, she's a dentist. I do dental all day. We don't really talk about work when we get home. We're so busy with the kids and we're so busy with other things. We're just focusing on them and each other, and I think the same thing is probably true with two dentists. If they work together, I think definitely probably increases the chances of problems. But we've been in situations where dentists who worked together just can't get along and that's probably because they're together a little bit too much. You're at home and at the office.
Howard: In your experience, do you see that a partnership between two dentists is an issue a lot or is it a very rare issue?
Ali: No, partnerships of two dentists in the business world typically I would say is an absolute no-no, because there's a high likelihood of failure. But in the business sense, I think there are some things that partners can do to make it more likely that they'll succeed, and here's what I mean by that. At the end of the day it comes down to communication, Howard, and if the parties are communicating about all their issues before they get into the partnership, the likelihood of success is great. It's when the communication doesn't happen, which is where we see the problems, and here's what I mean. A lot of people jump into these partnerships because they found a location or they found the practice and they want to partner with their classmate who maybe they were in the same row or they shared some classes together, but at the end of the day, it's more than that when you are in a business relationship with one another. And I always tell my clients, the best scenario for me is that once you leave my office, you never look at the partnership agreement again because that means you're actually communicating with one another instead of looking at a piece of paper. But partnerships, they typically start out okay. If there's not a lot of communication over time, once their interests are start to diverse, is where the problems start to occur. We spend a lot of time with people upfront to make sure that doesn't happen.
Howard: Yeah, all I'm going to say is you met the love of your life. Why is your first thought an attorney? You don't marry your lover unless you're going to bring a child into this world. As far as marrying another dentist, I say if they're great in bed, do it. But if they're not great in bed, why are you going to marry another dentist? Hell, you were in dental school with them for four years. Dentists, lawyers and physicians, they're some of the weirdest people on Earth, and you want to marry one? When you talk about success, I think one of the greatest parts of success and life is that in your business you're a totalitarian dictator. It's all yours and you can do whatever you want. Now people don't want that for their government. They want checks and balances and they want all these things like that, but my God, you got enough stress in your life because this is what happens. You guys were friends in dental school and that was fun, but you were friends because you went out drinking and playing and going to concerts and all this stuff and now you want to buy a CAD/CAM machine and he doesn't. You want to take PPOs and Medicaid, he wants to be a high-end Mercedes Benz and my gosh, you're with each other eight hours a day, five days a week. And I'll tell you this I can give you the name of ten dentists, in just Phoenix, that sold a partnership to a dentist for like seven hundred and fifty thousand and then three or four or five years later spent more than that on legal fees over the next year and a half trying to kick his butt out. I just love the fact that I only do what I want to do and if I don't want to do it, I don't do it. I can be a big baby and a big brat because I have no partners. If I want to buy a machine or I want to do this or I want to close shop for a week or whatever, I don't have to run it by anyone, and it's a huge part of success, so I'm just against that. In a dental office, you're doing root canals, fillings and crowns. What are you mostly doing? What is the top three things that you're doing?
Ali: Yeah, the most important thing that we're doing right now that seems to be taking over the industry is this epidemic of human resources lawsuits around the country. Right now, we're probably seeing more HR lawsuits and complaints filed against dentists than ever before, and there's some statistics that show that for the last five years there has been more HR lawsuits than even malpractice lawsuits and so it's a crazy, crazy scenario and one of the reasons I get asked to speak frequently around the country, whether it's dental societies or associations or (unclear 00:33:26) or wherever, it's always about the importance of HR compliance. And so me, a lot of our time is spent there, especially with doctors who are younger, as we help them transition and buy a practice or start a practice. It's all about the coaching upfront because I want to make sure that they don't fall into that trap and they don't get sued. And it was one of the reasons why five years ago I started HR for Health because we needed a solution that actually helped dentists become HR compliant, and it's really grown into something really special.
Howard: Right now, one of the biggest issues in HR in the media has been this MeToo movement, and people don't have a very long memory. They're saying, "Oh my gosh, I can't believe Hollywood's like this." Dude, just a few years ago, it was the Catholic church. A few years before that, it was Penn State. I'm pretty sure this has been an issue for two million years, but right now, all my favorite comedians are gone now, Louis C.K. all these people. Are you seeing many MeToo movement type lawsuits in dentistry?
Ali: Well, it's interesting you bring this up. So obviously in the larger community, this is happening, whether it's Hollywood or Washington D.C. or whatnot. In dentistry, we weren't seeing it as much. The top issues in dentistry right now are age discrimination, pregnancy discrimination and wage an hour, which is like not paying people overtime or giving them lunch and breaks, but in the very recent past, and I mean in the last probably three to four months, I have had numerous doctors around the country call us and say, "I had this patient who wasn't willing to pay her bill. I didn't give her a discount. She went on Yelp and accused me of touching her," or "I had a female dentist actually say that this male hygienist quit on her because he claimed that they were sharing photos of a trip they went to Vegas." So we're seeing it kind of trickle in into dentistry. Not at the same volume that's happening in the open communities and society, but it is happening and you and I both know things like this happen in all industries and it's not because we condone it or it's not because it's okay, but it happens and I think dentistry is going to have to deal with it very soon as well, just like the rest of society is dealing with it.
Howard: So what's a standard age discrimination? So what, she turned sixty-five, so he decided to fire his receptionist because she turned sixty-five. What is the scenario there?
Ali: Well, don't get mad, but the law around the country says it's actually forty years old is the age where things start to get risky, but we typically tell our clients as soon as someone approaches sixty years old, that's when the risks going to go up because that's really when people start to not be able to keep up with technology and some other things. But the age discrimination things, Howard, are a pitfall for young dentists who buy a practice because what happens is that they buy this practice and the office manager or the front receptionist who died three years ago, but she's still answering the phones, they let her go and that's when the age discrimination starts to happen because then the woman says, "Oh, it was not my fault you changed the software or you did this or you did that." And the younger doctor just needs to upgrade the office, and a lot of times it's hard for them to keep up. It's really sad.
Howard: In dentistry, they sell the invisible. I've been saying this forever. And so here's this dental office and my gosh, Betty's been up front for thirty years and you buy this practice and everybody thinks, "Well, old man McGregor could have sold that to anybody and he sold it a little Howie, so I assume Howie's a good guy or he wouldn't have sold it to him." And then the youngest goes in there and fires all these old ladies. The smartest dentist I ever met and probably has the biggest, most successful office in Wichita, Kansas is Estel L. Landreth in Wichita, Kansas, and my gosh, he was so smart. When I was in dental school and I was in high school and undergrad, I used to always go by and visit the office and he was just such an amazing man. When he bought that practice, there was a very, very old lady up there and she was very old but she'd been there for like thirty-five, forty years, and she was losing function. By the time I got there, they had her like in a- You know where you sit on the witness stand in a lawsuit, next to the court? They had a little gated thing there and she was in her wheelchair there and she couldn't touch anything that she could harm and just watch her and every single person that came in there and she'd say, "Ali, I used to change your diaper. How's your cousin Eddie doing?" And it was just the office glue. And he knew that she was the magic and as she- I still wouldn't have fired her if it was anything in the world. In fact, she eventually just turned into like an icon where everybody would want to come back and every mom that walked in there would shoot the crap with her for five, ten minutes. and So what's the pregnancy issue?
Ali: For some reason, a lot of dentists end up terminating their employees when they find out they're pregnant, and that's a protected moment in someone's career where you have to give them their job back and they're allowed to go on pregnancy leave. In some states like California are moving to even add more protections. As of January of this year, for example in California, if you have more than twenty employees but less than fifty, you have to give employees another twelve weeks. So in theory, an employee who was pregnant could be gone for seven months from a practice and so those are the moments when someone gets terminated where it increases the risk. I always say pregnancy, age and disability are the three times where you should never let go of an employee.
Howard: I wonder why they would want to fire them when they got pregnant.
Ali: I don't know. I always joke, if you impregnated them, just marry them at that point — don't fire them.
Howard: Another question. I'm not for partnerships. Think of the major world religions: Judaism, Christianity, Islam. I mean they all serve one God and they go down and look at the Pope. It's a Pope, Cardinals- Look at the military. You have one general. You have the five star General MacArthur and you had a four star Patten and it worked all the way down in the infantry. But man, when you start having two Gods at the top, it'd be like having a God of thunder and a God of lightning. It starts getting very, very confusing. And the other thing that's tough is the staff, because just like with your parents, and you'll see this with your three kids, dad says no, so they wait until you leave the room. Then they'll call their mom out in the other room and they get her to say yes, and so the staff is confused because one doctor's saying go right, the other doctors saying go left. And I tell them, if you do marry someone, get a damn org chart. Harry S. Truman said, "The buck stops here." Where does the buck stop? Who is leading this team? And maybe the other dentist is a silent partner, maybe he focuses on accounting or marketing or legal or whatever, but the troops need to know who their leader is. And in the military, when someone goes around their leader and jumps the chain of command, that is absolutely the worst thing you can do in the military, and you can end up going to prison for that. They're trying to control three million people. Imagine if a renegade submarine, a trident nuclear powered submarine turned around and then unloaded on the United States. They can't have people breaking the chain of command. So that's another confusing- And it's also a very confusing thing when your spouse says- I know so many women dentists, their husbands' up front and the woman dentists says we're going to do this, and then the husband right in front of her, just being, "No, no, no, we're not going to do that. Blah, blah, blah, blah." It's like, dude, where's the org chart? I can't have this. If you guys want to talk like that at home, knock yourself out, but we're in a staff meeting and right now she's the doctor and what? A lot of men have a much bigger problem with this. When men dentists had female wives upfront, they followed the org chart. It is a huge issue now that the woman dentists is the CEO and her male, dumbass husband still thinks he's a male, thinks he's a four hundred pound gorilla and he doesn't follow the org chart. Another common question they're always asking is, should they be incorporated? Should they be an LLC? What do you recommend on the legal side of that?
Ali: Hands down, absolutely everyone should be incorporated when they either buy a practice or start a practice from scratch. There's really no downside to being incorporated. The upsides are, you get a lot of tax savings, you get to take deductions that you wouldn't be able to take as a sole proprietor, you get to play tax games with self employment. So on average, our clients save anywhere from $4,000 to $5,000 on the low end, to twelve to fifteen thousand on the high end just playing some of those games. And your chances of audit with the IRS is much, much lower when you're a corporation, and this was even before the recent cuts to the IRS budget. The chance of audit was lower with S corps especially. There's those advantages. You get limited liability if you get sued for anything other than malpractice, and so those are two huge reasons to always be incorporated and the only downsides, Howard, are that you have to pay your state every year a fee for the privilege of being incorporated and also pay your CPA to do a tax return. But usually we tell our clients budget $1,500 to $2,000 a year for that and you should benefit if you're playing the right games much more. So there's no downside to being incorporated whatsoever, and if a CPA is telling you not to be incorporated, just move on. Find a new CPA because they're thinking about it very old school.
Howard: Another thing homies, you young millennial kids, I know you're smarter, see the problem with a young dentist that he was always the smartest kid in the class. He was always the guy getting A's. He was always the guy that everybody came through to and get help with calculus and geometry and trigonometry. So they think they're so smart and they are — in dentistry, calculus, physics, geometry, trig. But then you find out ten years later that they have a nightmare scenario going on in their dental office they lease and that's the first time they read the lease. And I'll say, "What attorney read this over?" "Oh, I didn't have an attorney read this over because I'm the smartest one in the room, and it was just leasing twenty-five hundred square foot and in a grocery store center. Why would you need an attorney for that?" And it's like, dude, are you a dentist or an attorney? Do you see this where people sign contracts that weren't reviewed?
Ali: Oh, 100%. All the time. Or they'll have somebody review it who's totally incapable of reviewing it, who shouldn't be reviewing it because they think they just have some expertise, but yeah it's shocking actually how that happens. What's even more concerning to me is that outside of their home, this is usually their second biggest investment in their life, and so when you're spending half a million dollars to a million dollars starting a new practice or buying someone's practice, how could you not have professionals review it, is still to this day kind of concerning to me. But the younger generation, Howard, does not do that. The millennials do not do that because they understand the value of expertise, right? They're experts in their field and they recognize that, and so we usually don't have issues with the younger dentists who are coming out of school for the last couple of years and moving forward. It's really the previous group that was more of an issue where it was about, "Well, I can do it myself. I'm really smart." I'm really smart too, but I don't pull out my own tooth. I don't do my own filling, those kinds of things. Every once in a while, we'll find some random company who says they negotiated leases and they know nothing about the market, they know nothing about the local environment, they don't know the parties, and it always goes south, but I always say, "It doesn't have to be me, but find a lawyer who specializes in dental who knows how to help you and then hire a local commercial broker to help you negotiate the terms with the landlord. They know the market better than anyone."
Howard: So what states do you work in?
Ali: Most of our clients are in California. I'm barred in Washington D.C. as well. We've got attorneys that are barred in New York too, but we consult across the country. A lot of our clients of the law firm are in those states, but yeah, we consult across the country on transition and sometimes we bring in local council if we need some local issue resolved, but our HR software works nationwide and it's a complete separate company and they service dentist in I think forty-six days now.
Howard: Also, you do state board defense.
Ali: Yes.
Howard: You know Socrates said humans only had two emotions, greed and fear. Greed, they want to have a successful practice and pay off their student loans and have a great lifestyle. Fear is going to get sued. And dentists, they really are snowflakes and I see this the most when they get a bad Yelp review. They get on Dentaltown and they have a complete implosion because of a Yelp review and I'm sitting here and thinking, "First of all, who gives a crap? Second of all, are you just now realizing that half the world is batshit crazy and you really think you're going to treat a couple thousand people a year-" Go to your own family reunion. The Farran family reunion, you think there'd be someone from the government sterilizing all the fertile ones and taking DNA samples. Hell, half of your own family is crazy and when I get a bad Yelp review- My last one was the lady comes in, she didn't want an X-ray, she just wanted to talk to me. I talked to her for an hour. Turns out she basically wants me to do it for insurance only. I said no, so then what did she do? She leaves and just rips me a new one on Yelp. I spent an hour of my life trying to help her and now I'm the bad guy. And who cares? I mean, who absolutely cares? Anyway, basically they're just afraid of getting sued. So just two questions. When they get a bad Yelp review, first thing they want to do is sue them. What do you tell them when you're sitting there and they're going crazy about a Yelp review and they're scared shitless of going to the State Board of Dental examiners? What do you do with bad Yelp reviews and why are your clients going to the California State Board of Dental Examiners and what could they have done to not gone there or is it just part of life?
Ali: There are two separate issues, and I'm glad you brought that up about the dental boards and I want to talk to you about some things that we're seeing that are really, really important for dentists to know, but as far as Yelp is concerned, just to talk about that briefly, you're right. I used to say that it's one of the most evil companies in the world because they can really destroy someone's confidence about themselves if you're a dentist because you get a bad review on Yelp. And what we're seeing is it really comes down to three groups, Howard. It really comes down to your past employees who are disgruntled and they'll go on there and they'll blast them and make up something which if you do a good job monitoring that and contact Yelp, they'll take it down. Or it's patients who wanted something for free. They wanted dentistry for free, and then they threaten. They say, "Hey, if you don't give me this for free, I'm going to go on Yelp and blast you," and those, same thing. If you're documenting it, you might get some success with Yelp. And then there's the ones that are really just kind of unhappy, but what we usually say is you can't really do much with the first two other than contact them and try to maybe threaten them legally if it's not a real case and they were pretending to have gotten bad dentistry, but the ones that really feel like they were not treated well, our strategy is contact them, be sympathetic, listen to them and explain to them maybe what your intent was even though it wasn't achieved and try to make peace with them with the understanding that they may never take it down from Yelp, but at least you had that conversation so that they don't continue going on and badmouthing somebody. We had someone ourselves who in San Diego, we did all this work and then they wanted not to be charged anything or at least I think it was a huge discount and we said no. And I got threatened with a- And it's just kind of ridiculous. It's like, I don't really care because like you said, it doesn't matter. You gotta stand up to bullies by holding your own.
Howard: You know what really matters the most about Yelp? Is that in 2014, it was trading at a $100 a share and now it's less than $50 a share and has a price earnings ratio of twenty-five. Kids, what that means is this. If I bought the company for a dollar, the profit it makes every year, it would take twenty-five years to pay it back. Now, when you're looking at multiples of EBITDA on the dental industry, they're usually like four to six years. I always teach it like this to my boys. Let's say that Al owned a famous pizzeria and he said, "Howard, you come work for me for free, I'll just give you the restaurant and I want you to work for me for free, be my right hand man. I'll teach you the ropes for six years and you work for me for six years, this pizzeria's yours." An indentured servant used to be seven years. But what if Al came to me and said, "You're going to have to do that for twenty-five years." That's what a (unclear 00:53:09). So right now their stock's gone from a hundred to fifty, and it still has a PE ratio of twenty-five. I'm still predicting the stock goes to zero, but I'm not a stock broker; I'm a dentist.
Ali: But I agree with you because I think people are understanding where Yelp lies and the way they come after dentists and the way they market to them or whatnot. So it's its own little beast, but social media overall just has to be taken with a grain of salt. But to go back to your question about the dental board, what we're seeing now, Howard, is this really aggressive stance the dental boards across the country are taking with dentists and it's really I think because of insurance companies pressuring them and we're seeing a huge increase in the number of (inaudible 00:53:53) and billing errors and things of that nature, and they're being prosecuted. A lot of times, the dentist is busy getting their hands wet and they're in the back doing dentistry. They're not focused on what's happening up front, and the team is maybe manipulating things and it comes back and haunts the dentist. So the dental boards are no joke these days. You really have to watch out what you're doing on insurance, billing, how you're lending your license to other dentists when you're the managing dentist, those kinds of things.
Howard: And I just want to add one thing on that is that when you get into a fight or an argument or a legal dispute with a dental insurance company, for profit or nonprofit, whether it's Delta, Blue Cross Blue Shield or- That's one thing, but my God, when dentists get in a dispute with the government over Medicaid, oftentimes just means go to jail, they come and the next thing they barricade open your door. You're open, it's not even locked, and they knock it down and take all your computers. And my God, when you get in bad with the insurance companies, you're going to get screwed. When you get in bad in with the government, you could go to jail. In California, actually one of your lawmakers said what I thought was the funniest, stupidest thing I'd ever heard in my life. She said there weren't enough dentists taking Medicaid, so they were paying 35% of the usual customary fee. Now they can call the nonprofit American Dental Association and find out that the average overhead is 65% and they said, "Well it was really amazing because we raised the fee schedule 10% and we got a bunch of more users." Like really lady? Really? Did Einstein tell you that or was it Sir Isaac Newton? And all these people who like Pew Research, who claims not enough dentists take Medicaid- Well Pew, you're a nonprofit. If my overhead is 65% and your fee is one-third, guess what? All the dentists in America would take Medicaid and Medicare if the fee schedule was as high as one of the PPOs they're already taking, which is Delta Dental, which 98.5% of that, but no one ever talks about that because what they usually want is something for nothing.
Ali: Yeah, well that's exactly right, and there's a reason why Texas has a lot of success with their programs versus a lot of other states because they just pay better, and yeah, you're hitting it on the head. Absolutely.
Howard: And it's weird things like- Did you see that Western Dental lawsuit in California where the jury decided that the dentist had in fact extracted the wrong tooth and he was awarded $250,000. The society has gone mad. That man probably hasn't made $250,000 with all of his paychecks combined in the last ten years. If I went to California right now for this molar and I said, "We'll extract your molar for $250,000.” How long would the line be in California for that option?"
Ali: Oh my gosh, are you kidding? It would be forever. You wouldn't be able to see the end of the line and still you couldn't afford to buy a house here if you got that.
Howard: Well, man, I can't believe, my plan is an hour but we can go longer. Is there anything I wasn't smart enough to ask you or something else that you wanted to cover?
Ali: No, we hit on a lot of things. We hit on a lot of things. I think the point is that the future is bright in dentistry, Howard and I think you will agree with that too. I think the future is bright. I think though we've got to promote practice ownership amongst young doctors, and we got to demystify it for everybody so that they know how to do what they know best. They know dentistry. But as I always say, it's about insourcing and outsourcing. Insource technology, insource the kinds of things that allow you to succeed as a practitioner, so CAD/CAM, getting a CEREC machine, doing lasers, doing intraoral cameras. Do all the things that help you become a better, stronger practitioner for your patients. And then outsource everything else. Let experts in their field, whether it's legal or HR or marketing or consulting, let others do what they specialize in so that you can thrive. And I'll tell you, it's such an easy recipe, Howard, and if they follow it, and this is kind of what I talk about in the book and other places, if they follow this, they will be successful because dentistry still is the best profession that's left amongst all professionals and I truly believe that, and it's easy to be successful if you just do the right things and you follow the recipe.
Howard: And one last thing, I'm going to the legal on Dentaltown. The legal threat, it's just forever and I'm just trying to see did I miss anything, but one of the things that really bothers dentists a lot whenthey get a bad Yelp review, you literally have to walk them off the ledge because they're a doctor and they've never had anyone tell them that they weren't perfect and wonderful before. So it's so shocking that someone said something like that. The other one is the employee quits without notice and then they file for unemployment. Well, guess how the unemployment agency stays in business? By giving everybody unemployment. How do you think the government disability, social security, stay in business? All those employees, they want the maximum number of people on unemployment, on disability. It's the government. Have you ever seen a government agency started that ten years after their mission was done said, "You know what, you guys really don't need us anymore. You should just really shut this agency down." And you talk to anybody you know that works in camera, that says, "Well we’'re trying to put in a budget request next year for 7.5% more than we wanted last year." And I'm like, dude, free enterprise is about making everything faster, easier, higher quality, lower costs. How come you're not trying to get 7% less money? Because that's not the way monkeys roll. So you started a little bitty government agency and it just reinvents itself until basically the whole thing shuts down. So they're always going to get unemployment. You're a rich dentist and they're the whole reason they exist, to give- I thought of the funniest example of disability ever to show you how insane it is and abused, this was way back in the day. It might've been ten, twenty years ago, where France passed this law that says if you have lower back pain to where you cannot work then your employer has to give you 80% of your last wages in perpetuity. And in a month, 11% of all the French workers had lower back pain so bad they could no longer work.
Ali: Of course, (unclear 01:01:28) society. I love visiting France and I lived in Paris for many years, but man, thank God we're Americans and thank God we live here because those systems, they're not for us.
Howard: Well, the bottom line is people chase incentives. So yeah, if all I had to do is prove to you that I have intense lower back pain, eleven out of a hundred people will. But I just want to say to you, Ali, I called you, you did not call me. I've had so many people request me to bring you on the show and I just find it an extreme honor that you would come on the show today and talk to my homies for an hour. Thank you for all that you do for dentistry and thank you so much for coming on the show today.
Ali: Thank you so much, Howard. It was a blast being here. I appreciate you and thank you very much for everything and this was a lot of fun. I hope we do it again.
Howard: Alright, don't forget to tell your pediatric dentist wife, if she's got a mouthful to say on silver diamine fluoride, bring her on the show because that's the hot topic in pediatric dentistry.
Ali: I will. I'll let her know.
Howard: You have a great day.
Ali: Thank you.