The Same Playbook: What a Harvard Hospital Study Tells Us About the Future of Dental Practice Valuations

On March 15th, a tweet from an investor named Felix Prehn went viral. It racked up 2.1 million views, 26,000 likes, and thousands of reposts.

Most of the people who saw it were not dentists. They should have been.

The tweet summarized a recent study published in the Annals of Internal Medicine by researchers at Harvard Medical School on what happens when private equity firms buy hospitals. The data confirmed what the doctors inside those hospitals already knew.

When a PE firm buys a hospital, they use debt to fund the acquisition. That debt is placed on the hospital’s balance sheet, not the firm’s. The hospital suddenly owes hundreds of millions of dollars it never borrowed. To service that debt, the hospital has to cut costs.

Costs mean people.

The study tracked the results. After PE acquisition, emergency department salary spending dropped 18%. Hospital-wide employees were cut by 11.6%. And because the staffing was hollowed out, emergency department deaths rose by 13%.

The investors paid themselves dividends. The hospital absorbed the risk.

If you own a dental practice, you might read that and think it is a tragedy that has nothing to do with you. But the mechanism described in that study — loading debt onto an acquired entity, cutting the clinical support structure to service it, and extracting the margin — is not a hospital strategy.

It is a private equity strategy. And they have been running the exact same playbook in dentistry for a decade.

The Dental Chapter

I know this because I was inside the machine when it happened.

From 2018 to 2022, I worked inside one of the largest DSOs in the country. I was there for the private equity acquisition. I was there when McKinsey arrived to restructure the organization. I was there for the downsizing that followed.

The hospital study measures mortality rates. In dentistry, the stakes are rarely life and death, so the damage looks different. But the engine driving it is identical.

In February 2020 — two days before the world shut down for COVID — Scripps News and USA Today published a joint investigation into a massive PE-backed dental chain. The investigation documented how the chain was prescribing root canals to three-year-olds with healthy teeth to maximize Medicaid reimbursements.

That article was well-known in dental circles. But you did not need to read the news to see the pattern. You just had to look at the schedule.

I remember when a new CEO took over the DSO I worked for. One of his first directives was that every office had to open a full emergency column. On its face, that sounds like good patient care — get people in pain out of pain.

But the call center responsible for filling those columns had conversion quotas. Their job was to put bodies in chairs. So “pain” became a scheduling category, not a clinical triage decision. The call center would book patients into the emergency column who were perfectly fine and just wanted a cleaning. The patient would arrive, realize they were not getting a prophy, and get angry at the front desk. The office absorbed the complaint. The call center hit its metric.

Nobody owned the gap between those two outcomes.

That is what happens when the people making decisions are insulated from the consequences of those decisions. The accountability structures that exist in a privately owned practice — because it is your name on the door and your license on the wall — get replaced by a matrix where the metric is the mission.

I watched a clinically compromised provider get protected by regional management because of their production numbers, until the patient reviews got so bad they could no longer be ignored. I watched another doctor — a slightly above-average producer who was an absolute nightmare to work with — burn through three office managers, a regional director, and a dozen team members in six months. The organization fired the support staff to keep the producer happy.

The hospital study called it an 11.6% workforce reduction. In a dental office, it just looks like a toxic culture that nobody is allowed to fix.

A toxic culture is not a deliberate strategy. It is the inevitable byproduct of a system where the accountability structures have been removed. In a private practice, the founder’s name on the door and license on the wall act as a natural friction against bad behavior. In the PE model, those safeguards are replaced by a matrix where the only non-negotiable metric is debt service. When the system is designed to protect the ledger at all costs, it creates the exact conditions where toxic behavior is tolerated, support staff are treated as expendable, and the clinical asset is quietly cannibalized to feed the multiple.

The stress you feel managing your team, protecting your culture, and making hard calls on people — that is not a weakness of private practice ownership. That accountability is what creates the underlying value of your practice. The PE model does not eliminate that accountability. It just moves the consequences downstream, onto the staff, the patients, and eventually the asset itself.

Phantom EBITDA

The clinical story and the financial story are the same story. They are both driven by the need to service the debt.

In the hospital, the debt is created by the acquisition. In a dental practice sale, the debt is justified by something called phantom EBITDA.

When a broker prepares your practice for sale, they will present you with an Adjusted EBITDA number. This is your actual profit, plus a series of “add-backs” — expenses the broker claims a corporate buyer will not have to pay. They add back your compensation above a certain percentage. They add back your continuing education, your car lease, your one-time equipment purchases.

They hand you a number that is significantly higher than the cash your practice actually generates. Then they apply a multiple to it. You see the valuation, and you celebrate.

Here is what that looks like in practice. Your broker adds back the $50,000 salary you pay a family member to handle billing and bookkeeping. Their reasoning: a corporate buyer will absorb that function into their back office. The add-back stands, and your EBITDA goes up $50,000. At a 6x multiple, that is $300,000 added to your valuation.

The buyer’s QoE team looks at the same line item differently. The DSO’s management fee is 8% of collections. On a $1.2M practice, that is $96,000 per year in overhead that did not exist before the acquisition. Your family member was not a cost — they were a subsidy. The QoE team does not add back the $50,000. They flag the $96,000 as a new expense. Your EBITDA drops. The multiple gets applied to a smaller number. The re-trade conversation begins.

But that number is a ghost.

The buyer knows it is a ghost. They are going to use that inflated EBITDA number to justify the debt they place on your practice after they buy it. But before they close the deal, they are going to send in a Quality of Earnings (QoE) team to perform dental practice financial forensics.

The buyer’s QoE team does not care about your broker’s add-backs. Their job is dental practice EBITDA normalization. They are going to strip away the phantom numbers and calculate what the practice will actually produce under their ownership. They will look at your payer mix, your realization rates, and your provider productivity. They will run the numbers on your historical data to determine whether the production spike you had in the twelve months before the sale is actually sustainable — or whether it was a pre-sale push that the practice cannot repeat.

And here is the part that connects back to the hospital story. When the acquisition closes and the debt lands on your practice’s balance sheet, the platform has to service it. They do that by aggressively renegotiating PPO fee schedules for volume, by deducting lab costs from associate paychecks, and by holding back capitation true-up payments. The associate’s realization rate drops — not because the clinical work changed, but because the platform’s debt obligations are due. The same mechanism that cut nursing staff in the hospital ERs shows up in your hygiene schedule and your associate’s production split. Different industry. Same math.

When they are done, the EBITDA number they use to finalize the purchase price will be lower than the one you celebrated. The re-trade happens in the eleventh hour. You are surprised. You shouldn’t be, but nobody told you how the game is actually played.

The Information Asymmetry

I am not anti-PE. Some DSOs are run well. Some transactions are genuinely good for the selling doctor.

The problem is not private equity. The problem is information asymmetry.

The firms on the other side of the table have done this hundreds of times. They have entire departments dedicated to a dental QoE report. They know exactly which add-backs will hold up in diligence and which ones will get thrown out.

Most sellers have done this exactly once. They walk into a multi-million dollar transaction armed with a broker’s pitch deck and a fundamental misunderstanding of how their own practice will be valued.

The buyer has a QoE team protecting their downside. The seller has never had a version of this.

Until now.

The Harvard study confirmed what people inside the hospitals already knew. The Scripps investigation confirmed what people inside the DSOs already knew.

The playbook is not a secret. You just have to know how to read it.

Know what you are signing. Know what your number actually means. Know the difference between the phantom EBITDA your broker showed you and the normalized EBITDA the buyer’s team is going to use.

Those are not the same number. And the difference between them is your retirement.