I don’t have to tell you that dental service organizations (DSOs) are the hot-button topic in dentistry today. To some dentists, DSOs seem like the answer to all their problems, and to others, DSOs are the big bad wolf out to get independent practitioners. So, what’s the truth? Should dentists run for the hills when approached by a DSO, or should they hurry and sign on the dotted line?
After almost 30 years in the dental industry, working with practices in 45 states, Canada, and the Caribbean, I can tell you that this DSO phenomenon is unlike anything that’s happened in the profession before. What can you do to make the best, most informed choice for you and your practice?
What’s going on? DSOs are nothing new. They are, in essence, a group of dental practices owned by an independent business. A private equity or venture capital firm will buy a group of dental practices and create a support service for those practices, providing business management and nonclinical operations.
You’ve probably heard of some of the huge DSOs in the US and Canada, and the numbers growing every day. Consider this: in 2017, just 7.4% of dentists were affiliated with DSOs. Three years later, 10.4% of dentists were with a DSO.1 Now, in the postpandemic world, that number is approximately 25%–30% of practicing dentists in the US.2 In fact, many experts believe that those numbers will continue to grow during the next 10 years.
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Why is this happening? A number of stars have aligned, so to speak, to bring about this change. There is a long list of reasons why dentists want to get out of the business side of dentistry: student debt, rising fee structures, insurance challenges, the uncertainty of the pandemic, and changing demographics.
This is understandable. I’ve witnessed firsthand the challenges that dentists face when it comes to running a business. Finding a way out is undeniably appealing. For investors, DSOs are a clear choice for one reason: money. Dental practices have an astonishing 99.7% success rate.3 That means getting into the dental business has extremely low risk, especially for an investor.
Beyond that, though, most dental practices are running well below their capacity. If an investment firm can buy up several practices for an extremely low rate, then cut costs and increase production, they will reap incredible profits.
What can dentists do about this? DSOs are an innovation with strengths and weaknesses. The most important thing to remember is that you have a choice. If DSOs offer what you want, go for it. If they don’t, then don’t sign on. It’s just a matter of looking at what you want and need from your practice.
Three important things to consider
Are you willing to put in the work to get higher profits? In my experiences in visiting dental practices through the years, nine out of 10 of them are not operating at capacity. For example, a practice with 2,000 patients is bringing in $750,000 a year on average. (citation coming) But with a few modifications, that same practice with those same 2,000 patients could easily bring in upward of $2,000,000 a year, without new marketing, acquiring new patients, or working more hours. Want to know if your practice is operating at capacity? Take our quiz.
Is making such an increase easy? It definitely takes work, but it is 100% possible. The question to ask yourself is, are you willing to put in the effort? If you are, then by all means, do it! Find a coach or consultant who will work with you and go for it. If your coach is knowledgeable, you should not be working longer hours or focusing on increasing new patients; you should be focusing on case acceptance and patient retention.
However, if you’re done with the business side of the practice and are OK with letting someone else take care of financial growth, a DSO is the perfect option for you.
There is also a third option: if you’re willing to put in the work for a year or two before selling, you would sell at a significantly higher price.
How much autonomy do you want? Joining a DSO comes with an inherent loss of control, even if the DSO tries to tell you that you won’t lose control. Take my advice: there’s no such thing as an invisible DSO. You will almost certainly lose autonomy in financial matters and have the potential to lose clinical autonomy. That’s why it’s so important to do your homework and read the fine print.
If you’re looking at an established DSO, take the time to talk to other dentists who are working with them. Find out what they like and don’t like about the DSO and what they wished they had done when they signed on. It’s also incredibly important to get everything in writing. If there’s something you want to retain—a certain philosophy, a clinical specialty, anything—make sure it says so in your contract.
One final note: newer DSOs will likely be a little more open to your requests, though you should expect ongoing changes through the years as they figure out their business model. More established DSOs already know how they want to do things, so they’ll give less deference to your wishes.
What are your other options?
Many new dentists coming out of dental school think that DSOs are their best, or even only, option. While working in a DSO for a year or two to get some clinical experience is a fine idea, it’s not the only option.
One DSO alternative is called a roll-up. It’s similar to a DSO in the fact that several practices get joined into one central unit. The difference is that the practice owners choose who to join, and they set the terms of the agreement. In this way, practice culture can be preserved with a group of like-minded doctors. Their value will increase as a whole, but they will still retain autonomy.
There are plenty of dentists who want to leave a legacy of independent dentistry in their communities and have no interest in selling to a DSO. Another alternative is to sell to a private dentist looking to purchase. In this case, you can become an associate in your practice for as long as you’d like to work. This is ideal for a doctor who wants to mentor the buyer for a period of time and leave their team and patients to a private dentist with aligned values.
Help is available
We’re living in unprecedented times, and as these things go, there is only a certain window of time for this consolidation to run its course. The most important thing for you to understand is that you’re not alone. Don’t be afraid to take the time to think through your options and look for trusted guides to provide advice and direction. If you get an offer, be sure to get a second opinion on the contract and advocate for yourself to ensure you get exactly what you want.
The DSO craze is forcing us all to shift our mindsets. But with the right preparation and self-advocacy, I believe dentistry will emerge stronger and better than ever.
Let me add that when most dentists get an offer from a DSO, it’s only reliant on the value that the individual DSO provides. Don’t fall into this trap. Always get a second opinion, and understand the true value of your business so that you don’t leave anything on the table. You’ve put your blood, sweat, and tears into your practice. You deserve to maximize the asset that you worked for so diligently. As the seller, you are in the driver’s seat! If you’re considering a DSO and you need a practice valuation, second opinion, or help finding a DSO that’s aligned with your values and goals, feel free to reach out and schedule a call.
Editor's note: This article appeared in the December 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
References
1. Thriving in a DSO: 4 hygienists share their experiences. RDH magazine. August 29, 2021. https://www.rdhmag.com/career-profession/article/14206410/thriving-at-a-dso-4-hygienists-share-their-experiences
2. Breaking down the DSO consolidation trend. Dentaltown. June 13, 2022. https://www.dentaltown.com/blog/post/17425/breaking-down-the-dso-consolidation-trend
3. Rubin K. It's a phenomenal time to be a practice owner. Dental Economics. May 19, 2016, https://www.dentaleconomics.com/practice/article/16388206/its-a-phenomenal-time-to-be-a-practice-owner
