The Ultimate Guide to Dental Service Organizations (DSOs)
Many dentists have been approached by dental service organizations (DSOs) with offers to buy their practices with certain terms and conditions, not to mention financing and capitalization at the ready. Venture capitalists – groups of wealthy business-minded dentists – and other investors have contributed capital and built the business model the DSO uses for the acquisition process. Dentists who have been asked to sell their practices are typically offered an arrangement whereby they can continue to work for compensation and, as an added bonus, receive a percentage of the overall profits. It is worth noting that an experienced management team of legal, accounting, and other advisory members helps run a DSO.
What is a dental service organization?
Dental service organizations contract with dental practices to provide business management and support services, including non-clinical operations. This helps dentists to maximize their practice from a clinical perspective while relying on the DSO to handle the “business side” of their operations through professional office management. Not to be confused with dental group practices, which are simply groups of dentists with ownership stakes in the practice, DSOs position themselves as supporting the work of dentists by managing billing, IT, marketing, human resources, payroll, accounting, and purchasing decisions. Depending on the state they operate within, DSOs may acquire a dentist’s practice outright or provide contracted services through an independent entity.
DSO business models
Assuming various approaches and operating philosophies, DSOs:
- acquire existing practices and build a new office;
- acquire existing dental practices and rebrand them by changing the name and renovating the office;
- convert practices to a common electronic dental and administrative record system; and/or
- create branded dental practices “de novo” (as new practices) using a staffing model of employed clinicians and associates.
Each DSO is considered a private corporation and some of them have private equity investors, similar to physician management/practise organizations. In some cases, affiliated dentists are partial owners; in others, they are members of a separate PC. These PCs are generally divested of the practices physical/real property assets while retaining ownership of the patient portfolio, their dental records, and the goodwill created by the practices in local communities.
Generally speaking, DSOs provide a consistent range of business and human resource services, including:
- leasing or purchasing equipment, supplies, and real estate;
- managing human resources and benefits, billing, and accounts payable and receivable;
- providing legal services;
- overseeing compliance activities and audits;
- performing marketing and public relations;
- patient call centers;
- information technology, including electronic dental records;
- treasury services; and
- facility management and maintenance.
Statistics and market size
According to the ADA Health Policy Institute in its [name of report/year] 7% of all dentists practicing in the United States are affiliated with dental service organizations. For new dentists (under the age of 34), that number more than doubles to 16.3%. By gender, 10% of female dentists and 6% of male dentists are affiliated with DSOs.
In 1991, approximately 91% of dentists owned a dental practice. Just over 20 years later, 84% of dentists owned a practice. Over that same period, the proportion of dentists working as solo practitioners decreased from 67-57%, suggesting a move to larger practices that included one or more partners, associates, or employees. According to that same [report/survey] from [date ranges],
- DSOs were operating in 48 states (excluding Alaska and Montana)
- 72% had common electronic dental records
More broadly, dentists choose to work with a DSO because of the salary/compensation packages, their location, and the opportunities for career advancement.
Growth trends in DSOs
Following their modest arrival 20 years ago, DSOs have become a force to be reckoned with in the dental industry. While the overall numbers are unremarkable (only 7% of dentists work in DSOs, as per American Dental Association, year), the numbers among emerging young dentists are impressive. Over 16% of dentists under 34 are affiliated with DSOs.
Still, most dentists are reluctant to accept the obvious – that DSOs are the future. Rather than taking the time to figure out how to optimize their assets and align their core values within a DSO ecology, most dentists are up in arms about DSOs. They actively try to stop their growth and expansion by “digging their heels in.” Instead of seeing the opportunities DSOs can offer them, they are stuck trying to safeguard the past. Despite evidence to the contrary, they cling to the notion that solo practices are sustainable. Somehow, they believe that if they complain loud enough and for long enough, they will stop DSOs from coming to their neighborhood. As I see it, dentists are best served by embracing the future of DSOs. The questions they should be asking themselves are: “How can I best participate in and benefit from this future?” and “With whom should I be speaking?”
The drivers of growth in these collaborations include, but are not limited to:
1) High levels of student debt among new dentists (meaning an inability to take on overhead costs);
2) The flexibility to work part-time or full-time;
3) The corporations’ assumption of both the risks and operational costs of practice;
4) The increased purchasing power obtained from economies of scale; and
5) The opportunity to use technological tools that are not generally available in small dental practices to
streamline quality control and outcome analyses.
Evaluating DSOs
DSOs have changed the way dentistry is done – providing dentists with support, strategic alliances, and potentially more money (for less stress).
“But at what cost?”
This remains the burning question for any independent practice owner who is wondering if it is time to make the switch. As you weigh your options, it is important to do your homework and find the right fit for your practice.
These are some factors you should take into consideration.
To sell or not to sell to an existing DSO
In becoming part of an existing DSO, the selling dentist is involved in the clinical aspects of the practice and all management and financial decisions are made by the DSO. This gives the selling dentist the opportunity to receive a reasonable sum for the sale of his or her practice and to earn additional money while slowing down before retirement. Sweetening the pot, sometimes a DSO will offer the dentist the right to acquire a small interest in the organization.