Dental Support Organizations (DSO’s) such as Heartland Dental, Aspen Dental, and Pacific Dental Services have allowed many dental professionals to concentrate on their core talents, namely, being great dentists, instead of juggling the demands of running businesses.
Welcome to the DSO Series
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Part 1: Should you join a DSO? 👈 You are here
Joining a DSO could be the dream choice for your mid-to-long-term future in the dental industry, or it could just as easily devolve into the opposite - a nightmare. How can you know if it is the right choice for you? The short answer: It’s a matter of perspective.
It depends on your vision, your long-term strategy in the market, and it hinges on knowing your own personal strengths and weaknesses, and those of your staff and current situation. Your individual needs and priorities will ultimately determine that answer, so to help you make an informed choice, consider the pros and cons we examine in this article.
What is the Future of the DSO model?
Following the trends in medical care, Dental DSO’s are in a phase of rapid growth. In 2019 a leading global investment banking and asset management company, namely William Blair, reported on the growth prospects for Dental Support Organizations.
The firm estimates that the largest DSOs are growing their number of practices by roughly 13 to 14 percent per year. DSOs currently control roughly 16 percent of all American Dental practices, and they are on track to reach 30 percent for 2021.
Over the last two decades, the dental industry has seen a lot of consolidation. That includes a number of models, including minority ownership, mergers, multi-location dental offices, nondentist ownership, and investor or corporate practices. It seems as if this trend will continue to accelerate into the future. Where does that leave you?
What Are the Benefits?
Not all DSO’s are cut from the same cloth, and some will offer more benefits, or possibly drawbacks, compared with others. Below is a list of advantages, and the reasons why so many small practices have joined the trend.
Invest in a Better Work-Life Balance
The demands of successfully running a dentistry practice can be more of a challenge in reality than it would seem on the surface. Keeping strict control of finances and expenses, managing staff, purchasing equipment and supplies, and the constant, complicated administration that goes along with all of that, leaves you with very little time to be a great dentist.
It makes a lot of sense to focus on your core skills as an individual, and outsource the tasks that consume a lot of time and focus on the experts in those related fields. Most DSO structures will take care of general administration, like insurance, making sure you are complying with health and safety regulations, hiring and firing, Human Resources, payroll, and legal administration.
That enables dentists to focus on what they love and do best, to reclaim those extra hours, which could be better spent with family, and looking after the holistic needs of your day-to-day existence, or simply working on your golf game.
As a kind of bonus, having more time and available energy, a dentist can then also focus on patients, nurturing those beneficial long-term relationships that sustain a healthy practice. After all, Dental Care really means Patient Care - and that leads to a whole and happy work-life balance.
Gain Financial Leverage by Utilizing the Power of DSO Muscle
Negotiating with dental suppliers can get time-consuming unless you are dealing with the right dental supply company. Are you paying a premium because you are unable to buy in bulk quantities?
DSO’s generally have far more buying muscle and can reduce the cost of supplies by negotiating with distributors and obtaining price reductions on your behalf. In the long run, this can make a huge difference to the financial future of your business.
What about leading dental technology? We all know that it isn’t cheap! A small practice may not be able to invest in all the latest equipment that is available, as compared to a practice affiliated with a leading DSO. Even if they make the costly investment, it may be years before the equipment is paid off, or the lease expires.
Meantime, technology evolves. DSOs will often provide the research, cost negotiation, and the necessary implementation, training, and ongoing tech support required for the latest, fast-evolving technologies.
The same principle applies where it comes to legal help and insurance - both of which are typically nightmares for the small fish. The solo practice or small partnership will not have the bargaining muscle, the legal expertise, the time, or the administrative capabilities of the Dental Service Organization - who are the specialists in these dimensions of the business.
Choose a Wise (and Lucrative) Entry and Exit Strategy
When weighing up the pros and cons, it is vital to know the details about the entry and exit strategies contained in the contract. One of the major perks can be Entry and Exit payments.
The details of the contract will depend on many factors, but successful dental practices are always attractive to those DSO buyers. They may offer you five to seven times a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA). A typical deal will give you 80% cash at closing and 20% equity share in the larger entity. Nothing to sniff at!
That means a large payday both when you sign the partnership agreement, and later when you cash in your stock. However - the devil may be hiding in the details, so to speak. That’s where Due Diligence comes to the rescue.
Some things to consider:
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Is there an opportunity for equal ownership, or do you only get a minority?
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If it’s the latter, then how much capital must you contribute to becoming equal?
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How long will it take you to break even through increased compensation? And what about the group practice’s retirement plan?
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You may have a 401(k) plan, but what about age-weighted profit-sharing contributions, not to mention a defined-benefit or cash-balance plan?
Keep in mind of course, when affiliating you transition from owner to that of a salaried contractor. Weigh the balance carefully.
Dentists are seldom experts at financial planning, so be sure to enlist the help of a trustworthy advisor, who has experience with DSO contracts.
What are the Drawbacks?
To be fair, joining forces with a Dental Support Organization is not the perfect fit for everyone. There are several cons to consider before signing that contract.
Do You Need to Be the Boss?
One of the biggest drawbacks is that you lose your autonomy. If you have an entrepreneurial spirit and love to chart your own course, then this may be the biggest loss.
You may end up as a square peg in a round hole. Will the type of dentistry you love to practice fit with the type of procedures the DSO requires for their ‘bread and butter?’ Remember, you will usually be contractually bound to work there for the next three years at least. There are good reasons why many associate dentists leave DSOs.
Any large corporation and the DSO’s are no exception - has their rules and regulations, and their company culture. That kind of thing can go either way. Either it will enhance your practice, or it will destroy what you have so carefully created on your own. Make sure you know the regulations and requirements for you and your staff before making the important decision.
What are the Exit Risks?
Getting out of your contract may be a lot more emotionally and financially draining than a bad divorce! A few months down the line you may discover that the perks do not really outweigh the benefits, or that you simply don’t fit the corporate culture and politics - and if so, you will need a good plan B.
There may be penalties and financial costs for a premature exit - so consider all options wisely before you take the plunge. You should also be aware of non-compete clauses, and their duration. They may prevent you from practicing somewhere else should you choose to.
Conclusion
The future of dentistry will almost certainly contain both the solo dentist and the DSO model, based on the trends we have seen in the wider medical industry as a whole. Judging by the current rate of growth, it seems that more will opt for the benefits of joining one of the growing DSO groups, although there is still much controversy, and many will decide to go it alone instead.
Which option will suit your own personal vision for your practice best? That depends on your personal perspective.
