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To DSO or Not to DSO, That Is the Question

Posted by Bill Robinson, ADAPT President & CEO on 3/23/21 9:00 AM
Bill Robinson, ADAPT President & CEO

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DSOs are one of the most polarizing issues in the current dental economy. People seem to believe they are either “destroying dentistry as we know it” or “the best possible way to practice dentistry,” with very little room in between.

Before we go any further, we all have to agree that there are some great corporate dental companies and some less-great corporate dental companies. Like anything else, that evaluation hinges on how you measure what makes a dental practice “great.” But we also have to acknowledge that there are great independent dentists and less-great independent dentists, just like there are great barbers and less-great barbers.

DSOs serve a market need

DSOs have been growing because they offer a solution that meets the needs and preferences of some dentists and patients.

There are dentists who love the art and practice of dentistry and have no interest or inclination for running a small business. They don’t want to spend time and energy on marketing, or accounting, or hiring and firing. And they have even less interest in dealing with all the regulatory acronyms: OSHA, EPA, and IRS. An organization that offers efficient business service and regulatory expertise is ideal for a dentist who simply wants to be a dentist and not a business owner.

Likewise, some patients prioritize practices with convenient locations and hours (evenings and weekends) while taking all insurance packages. Large corporate dental organizations are often exactly what those patients are looking for.

A DSO isn’t the only way to achieve these goals, but the business model clearly resonates with those who see their needs served.

Research says…

When I served as the VP of Member & Client Services at the ADA, my team did research to understand the experience of dentists. Some of the qualitative research focused on understanding the experience of dentists working in DSOs to identify what they might need from the ADA.

As expected, some loved working in that model and some were eager to leave. But whether they liked or disliked the business model itself, there was commonality in what they did not like about the experience. When asked what they did not like about working as an employee in a corporate setting, the responses can be summarized in one word: control. The surveyed dentists wanted more control over the materials used, their own time, and, in some cases, the treatment plan.

I suspect the ADA would find the same experience if they surveyed associates in independent practices or even in a completely different non-dental setting. Some of those concerns stem from the very nature of being an employee. Any employee agrees to certain standards and business practices as part and parcel of working in an organization. As long as those practices are ethical and legal, the employee is choosing to agree to those conditions. Those who start their own business often do so because they want to control those standards and business practices.

How dentists’ career paths are changing

Increasing numbers of dentists go to corporate opportunities right out of dental school. According to ADEA, 18.1% of dentists intend to work in DSOs immediately after graduating, while the ADA Health Policy Institute reports that 10.4% of all dentists are affiliated with a DSO. But it also seems that some large corporate dental organization experience significant turnover of those dentists.

Anecdotally, we are now seeing more dentists enter DSOs at the end of their career. Tired of managing their own practice, dentists approaching retirement often desire to keep working in dentistry without the responsibility of running a small business. DSOs can offer an attractive off-ramp as a dentist moves toward retirement. A DSO can also be a great option for a dentist who doesn’t want to put down roots, such as someone with a spouse who may need to relocate for work.

Regardless of the reason, it’s up to the dentist to take the time to carefully evaluate their own needs and the office itself before signing on the dotted line. No matter what type of practice you might consider, the questions are the same:

  • What are the working conditions and schedule?
  • Are you comfortable with the quality of dentistry being delivered?
  • What procedure mix will you be responsible for?
  • What is kept in-house, and what is referred out?
  • Does the practice stay on schedule or consistently run over?
  • How does the office “fit” your personal style? (Do you like quiet or bustling? How do you prefer to work with the rest of the team?)

These questions point to finding the right “culture” or “philosophy of care,” which means the place where you can find career satisfaction. (My colleague Dr. Ebert has some great tips on evaluating potential practices.)

Why DSOs will stick around – but so will independent dentistry

I believe that all industries are better when there are multiple competing models. The closest corollary in my mind is Optometry. In the 1960s, the only way to get a pair of glasses was at your local optometrist office. Soon came LensCrafters and Pearle Vision and Sears and Walmart and Costco, who leveraged their brands for efficiency in purchasing, supplies, materials and, especially, marketing. Fairly quickly, independent optometrists were harder to find. Consumers responded positively to the standardization, ease, and convenience of the big brands. Many optometrists began to work in those models either as employees or independent contractors. And yet, independent optometrists are still in the market and seem to be experiencing a resurgence as some consumers value a more personalized experience.

At a webinar ADA Practice TransitionsTM (ADAPT) held for dental students, an attendee asked, “Is group practice going to dwarf solo practice in the next 10 years?” I responded that group practices were certainly growing, and a lot of that was driven by the growth of DSOs. But I pointed out that I believe there is a long tail on solo practice.

What do I mean by a long tail? While I believe that group practice and the DSO business model will continue to grow, I think it will grow slowly because there is still a significant amount of interest in owning and running a dental practice on the part of young dentists. Our research finds that, among dentists in the first ten years after graduation, almost two-thirds aspire to own their own practice. And the majority of them hope to accomplish this in the next five years.

Most of the large DSOs have strict criteria for locations or markets where they will participate. Often, this does not include rural areas or small towns. One of the unexpected consequences of the pandemic is that we are seeing increasing interest from dentists open to purchasing a rural or small-town practice. These tend to be highly profitable practices because of their inherently lower operating costs.

Why ADAPT works exclusively with independent practices

Occasionally, ADA Practice Transitions is contacted by a DSO interested in using our platform, either to buy practices or to find associates. We politely decline such business. Why? Because we are anti-DSO? No! We decline because we have built a platform that is optimized for the needs of independent dentists. We designed our platform to match dentists based on the nuances of a particular practice. Our platform helps to sustain an existing practice through adding an associate to support growth or an ownership change – and we do so by looking for dentists who share similar philosophies or approaches.

Our methodology does not support transitioning a practice with an independent mindset to a group whose model succeeds based on standardizing policy and practice.

The largest DSOs are owned by private equity firms, so there is significant financial backing for these organizations to do things that would be difficult for an individual dentist or small group to support. ADA Practice Transitions was built to serve this particular segment of the market – because the need is there and we saw an opportunity to serve dentistry.

Ultimately, in the current market, there appears to be room for both corporate-owned dental service organizations and independent solo practitioners – as well as everything in between. Which one of those models grows more quickly will depend on which practices respond most appropriately to the needs of their customers. A well-run private practice will always win out over a poorly run DSO. Likewise, a well-run DSO will succeed over a poorly run independent practice. In its current form, ADA Practice Transitions is designed to serve independent practices but always roots for quality dentistry to win in the marketplace.

 

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