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Should You Transition Your Dental Practice to a DSO? Pros and Cons

Posted by Erick Cutler, CPA on Jan 10, 2021 8:00:00 AM

Dental service organizations (DSOs) are growing in popularity as a model for U.S. dental practices. DSOs contract with dental practitioners to take over critical business management and professional support functions so that dentists can focus primarily on patient care. Dentists who work in DSOs function as employees or independent contractors.

Nearly 4,000 dental offices across the country are managed by DSOs, some of which are owned by non-dentist venture capitalists and other investors seeking financial returns in the dental field.

The Health Policy Institute of the American Dental Association estimates that 7.4% of all practicing dentists in the U.S. are affiliated with a DSO. New dentists are especially attracted to the concept of DSOs, and DSOs employ 16.3% of dentists age 34 or younger. Experienced dentists who wish to phase out of clinical practice also see DSOs as a viable exit strategy.

If you are considering joining a DSO or transitioning your practice to this model, you should carefully weigh the pros and cons.

DSO Advantages

A DSO can offer a dentist several distinct benefits, including:

  • Fast entry to a career – New dentists find DSOs provide a quicker path to establishing a practice and starting their careers. DSOs also offer young dentists mentoring opportunities that can help them develop professionally.
  • Lower financial investment – Young dentists are often burdened with student debt when they enter the field. Because dentists in DSOs operate as clinical practitioners and do not own the practice, they do not need to undertake additional debt to establish their practice.
  • Reduced administrative burden – The DSO model removes the responsibility for practice management and operations from the dentist. The DSO takes over scheduling, billing, staff hiring, payroll, and other necessary matters, allowing dentists more time to focus on their patients.
  • Peer support – DSOs offer a ready-made community of peer dentists within their network of offices. They provide their member dentists opportunities to collaborate and consult with their peers on clinical issues and new procedures.
  • Compliance monitoring – DSOs can streamline the process of compliance with HIPAA, OSHA, and other regulations governing the profession.
  • Insurance support – Insurance policies often change, and it is challenging to stay current with them. Most dental practices are burdened by the paperwork required by multiple insurance providers. DSOs take over the management of insurance policies and can assist practices in negotiating better rates for their patients.
  • Access to new technology – Investing in new dental technology can be challenging for most private dental practices. DSOs can provide research, training, cost negotiations, group purchasing, and tech support to help dentists implement emerging technology for their practices.
  • Continuing education – Some DSOs offer specialists for certain procedures as well as resources and training to broaden skills. Access to ongoing educational training helps dentists expand their skills and stay current with advances in the field.
  • Better work/life balance – By shifting administrative and management duties to a DSO, dentists can work reasonable schedules and avoid career burnout. They can spend more time with their families and focus on other priorities outside of work.
  • Easy exit to retirement – For those dentists nearing retirement, transitioning to a DSO may be easier than trying to sell a practice or train an associate to take over the office. Dentists who sell their practice to a DSO can remain on staff as an employee or contractor to provide continuity to patients through the transition.

DSO Limitations  

While DSOs can offer many advantages, there are some concerns that dentists should carefully consider. These include:

  • Lack of autonomy – Dentists who are used to working independently must adjust to becoming an employee who answers to a manager. DSOs have their own rules and regulations that must be followed for patient treatment and business decisions. For some dentists who are used to calling the shots, a DSO may not be the right fit.
  • Lost equity in your practice – Selling a dental practice to a DSO requires careful negotiation and a clear understanding of the financial aspects of the transaction. A seller gives up all equity ownership and instead accepts a salary or contract rate for clinical services provided. Depending on where the dentist is in their career, this could significantly impact their future earnings and retirement income. Dentists should consult with their accountant and financial advisor before entering into a transaction.
  • Reputation in the market – Some DSOs have garnered negative comments for high-pressure selling and emphasizing price over quality. Therefore, it’s essential for dentists to find a DSO that shares the same values and approach to patient care. Dentists who have spent their careers building a strong reputation in the community may lose patients when they convert to a DSO that has a questionable market brand.
  • Focus on profits – The primary focus of DSOs is to generate profits for their stakeholders. Dentists who transition their practices may find themselves in conflict with DSO management when trying to provide what they deem to be appropriate patient care. There may be intense pressure to upsell services or suggest unnecessary procedures to make quotas.
  • Competition with private practices – Some DSOs have moved into geographic areas where they compete head-on with established private dental practices. Because DSOs can provide sizable investments in technology, training, and procedures that private dentists can’t afford, peer dentists may react negatively to DSOs as they may be viewed as having unfair advantages.

Conduct Due Diligence

If you are considering transitioning to a DSO, it is helpful to turn to your financial and business advisors and attorney to assist you with due diligence. Each DSO has its own payment terms, data and accounting protocols, employment contracts, commission schedules, office procedures, and operational requirements. Because DSOs are big businesses, there may not be much leeway to negotiate different terms. It’s best to clearly understand what the transition to a DSO will mean for your practice before you take the leap.

Deciding whether to join a DSO is a significant decision that affects your business and your financial future, so you should carefully consider the ramifications of such a change. Our dental practice CPAs and advisors can help you sort out the advantages and disadvantages. Contact Erick Cutler at 214-635-2541.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

Topics: Dental, DSO