Darling, you got to let me know
Should I stay or should I go?
—The Clash
I couldn’t think of a better song to describe what’s on the minds of so many dentists today: should I stay in private practice or go to a DSO?
A little background
If you had asked me that same question five (or even two) years ago, my answer would have been swift and decisive: Heck no, don’t go.
As an advocate for private practitioners, I was (and still am) staunchly committed to the men and women who have dedicated their lives and careers to helping people in their communities. At that point, DSOs were clearly a win for investors but a huge loss for practice owners, team members, and patients.
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Fast forward to today, and we’re sitting right in the middle of an industry-wide consolidation. Practice owners left and right are signing on with DSOs, making everyone else look at each other and think, Am I missing something?
Hear me out: You just might regret not exploring your DSO options.
How did we get here?
Starting with the pandemic, the seeds that have grown into the private practice exodus were planted over the last few years and are all now starting to bloom. Seeds like:
- Practice owner fatigue
- Out-of-control student debt
- Rising fee structures
- Insurance challenges
- Inflation/threat of recession
- Staffing shortages
When we all had to shut down during the pandemic, many doctors took a look in the mirror and realized that they were done. They were tired and ready to walk away, so they sold to DSOs without a second thought.
From the private equity (PE) side, investing in dental is a no-brainer. Less than 1% of dental practices fail,1 so it’s virtually risk free. Additionally, I’ve found that most practices are running at only 50% of their capacity, so there is a huge potential for growth.
Put these two situations together, and you’ve got a revolution on your hands. In 2017, 7.4% of practicing dentists were affiliated with DSOs. In 2020, that rose to 10.4%.2 And now, I predict that by the end of this year, 35% to 40% of practices will be affiliated with DSOs. The consolidation is happening at lightning speed. Experts believe that dentistry is moving toward 60% consolidation in the coming years.3
Are the horror stories real?
Unfortunately, the stories you’ve heard are real. The docs who joined DSOs early on experienced an unprecedented loss of autonomy, disregard for the team and associates, and had to offer patient care on the level of the local DMV. It was not pretty. In an effort to better their own lives, these men and women found themselves marginalized, making it even harder to practice.
So what’s the answer?
Luckily, with a huge shift in the industry comes evolution and innovation. While the horror stories from the original DSOs (I call them DSO 1.0) continued, more new DSOs and PE firms entered the market and started to innovate the DSO structure, giving more power and deference to the practitioners. A new generation of DSO is opening up: I call it DSO 3.0, the empowered practitioner option. So even though I thought I would never say this, here it goes: DSOs have a place in dentistry.
Enter with your eyes wide-open
So if I’m saying that you should look into DSOs (gasp), here’s my advice: You must know your options. I know there aren’t many places for practice owners to go to get neutral education and advice, so that’s why I’m beginning this monthly column on DSOs.
So here’s your takeaway for this month: With so many DSO structures and models out there today, you don’t have to be strong-armed into the old-school DSO model anymore. If you have wants or needs, speak up! This is a seller’s market, so if one organization isn’t listening to you, find a new one.
If you have wants or needs, speak up! 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.
I’ll meet you back here next month, and each month thereafter to answer some of the questions I hear about DSOs most often—from EBITDA (earnings before interest, taxes, and depreciation) to negotiation to team culture and everything in between.
Editor's note: This article appeared in the May 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
Gary Kadi is CEO of NextLevel Practice, a recent financial supporter of Dental Economics.
References
- 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
- Howarth J. Top 9 dental industry trends (2023-2025). Exploding Topics. January 17, 2023. https://explodingtopics.com/blog/dental-industry-trends
- Professional Transition Strategies. Breaking down the DSO consolidation trend. Dentaltown. June 13, 2022. https://www.dentaltown.com/blog/post/17425/breaking-down-the-dso-consolidation-trend
