DSOs have been around for a while. In their inception about twenty-plus years ago, the premise was that they could provide infrastructure and more affordable care to lower-income families, in part in response to the passage of the Affordable Care Act. Since that time DSOs have grown with great momentum and so have their reputations among individual dental practice owners.
We hope to provide some clarity for you as you develop your plan for retirement and your practice transition.
PROS:
DSOs are organizations that are well financed and provide infrastructure for dental offices that choose to join their organization. They typically have a board of governance and they provide all aspects of human resources, management, and accounting systems; alleviating the burdens of management from the dentist. Because of this infrastructure and the investment money backing DSOs, the costs of practicing dentistry are reduced. Sometimes substantially, which also takes the financial burden off of the shoulders of dentists.
DSOs also offer the opportunity for dentists to continue to work back, typically for a two-year minimum allowing you to phase into retirement while still being able to see and treat your patients. There are also “Invisible DSOs” which allow you to continue with your own branding and practice the type of dentistry that you have come to enjoy.
A well-run, reputable DSO can also increase the revenue of your practice. Their goal is to retain you for a negotiated period of time as well as bring on associate dentists. Their marketing team is focused on patient growth and retention. Production goes up. They also handle all of the collections potentially freeing up staff to be more patient-focused.
Most DSOs don’t need to secure bank financing for the purchase of a practice. They are funded by investors or private equity so a closing can happen much more quickly, smoothly, and efficiently.
Also, a well-funded reputable DSO will have employee benefits in place that you may or may not have been able to offer your employees. In today’s market finding and retaining staff has become an ongoing nightmare, and the ability to offer an excellent benefits package can help secure and retain valuable employees.
The biggest plus about DSOs is you get to sell your practice taking the equity out while working back for a few years and possibly not having management responsibilities.
So, there can be a real win-win to selling to a reputable DSO.
CONS:
We have heard comments like the following from our seminar, webinar, and conference attendees:
“We dislike the idea of large corporations making profits off of all of our hard work as dentists.”
“Who is protecting the dentist?”
“I don’t like greedy large corporations.”
“I don’t want a large corporation stepping in and telling me how to do my dentistry.”
“A DSO purchased my friend’s practice and changed everything from staff salaries, to supplies and lab he used. He quit the practice after 6 months.”
We hear you and we are here to assist you through your decision-making process. In our seminars, webinars, and conference talks we address these issues and invite you to engage in a dialogue about DSOs so we can help you explore what may work best for your practice transition.
On the downside, many DSOs have developed very poor reputations over the years due to a lack of quality dentistry. I’m sure that everyone reading this article has retreated patients who received care from a less reputable DSO that made your stomach turn. But on the upside, their lack of quality dentistry brought new patients into your practice.
When a DSO purchases a practice, they do require a work back contract/agreement with the selling dentist. So as a seller, you are committing to working for the DSO for a period of two to three years or more. During that time the goal of the DSO is to bring on associate dentists and grow your practice. These can be challenging situations.
DSOs may not pay the full purchase price for your practice at close. Many will pay a percentage of the purchase price (between 60% and 80%) and then you will receive the rest of the money as deferred compensation, stock options, or shares if your practice meets or exceeds certain thresholds such as collections and profitability. These issues need to be very carefully negotiated prior to close.
As we mentioned before, DSOs come with a large infrastructure of systems and supporting staff and as a result, some of your employees may be let go. This can create some emotional turmoil for you, your staff, and your patients.
If you own your practice and the real estate, DSOs are not interested in owning the real estate. This means that you will either need to hang on to the property or find another buyer. However, the upside to this is that the DSO would be paying you rent.
And probably most important, is how do you come to terms with your own feelings about selling to a DSO and what will that mean for your reputation?
This article is intended to offer a simplified overview of the pros and cons of selling to a DSO. Please sign up for one of our webinars or seminars for a more in-depth discussion. We are also available for one-on-one consultations with you.