Prediction: Recent developments in dental licensing and DSOs will lead to massive growth
Finally, it’s here: Arizona has become the first state to recognize every single U.S. professional dental license in the other 49 states.
For years, one of my biggest issues was that even after you passed your tests and graduated from a dental school that’s accredited by the ADA’s Commission on Dental Accreditation, you still had to pass a state board exam before you could practice dentistry there.
This is particularly prohibitive for new graduates, who are the least able financially to take these tests. No matter whether they want to return home and work alongside their mom and dad or venture out to another state, these new dentists are broke. They’re just graduating, they’ve got student loans out the wazoo, they have to move, they have to get an apartment … and we’re putting them through state board exams, which are really just jobs justification programs for a bunch of turf-hungry older dentists who say, “Oh, you want to come to my state? You’re going to have to come take a test. And of course I’m going to be the test giver, and I’m going to sit there for three days and make good money while you poor, broke, starving students have to come jump through more hoops.”
Arizona’s governor believed this created a restraint of free and fair trade—not just for dentists, but all licensed professionals. No matter if you’re an accountant, a dentist, a hygienist, an engineer—you move to Arizona, they now accept your license.
The ABCs of DSOs
What sort of impact do you think this will have on the supply of dentists in Arizona?
A. Little to no measurable impact.
B. Some increase in the supply of dentists, but only by a percentage point or two.
C. A large impact, increasing the number of dentists by at least 10% over the next few years.
My vote’s on C. I’m betting on a 10% increase over the next two years.
Arizona was already ground zero for dental DSOs. (When I use that term to describe a dental service organization, by the way, it just means dentists are working under management. When you hear “DSO,” everyone immediately thinks of the 400-pound gorillas—Heartland, Aspen, Pacific—but the reality is that most DSOs are doctors who have maybe two or three locations in towns with populations of maybe 100,000?people. It’s an efficient business model, because the dentist can centralize that first layer of management: HR, accounting, payroll and marketing.)
In 2017, 18.4% of the dentists in Arizona were affiliated with a DSO, according to the ADA Health Policy Institute. That’s more than double the national average of 8.8%.
Right now, every DSO has hopes and dreams for a national company that can someday do an IPO. But right now, I think the economics don’t add up: When you have to support a second layer of management headquarters, that often means another 12–14% off the top. There’s no efficiency on earth that a large DSO could ever do to pay for that themselves—they’d have to get your lab bill and supplies to zero just to break even. That’s why I’ve always said these companies can’t go public yet.
But I will say that the first DSO model that makes it coast to coast and gets to be publicly traded will be invented in Arizona. Arizona’s going to be the home to all things dentistry as people try to innovate on what’s the next business model for dentists. Right now 18% of dentists in Arizona are part of DSOs; I believe when the final business model is done, that number will be 50%—and when it does, it’s because that company has created an incentive that makes dentists want to stay with it for life, and not quit within a couple of years.
An all-ages influx
But before then, I think that a lot of dentists are going to move to Arizona. And not just necessarily the young graduates, either!
When I was a young doctor, the first associate I hired was my age. I was immature and I thought that I needed to find the coolest, most fun dentist who I wanted to hang out with.
But as I got older, I realized the best associates were dentists who didn’t want to own a practice. They’d likely already owned a practice for 20, 30 years, so they’d gotten that out of their systems; they’d raised families, now their kids are off to college, and they’re sick of East Coast winters and are already thinking about selling their practices and looking forward to retirement. I’d hire them and they’d finish out their 10-year career here in Phoenix.
So I think if that’s your situation—you’re looking out the window in New Jersey and it’s overcast, freezing drizzle and you’re wondering, “Why do I even live here? I’m miserable and it’s not like I’m ever going to run into Bruce Springsteen or Bon Jovi”—it’s time to trade Bon Jovi for a saguaro cactus. I’m very proud of Arizona.