Five Tips-offs Your DSO May Be on Thin Ice

Written by: Michael W. Davis, DDS


In sports, numbers of athletes have unfortunate tip-offs or “tells,” which give opponents an indication of the future. A football wide-receiver may always make a left head fake, prior to running right. A baseball pitcher may always tip their shoulder in a particular direction prior to throwing a curve ball. In competition poker, one player may drum their fingers on the table or generate an eyeroll if they hold a winning hand.

Due to a variety of factors, the dental support organization (DSO) industry is currently in period of flux with mergers and acquisitions.

It is not unusual for a doctor to have been employed by three or more DSOs within the past 12-month period.


This uncertainty for DSO dentists has led to short-notice relocations, delays, and insecurity for family plans, and economic consternation.

Without insider information or tip-offs, it is nearly impossible to make a fair assessment on the financial stability of any single DSO employer.

However, there are some indicators one might examine.

1. Curtailing Bonuses and Salary Increases

Many DSOs promise staff and doctors production bonuses based on meeting or exceeding monthly goals. Salary increases also may be promised based on meeting and exceeding these production quotas. When a company’s pledge fails to materialize, it not only generates employee ill-will, but it should raise concerns about a DSO’s fiscal stability.

Is the DSO “robbing Peter to feed Paul?”

In other words, is the company compromising their relationship with productive staff, in order to offset losses in other areas?

Have regular monthly bonuses been replaced with too many “atta boys” and “atta girls?” A corporate “pat on the head” will not put food on the table and may foretell of a DSO’s economic downturn.

Is that money, which formerly went to the asset of personnel, now going to fund payments on high interest subprime bond interest, or for private equity (PE) beneficial ownership?

Is the DSO cheating associate dentists on their earnings, and moving that money to serve other interests?

2. Vendors Not Being Paid

Are ordered supplies not arriving in a timely manner to serve patient care? Are repairs on vital equipment delayed for weeks? Are lab cases not arriving as scheduled resulting in unnecessary patient rescheduling?

This all may be an indicator of weak cash flow for the DSO and potential future insolvency. It is critical to keep top of mind, patient flow and production in your facility may not indicate what the company is experiencing overall.

3. High Staff Turnover

Staff turnover is a problem throughout the dental industry. However, it’s problematic if a DSO continually squeezes out highly productive personnel, whom may have a superior salary and benefit package, in favor of low-cost entry level new hires. This unhealthy business paradigm will tend to exacerbate challenges within the workplace.

This might be the result of unlicensed management attempting to maximize profits at the expense of patients and the well-being of concerned personnel. It may also be a sign of the DSO’s money problems.

One key guide is often a significant staff turnover in a DSO’s regional managers. Such persons may be uniquely positioned to review insider data on the overall company’s financials. When this level of management abandons ship, it is often well past time to be very alert in finding a lifeboat exit strategy.

4. Pressure on Doctors to Purchase DSO Equity

Numbers of DSOs are pressuring their associate doctors and nominal “owner” doctors to buy an equity stake in stock shares of their DSO. Some of these solicitations seem akin to grifters pumping time-share condos on the public. Sales tactics can be high pressure and arm-twisting.

Some doctors fear declining to purchase such alleged equity might compromise their employment. Others are put off by the strong arm methods.

“Alleged equity” is absolutely the appropriate term. What is proffered is not publicly traded stock on any open public exchange, such as the New York Stock Exchange or NASDAQ. Investors lack many of the protections and required disclosures mandated by the US Securities and Exchange Commission (SEC). Majority owners set stock valuations, times of trade or redemption, and terms of trading. Minority shareholders have few if any rights.

As PE investment money has dried up since the COVID pandemic and interest rate spike, DSO funding via the junk bond market has suffered. Cheap money is nearly impossible to find and borrowed money in general is more difficult to acquire. Thus, a number of DSOs have tapped into their doctors as a revenue source.

Doctor/shareholders are playing a high stakes game, like in the farro houses of the old West. Many of the games are rigged. Doctors may well be swindled.

In one particular case, a certain DSO was on the edge of bankruptcy for well beyond a year. Without disclosure of their complete financials, they continued to sell DSO equity shares to unsuspecting dentists. After a restructuring chapter 11 bankruptcy, and the sale of the company to a different PE company, creditors were paid a percentage of moneys owed. Shareholders, including doctors retaining DSO stock, were left with worthless paper.

It must also be stated that a relative handful of dentists holding equity in specific DSOs have profited handsomely. This was prior to interest rate hikes and former stronger EBITDA valuations.

A DSO company rollover from one PE firm to another PE firm could generate substantial returns for investors. While that can and will occur for a lucky few in the future, it may not be in the near term due to the current economic realities. Again, a minority shareholder/doctor has no say in any of these PE mergers and acquisitions.

5. Standing in Subprime Bond Markets

Investor services such as Moody’s follow the subprime bond markets. They inform investors on bond ratings and likely near term performance. Such investor services will alert one to which DSO bonds may be in default, partial default, or on rare occasion a “debt for equity swap.”

Unquestionably, the DSO industry is generally highly leveraged. An ability to readily acquire inexpensive funding is essential for the growth and perhaps the survival of the DSO industry. The DSO industry, as held in portfolios of the PE industry, is currently in a state of uncertainty and flux.


As a doctor or auxiliary staff-person working for a DSO, one faces continual employment ambiguity. Smaller DSOs are merged with larger DSOs almost weekly. DSO acquisitions are accelerating in number and frequency. The catalyst of high interest rates force some to teeter on bankruptcy. Even larger DSOs have financially failed.

With every merger and acquisition, personnel experience a new company culture. Each DSO has its unique set of management styles and structures. Sometimes the transition is a fit, other times not.

Practice “ownership” within a DSO is no guarantee of stability if the DSO changes hands to a different DSO or PE ownership. Most business service agreements (BSAs) and management service agreements (MSAs) between the “owner” doctor and DSO, primarily place the DSO in a beneficial ownership position, or at least, a fee-splitting agreement. The doctor is usually not in control, as if they actually owned a practice by any valid legal definition.

If one is employed by certain DSOs, one would be wise to keep their resume up-to-date. Be prepared for relocation. In fact, be open for possible relocation to a different state.

Setting down roots by starting or expanding a family may be a risk. The purchase of a home should be evaluated in the context of a possible quick sale. Assuming debt for an auto loan or large credit card purchases should be fully evaluated in the context of the stability of one’s employer.


Dr. Michael W. Davis practices general dentistry in Santa Fe, NM. He also provides attorney clients with legal expert witness work and consultation. Davis also currently chairs the Santa Fe District Dental Society Peer Review Committee. He can be reached at