Dental service organizations (DSOs) have rapidly expanded within the last 20 years, and their steady growth is expected to continue. The question is why DSOs are so advantageous and why they’re seeing unabated growth in the dental industry.
But first, what are DSOs, and how did they arise?
DSOs provide nonclinical administrative services to dental practices that are 100% owned and controlled by licensed dentists. They are specifically in charge of the practice’s management and operations, while the licensed dentists conduct the actual doctor/patient interaction and care. The DSO and licensed dentists are both experts in their respective roles, and together they create a highly successful dental organization that can grow to reach a variety of different sizes all across the nation.
Also, DSOs can be owned by non-dentist investors who want to participate in the dental industry. Non-dentist investors are typically able to provide more lucrative opportunities than licensed dentists, which ultimately produces higher rates of return. DSOs additionally allow for succession planning in case owner dentists unexpectedly die, become disabled, or lose their license.
The DSO model began in the 1990s when a group of successful orthodontists decided to manage the business side of dentistry. The idea was to separate the management of dentists from the actual practice of dentistry to create ease for the dentists and patients and to be financially lucrative in the process.
The model has improved by focusing on retaining top dental talent and a more amicable environment between the DSO and the dentists. While the economy has changed, DSOs have proven to be virtually recession proof, coming out of the 2008 downturn even stronger than before. Dentistry will likely continue its strong growth even in the face of another economic recession, which makes it an attractive marketplace for investors.
DSOs create a model for dentists to be able to focus on their dental practice and give the best and most up-to-date care for their patients without having to worry about the management and operations of the dental practice. Not only have DSOs streamlined the practice of dentistry for dentists, but they are also highly profitable for all parties involved.
As the DSOs have evolved, a variety of different models and sizes have emerged that can be developed from the basic DSO structure, allowing virtually any dentist or investor to be part of a DSO and invest in the ever-growing and dynamic dental industry.
While the various DSO models have expanded and changed, the DSO is here to stay. The consolidation of solo practices is growing with a current market penetration of 20% to 23% of DSOs in the United States. The DSO model has expanded to all around the United States and even to other countries such as Canada. Approximately 6,000 to 8,000 fragmented and unaffiliated practices currently in the marketplace are expected to transition from solo practices to DSO affiliated practices in the coming years.
DSOs have stuck around and continue to grow because of all of their positive attributes. They provide many benefits and advantages to dentists, investors, and patients. So what exactly makes DSOs so advantageous, and why are they here to stay?
A Focus on Clinical Practice
First, DSOs allow dentists to focus solely on their practice and thereby increase and improve the patient experience.
A normal solo dental practice requires the dentist to see patients and take care of their dental issues, as well as be in charge of hiring, retaining, and terminating employees, updating and properly maintaining equipment, ensuring that the dental facility is clean and safe for its patients and employees, and so on. By freeing up the dentist’s time and separating the nonclinical from the clinical, DSOs enable dentists to focus solely on their clinical practice, which is why they became dentists in the first place.
The separation of the nonclinical from the clinical also generally reduces overhead and increases reimbursement rates. Rather than the dentist having to deal with all of the management and functions of the dental practice, which can become detailed and time consuming, the dentist is instead able to focus on treating patients, which generally improves the standard of care. Dentists also can practice dentistry the way they want and focus solely on their practice.
Additionally, DSOs generally have better management skills than dentists, who went to dental school, not business or management school. By allowing a DSO to control the management and nonclinical parts of the dental practice, the dentist is giving control to an expert in that field.
Allowing experts who know business and specialize in hiring and retaining employees, negotiating contracts with landlords, and handling reimbursement rates and insurance contracts, for example, do their jobs, the practice will ultimately flourish. These business management experts can handle these nonclinical aspects of a dental practice, which, in turn, allows dentists to focus and grow their own expertise and practice.
DSOs also provide more networking opportunities for their dentists and clinicians. DSOs expand their dentists’ learning and discovery and introduce them to new technology as well. Small dental practices that join DSOs are introduced to modern technology that provides better care to patients. Proper patient care is the top priority for a DSO, and many DSOs facilitate continued education programs for their dentists and promote strong mentoring opportunities.
DSOs do not want to be affiliated with practices that do not provide top care and safety to their patients. Therefore, DSOs are going to ensure that their dentists are cared for and receiving the best informational and educational opportunities that are available, including mentorships. By expanding into a DSO, dentists are connected to more dentists. Often times, young dentists who are part of a DSO are able to reach out to other, more experienced dentists within the DSO to receive mentorship and guidance.
Furthermore, DSOs give dentists the opportunity to have a better work-life balance. By no longer having to control the management and nonclinical aspects of a dental practice, dentists can achieve a better work-life balance than solo practitioners. Dentists who are affiliated with DSOs have more time to focus on other things while still being able to practice their dentistry without having to take care of the ins and outs of the operations of the dental practice.
The Patient Experience
Second, DSOs do not take away anything from the dentist or the patient.
There is a common misconception among some solo practitioners that DSOs create “corporate dentistry” and take away from the patient experience. But DSOs do not participate in the clinical aspect of a dental practice. By law, DSOs cannot provide dental services, as they are not licensed dentists. Only licensed dentists can own dental practices and operate them.
The DSO and its dentists collaborate to create the best experience for their patients. Successful DSOs foster non-adversarial relationships between their doctors and management staff, which leads to a greater retention of talented dentists as well as a friendlier environment for patients. Just like with solo practices, the environment of a dental practice is key. With the help of the management company taking care of all the nonclinical aspects, dentists can focus on taking care of patients to the best of their ability.
Efficiency and Legal Compliance
Third, DSOs create a more efficient and legally compliant dental practice.
DSOs create a standardized and uniform approach across their dental practices. Regardless of where the location is, the patient knows what kind of care and expectation to have when going to one of the DSO’s facilities. This standardization also includes uniform compliance with regulations, as well as the ability for the practices to learn the best practice methods.
All dental practices have to comply with regulations and have a business structure that has invested in regulatory compliance. This can often be difficult for small practices, especially if they plan to expand across state lines. A DSO can alleviate some of the stress of having different laws in all of the different states if the dental practice is trying to have separate practices across the nation.
DSOs are changing the face of dentistry and modernizing it for the better. While change can be scary, it is necessary to make way for improvement and advancement. DSOs provide better work-life balance for dentists, better standardized care for their patients, and a financially lucrative opportunity for their investors. It is a win-win situation for all parties involved, and that’s why DSOs will continue to grow and blossom in the future.
Mr. Colao is the director of Dykema’s Dental Service Organizations Industry Group. He is widely regarded as one of the foremost authorities in the United States on DSO formation, DSO business structures, DSO related mergers and acquisitions, and regulatory compliance for DSOs.
Ms. Tavallaee is an associate attorney in Dykema’s Dallas office and focuses her practice on commercial litigation matters. She is a member of Dykema’s Dental Service Organizations Industry Group.