Understanding DSOs: An Overview for Dentists Considering Partnership

What are the pros and cons for dental professionals signing up for a DSO?

Over the past few years, the Dental Service Organization (DSO) is a movement that has demonstrated some of the most significant changes to the operation, management and marketing of dental practices.

DSOs became more important – and popular – in the dental profession after the passing of the Affordable Care Act and the expansion of Medicaid.

The DSOs have become more popular with the growing demand for a general increase in the provision of dental services, particularly among less affluent communities.

There has been generally been a steady increase in the number of dentists in the United States that have contracts with a DSO and that number continues to rise.

As more and more dentists seek ways to efficiently manage their operations and remain profitable while exiting, DSOs have become a popular solution, but they are not necessarily suits to all dental professionals.

We spoke to an experienced dental contract lawyer to get a better understanding of just what should be considered when taking into account the process of signing up to a DSO.

Having a better understanding of DSOs, their advantages, and their disadvantages can help a dental professional determine if it is the right option for your dental practice.

What is a DSO? 

A Dental Service Organization (DSO) is a specific type of company that continues to own and operate several dental practices. DSOs assist with marketing, purchasing, and administrative support for each practice with the aim of generating more profits while improving efficiency with more centralized operations. DSOs make this possible by implementing standardized systems across multiple locations. 

In the majority of cases, DSOs typically purchase practices with the intention of taking ownership of them in the end. This type of arrangement typically includes an “earn out” agreement, which states that a buyer may pay a specific percentage of money to the seller upfront while retaining the seller as an employee for multiple years moving forward.

Under this arrangement, the DSO will continue to own the practice and have control over all of the businesses and the finances. The dentist will continue to work at the practice until the agreement period is over. Although many patients and dentists often find themselves concerned about the quality of care that individuals receive, DSOs continue to argue that they are improving access to care for patients by providing them with quality services.

Given the dramatic expansion of the demand for quality dental care across the United States, Dental Service Organizations are in a very favorable position when it comes to being able to capitalize on the trend. However, this type of arrangement may not work for every individual.

Considering the Pros and Cons of DSOs

Before determining whether you should become involved with a DSO, it is important for you to consider the pros and cons that this type of situation can bring. So lets look at the advantages and disadvantages so that as considered decision can be made.

The Pros of DSOs

There are several factors that are often viewed as favorable when it comes to DSOs. These include:

  • Financial Security: DSOs offer stable income to dentists, which ensures that they receive steady earnings, unlike independently owned dental facilities that may face income fluctuations. While a portion of the practice’s value is paid upfront to the seller, it is typically not the full amount.
  • Succession Assurance: Selling to a Dental Service Organization is a viable option for dentists without a clear succession plan, as it ensures the continuity of the practice even after their retirement.
  • Retirement Benefits: DSOs are willing to pay a premium for dental practices, potentially offering substantial retirement income to dentists who complete the earn-out process.
  • Technological Advancements: DSOs frequently have access to cutting-edge dental technology, which ensures dentists are able to deliver superior patient care through the latest innovations.
  • Comprehensive Support: Dental Service Organizations furnish dentists with administrative and marketing support, which allows them to dedicate more time to patient care.

Although these benefits can be viewed as quite favorable, there are also some cons to the option for a DSO agreement. 

The Cons of DSOs

Some of the downsides of working with a Dental Service Organization include:

  • The Potential Loss of Income: Although Dental Service Organizations can provide stable income, they may require dentists and their staff to work longer hours and increase the number of patients that they see. This can actually lead to a loss of income and burnout.
  • High Staff Turnover Rate: There is often a lot of instability in dental practices that sell to DSOs due to the fact that they experience high turnover with staff. This can lead to a loss of quality and continuity in patient care.
  • Clashing Cultures: The specific culture of the Dental Service Organization may not align with your specific views on how you want to operate your practice.
  • Changes in Quality Care for Patients: There is no way to predict the type of changes that the DSL may implement when it comes to patient care, which can cause some disagreements between dentists and their DSOs. This can lead to dissatisfaction and frustration for both dentists and patients.
  • The Loss of Autonomy: Selling a dental office to a DSO will result in the total loss of control over the day-to-day operations of the dental practice.

It is important to weigh whether the benefits outweigh the downsides to determine if this type of agreement will work best for you.

Things to Consider

There are several things you should consider when determining whether or not to sell to a Dental Service Organization. 

First, you want to make sure that you understand the exact level of control that you will continue to have over your practice once it is sold. If your role is not specified in the contract as part of your agreement, it may lead to problems later on.

When making a DSO, it is crucial that you continue to implement your successful business models in the agreement. A DSO should be able to provide you with capital and seamless support services that help to expand on your successful business models.

You will always want to continue looking for the opportunity to maximize the compensation that you are able to recover. Many DSOs fail to offer incentive bonuses or even earn-out payments. This type of arrangement is something you may want to incorporate in your agreement.

Finally, it is critically important to always understand what you are dealing with. Many Dental Service Organizations are run or owned by private equity groups, which can create a totally different atmosphere in your practice. To ensure that you are getting the best out of your agreement, it is important that you seek help from an attorney right away. A dental contract attorney will be able to review the details of your contract and help you negotiate with the DSO before finalizing your sale.

Source: Leiva Law Firm, CA

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