As the dental industry evolves, many independent dentists are considering selling their practices to Dental Support Organizations (DSOs).
DSOs offer management and administrative support, allowing dentists to focus more on clinical care. However, while this option can be appealing, it’s not without its drawbacks.
Below is a balanced look at the pros and cons of selling to a DSO.
Pros of Selling to a DSO
1. Financial Security
If you have ever had a meaningful discussion about finances, diversifying your investments is usually a common theme, and for many doctors their practice makes up a significant portion of their net worth. Selling to a DSO can generate a significant financial payout upfront, especially for retiring dentists. In many cases, DSOs offer competitive valuations and structured buyouts, while often including equity options or performance-based incentives.
2. Reduced Administrative Burden
DSOs typically handle non-clinical functions such as billing, marketing, HR, and IT. Often done in a centralized hub, this is a major advantage as it frees them from time-consuming administrative tasks and allows more focus on patient care.
3. Operational Efficiency
DSOs often implement standardized systems and advanced technologies that streamline practice operations. These efficiencies can improve patient scheduling, reduce overhead, and increase profitability.
Think about McDonald’s or Chick-fil-A; they often run more efficiently than a “mom and pop” type restaurant because each location has standard operating procedures they have documented very clearly.
4. Career Glidepath
Dentists who sell to DSOs are often required to stay on as employees or associates. This can be ideal for those looking to reduce their workload while still practicing, or for those planning a phased retirement.
Cons of Selling to a DSO
1. Loss of Autonomy
One of the biggest drawbacks is the potential loss of control. DSOs often set guidelines on treatment protocols, staffing, and pricing. For dentists used to full independence, this shift can feel restrictive.
This goes for most aspects of running a business – how procedures are done, the length of time allowed with each patient, what products you can and cannot use, when repairs get made, and when you can offer benefits to your staff.
Additionally, DSOs often charge a “management fee” to provide the services discussed above that were not previously part of your private practice financials.
2. Required Stock
Very few DSO purchases are made in 100% cash; often times they require 20-50% of the purchase price to be retained as private stock. Unlike publicly traded companies, there is no readily available information on the stock value, so you may not know the value of the holdings. Your liquidation options are often on their timeframe, and at their stated value.
3. Cultural Shift
Your practice culture may change under DSO ownership. Long-time staff may be replaced or required to adapt to new policies. This can affect team morale and patient experience, especially in community-rooted practices. While you may have a “patient first” belief, DSOs put an undeniable emphasis on the performance of the P&L.
4. Patient Perception
Patients who value the personalized feel of a private practice may view a DSO-owned practice as more corporate. This perception can impact patient loyalty and retention. Even with the rise of the iDSO (invisible DSO), the changes made from an outside organization taking over are often felt, even while patients are still in the waiting room.
5. Long-Term Commitments
Most DSO contracts require selling dentists to remain with the practice for 3-5 years post-sale, and hitting certain performance metrics will determine the remainder of your earnout. For those looking to ride off into the sunset, this might not be your best option.
Conclusion
Selling to a DSO can offer dentists financial stability, less stress, and operational support, but at the cost of autonomy and potential cultural shifts. Dentists should weigh their long-term goals, lifestyle preferences, and personal values before making a decision.
Consulting with legal and financial advisors is essential to ensure you arm yourself with as much information as possible before signing on the dotted line.
Photo by Mikhail Nilov
