For decades, the dental industry has looked essentially the same: the sole practitioner general dentist who owned his own practice, worked four days a week, and still made enough money to live and retire comfortably.
As the cost of care and living has increased over the last couple of decades, the dental industry has been forced to evaluate the structure in which it serves its patients. Group practices started to become more common in the face of these rising costs. Corporate dentistry and dental support organizations (DSOs) also started to grow in response to this need to control costs and increase profitability.
Most recently, as the Affordable Care Act increased the number of state Medicaid patients, DSOs have seen even more significant growth in the market. This is because dental support organizations can increase access and, generally, more affordably serve patients. In fact, the Association of Dental Service Organizations (ADSO) notes that fees are about 11 percent less in DSOs as compared to private dental practices.
What is a dental support organization, and why can it provide more affordable care?
A dental support organization is not a group practice. Rather, it is a separate entity, typically owned by a private equity group, which contracts with a dental practice to provide all non-clinical operations. This includes accounting, billing, HR, IT, supply procurement, marketing and sometimes even the ownership or leasing of equipment. DSOs have increased purchasing power through economies of scale (e.g. they can operate 50 offices at a lower per-office rate than a solo practice). A dental support organization’s centralized operation yields a lower overhead cost than the private general dentist, allowing them to profitably provide dental care for underserved populations, including rural communities and the impoverished.
In addition, DSOs are able to increase patient access and maximize revenues with flexible scheduling of clinical staff, making services available to the public six days a week during extended clinic hours. In comparison, traditional practices work an average of four eight-hour days each week, lacking the flexibility that comes with a large staff.
What are other industry trends driving dental support organization growth?
As complex third-party payment, labor laws and technology become more complex and expensive, DSOs have gained a significant presence in the industry.
PEG Investment in Sector
Driven by industry tailwinds and opportunities for growth and significant returns, private equity investment in the sector has steadily increased over the past few years.
Reforms in healthcare legislation and increasing commercial insurance coverage has significantly lowered the out-of-pocket dental costs to individuals.
Realization of Locations
Healthcare providers continue to expand to areas that are easily accessible and contain a high volume of traffic flow to capture more patients.
Women in Dentistry
Female dentists craving flexible work schedules love the employee model of a DSO that allows for a rewarding clinical experience, strong compensation and work-life flexibility.
High Debt of Graduates
Most dentists today are graduating with $300,000+ in debt (specialists are higher). These financial constraints drive post-graduation employment to larger, less risky practices.
According to the Oral Health Workforce and the ADSO, group practices and dental support organizations are growing in response to the following trends:
- High levels of student debt among new dentists
- An increase of women in dentistry driving demand for work flexibility, including options for part-time or full-time employment
- The corporation’s assumption of both risk and operational costs of the practice
- The opportunity to use technological tools not generally available in small dental practices to allow for quality control and outcomes analysis
- Venture capital is more available in recent years to help with establishing these organizations
- Many private-practice dentists are reaching retirement age and wish to sell their practices, while venture capital has a lot of purchasing power that a new graduate with high student loan debt does not
So what does this mean for the individual dentist?
At this point, the sole practitioner dentist still makes up the majority of the dental market segment. But as DSOs continue to grow and solo dentists are facing rising costs, longer work schedules, and delayed retirements, it is time for solo dentists to reevaluate how they do business.
That is not to say that dental support organizations are the only option. Alternative considerations include:
- Working in a partnership or adding an associate to share in overhead costs
- Investing in digital technology and new equipment
- Specializing in sleep apnea or TMJ to differentiate yourself from other general practices
- Adding medical billing to the practice.
Whatever your response to these trends, you should be asking yourself what will allow you to provide patients with the level of care you want them to have, and what will give you and your family the quality of life you have worked so hard to enjoy.
Meet the Author
Senior Manager, Healthcare Business Advisor
Carly Carlson, CPA
Aldrich CPAs + Advisors
Carly has over a decade of experience advising businesses and individuals on tax, accounting, and management matters. She consults with medical and dental practices, guiding practices through transitions, providing transaction support, covering tax strategies and feasibility issues, and reviewing legal agreements. Carly also consults with healthcare small businesses on compensation formulas. She establishes formulas based…
- Closely-held businesses
- Litigation support
- Certified Public Accountant