Purchasing Trends Changing for Dental Supplies, Products, and Practices

When it comes to supplies and products, instead of primarily relying on large distributors like they have in the past, clinicians are seeking out other time and money saving alternatives. New platforms and group buying options are changing the playing field, and more and more dentists are taking advantage.

Then there’s practice purchases. Once dominated by solo clinicians, dental service organizations (DSOs) are now buying up high-producing practices at a fast pace. Most dentists are opting to join or sell to DSOs, and the clinicians who do want to purchase a practice of their own are finding themselves competing with these large capital-backed groups. Interest from DSOs is driving up practice valuations, making it a seller’s market, favoring the DSOs and their buying power.

Many of these purchasing trends started before the COVID-19 pandemic hit last year, but the disruption it brought to the industry certainly has played a role in accelerating shifts in buying habits and practice ownership goals.

“There’s going to be a lot of change coming in this area,” Dr Jeremy Krell, MBA, says about product purchases. “The industry is due for a shake up.”

Purchasing Products

In the early days of the pandemic, it became difficult for dentists to purchase products the way they always had, through one distributor, says Dr Krell, head of marketing at Simplifeye and Verena Solutions. The supply chain became tight and convoluted globally, and that meant distributors often didn’t have the supplies dentists needed on hand.

“Various organizations were telling us what we need to practice safely, and the distributors were telling us they don’t have them,” Dr Krell says. “We were deadlocked, and that was a major problem.”

So, dentists started going online to look for products, taking advantage of the various platforms now available. The Supply Clinics and Net32s of the world became more popular, giving clinicians easy access to the products they needed.

Dentists also started using precure to pay systems more, says Steven Kizy, CEO of Midway Dental Supply. These systems allow dentists to import all the products they buy into one platform, no matter what vendor they use. This makes ordering easy while also holding them accountable to their budget.

“The biggest trend I see is dentists want to make their lives easier,” Kizy says. “So, if there’s anything that makes the ordering process simpler, that’s really what the dentist is moving toward.”

Dr Krell, who once worked with Supply Clinic, expects to see a continued rise in the use of digital platforms. While they all have different approaches, each one makes it easy to compare prices from multiple vendors. This keeps dentists from being locked into one price and represents an efficient way to buy supplies.

Dentists can find a lot of the smaller vendors on these platforms, Dr Krell says, because it’s more cost effective for them to be there. It’s also easy to set up subscriptions for personal protective equipment (PPE) dentists know they need on a regular basis with companies like Verena Solutions. Rather than having to go in and order these items every week or month, they’re delivered directly to them at a regular cadence.

Some platforms give dentists access to the big distributors, Dr Krell says, and that’s a huge advantage. Dentists can price compare across the different distributors and put in an order to whichever one they want, making them feel more comfortable ordering from the online service.

Moving to an online platform

Before you start working with one of the new online purchasing platforms, you must decide which one best meets your needs. Dr Jeremey Krell recommends first determining how much you’re spending on supplies. Some of the platforms will do an analysis for you, giving you insights into how you can save money and buy products more efficiently. If you still want to get products from a distributor, you must find a platform that allows you to buy from those companies, because not all of them do.

This type of change can be difficult for dentists, so it’s important to do your research to make sure you’re working with a platform you’re comfortable with and that is working with accredited vendors.

“Dental practices are creatures of habit that have relatively rigid workflows,” Dr Krell says. “Going from the L.L. Bean catalogue ordering model of the 1990s and fast forwarding 30 years to the Amazon level ordering of 2021 is a big change, especially in a tumultuous period where supplies have to be delivered on time and be high quality.”

While these platforms offer efficiencies and are cost effective, they have their downside. Except for Supply Clinic, Dr Krell says, not all of them do a good job of vetting the products being sold or have access to the distributors that dentists know have accredited items, and that means clinicians could end up with grey market items. It’s important for dentists to do their research to make sure the products they’re purchasing are legit.

“Online platforms did really well in the pandemic and will retain some of that business moving forward,” Kizy says. “These platforms are like the eBay of dental supplies, where you have a lot of different sellers posting products and the doctor chooses the one at the lowest price. The biggest problem is the end user doesn’t know where the seller got the product and whether it was purchased through an authorized channel or not. If these platforms learn to vet their sellers I can see them growing in the future.”

The lower price point dentists can get for supplies through these sites is attractive, but they lose an important element that the distributor can provide: a rep to guide them through their purchases.

Reps help dentists learn about the products they want to invest in and the marketplace around them, Kizy says, making them a valuable part of the purchasing process. Support is also important, especially if something goes wrong with a product that leads to costly downtime.

“It’s not just about pricing,” Kizy says. “Dentists also need access to a service team that can install equipment and have some sort of educational platform to train dentists on the newest and coolest gadgets and techniques out there.”

Group purchasing organizations, or GPOs, are also gaining momentum in the dental field. GPOs have had a strong hold on the supply chain in the medical field for a long time, Kizy says, and dentists are now seeing the advantages they bring as well.

Some GPOs negotiate pricing for dentists, getting them discounts on supplies they couldn’t get on their own.

Some of the digital supply chain platforms offer enterprise solutions for DSOs, inclusive of individual formularies, Dr Krell says. These can help DSOs consolidate the smaller vendors they purchase from.

“There’s separation between dentists who work for DSOs and dentists who own their own practices,” Kizy says. “Solo practice owners don’t feel like they’re getting the same deal as larger groups, so it just makes sense to join together to compete with these larger corporate offices for better pricing. They’re just stronger together.”

The more volume the GPOs have, the more they can negotiate, Kizy says. As they get more members, dentists get better pricing, and the GPO can charge the vendors a higher admin fee.

GPOs are starting to market more to dentists, but if you are looking for one to join Kizy suggests simply doing a Google search to find a few options. Keep in mind some GPOs charge a fee. Kizy recommends avoiding these groups, at least at first. Join a free GPO to make sure you like the model and get a benefit for your practice.

To ensure you are buying the best products, Dr Krell recommends doing some research, no matter who you are ordering from. Ask reps from the big distributors to find you information on clinical studies that back a product’s marketing claims and look for outside reviews from trusted sources like the Dental Advisor. While word of mouth and insights from colleagues are helpful, it’s important to go beyond that to make sure what you’re investing in makes the most sense for your patients and your practice. Remember, you’re not just making decisions for yourself, but your patients as well.

If you’re ordering through an online platform, Dr Krell suggests looking for downloadable information. Many are including educational materials right on product profile pages, making it easy to find the clinical research you’re looking for. He also suggests reaching out to their provider customer service.

Of course, it’s critical to make sure you’re buying through an authorized seller and to take advantage of any manufacturer promotions or rebates that are available, Kizy says.

“As much as possible,” Kizy says, “commit yourself to one manufacturer so you can leverage that relationship for better pricing.”

In the coming years, there will be more sophistication around the supply chain in dental offices, Kizy says. Today, it doesn’t matter if it’s a large DSO or a solo practice, there is someone in charge of inventory management, writing down what needs to be ordered. In the next three to five years, artificial intelligence (AI) will take care of that.

“We’re building a tool that will go through a practice’s purchase history and intelligently tell them this is what they need this week or month,” Kizy says. “We use AI to refill our inventory and the same could happen for dental offices. We’re hoping to go as far as having an AI platform that looks forward on the schedule to see what products dentists need for individual patients based on procedures.”

Dr Krell sees a big evolution coming in how supplies are ordered. As the industry becomes more consolidated, the way DSOs purchase products is going to have a huge impact. DSOs have formularies and pricing levels they follow when buying for multiple practices, and more might start to find online platforms more efficient, pushing distributors to alter their models.

Larger manufacturers that are buying up product lines and even DSOs with bargaining power may create their own distributor systems, taking out the middleman, Krell says. Amazon itself appears interested in getting back into the dental supply game, which really could mix things up. Not only does the platform have a huge repository of potential supplies, but Amazon also knows how dentists behave as consumers as well, giving the giant more access than anybody else.

Bottom line: product purchasing habits will continue to shift as new options become available to dentists.

“We’re going to see a lot of change coming to this area,” Dr Krell says. “It’s almost like an eclipse. It doesn’t happen a lot but when it does everyone knows to watch out for it. I think we’re coming up on that time horizon.”

Purchasing Offices

Practices that were underperforming before the COVID-19 shutdowns typically were hit harder after reopening, Professional Transition Strategies Founder and CEO Kyle Francis says, making them less attractive to buyers. While these offices are typically selling for less and staying on the market a bit longer, larger practices that were doing well pre-pandemic and bounced back once they reopened are quickly being scooped up by DSOs looking to expand.

For the first six months of the pandemic, DSOs were more cautious when it came to acquisitions, Francis says, buying fewer practices and putting more risk mitigations into contracts when they did. Now, they are trying to make up for lost time and use the dedicated capital they have for practice purchases, resulting in a more competitive landscape and driving up practice prices for larger, successful offices.

Flipping practices

Another trend Kyle Francis of Professional Transition Strategies has noticed is dentists buying practices and then flipping them to a DSO. They buy an office that’s struggling, the owner puts in a few years and then flips it to a DSO for 100% profit. That was unheard of 10 years ago.

“A lot of brokers are calling the market frothy. There’s a lot going on and a lot of moving parts,” Francis says. “If a DSO is backed by a private equity fund that commits so much money for acquisitions over a period of time, if that money doesn’t get used they lose it. Because they lost that six months, they need to catch up to get the full benefit of the investment.”

That could take some time, Francis says, but as the market gets more competitive, that means higher valuations for these practices and more interesting terms for doctors—making them more likely to sell to a DSO than an individual dentist who doesn’t have the capital backing.

In the 1970s and early 1980s, what are now called DSOs were trying to get dentists to join their groups, but were undercapitalized and weren’t able to fulfill the promises they made, says Bruce Bryen, dental practice valuation analyst at Baratz & Associates. Now, that’s changed, with large DSOs well capitalized, staffed with smart capable teams that include CPAs, attorneys and MBAs, and the ability to deliver on promises made.

DSOs are also doing a lot of marketing right now, Bryen says, calling dentists month after month offering to buy their practice until eventually their answer turns from no to yes.

“DSOs are driving the prices up,” Bryen says, “and can afford to as their costs are so much lower because of volume.”

In the last few years, DSOs have become the fastest growing part of dentistry, and Francis expects that to continue to accelerate moving forward. Right now, dentistry is about 25% consolidated as an industry, with projections to move to 60 to 70% in the next 10 years.

Some dentists are coming together to form their own DSO rather than join an existing group, which Bryen advises against. Money quickly becomes an issue as does trying to find dentists to take over once a partner or selling dentist moves on, leading to more working hours and headaches for the remaining doctors.

“These groups usually aren’t capitalized well enough and think they can get away with it because of their skills,” he says. “And they really don’t have the know-how to negotiate with suppliers to get the best prices and terms, or to hire. The successful DSOs are the ones that start the right way with the correct capitalization and administrative personnel.”

DSOs provide an exit strategy for dentists thinking about retirement, with most of them staying on for a period after selling, Bryen says. They are then replaced by younger dentists who get a good compensation and benefit package, but still make less than the selling dentist.

“The more practices a DSO has, the cheaper the administrative costs,” Bryen says. “So, they really want to buy up practices and are really interested in buying from a dentist who has two or three offices because it’s cheaper. They’re spending the same amount of time reviewing the financials and learning about the practice and the patients.”

Joining a DSO is becoming more attractive to young dentists graduating with upwards of $300,000 in school debt, Bryen says, which means fewer individuals are looking to buy practices. Instead of taking on the responsibility and additional debt that comes with practice ownership, they can join a group that handles the administrative work, offers multiple built-in mentors, and gets them deep discounts on supplies.

While they might not bring in as much income as they would on their own, they can still make a very good living working for a DSO without all the added stresses that come with practice ownership.

Tips for buyers

If you’ve decided you want to buy a practice, there are few things Kyle Francis of Professional Transition Strategies suggests you consider before you get started:

Put together a team for guidance. This team might include an accountant, an attorney, a dental consultant, and a broker.
Put trust in your team’s recommendations. They’ve been through practice purchases many times before, and their expertise is invaluable.
It’s a seller’s market so move fast if you find something you like. Even smaller practices that are more difficult to sell are moving off the market fairly quickly.
Don’t pigeonhole yourself into metro areas. Consider rural markets where practices are less expensive to purchase and more profitable. Rural areas are also less attractive to DSOs, as it can be more difficult to attract and keep doctor talent, so there won’t be as much competition for offices.
Keep in mind there’s more than one way to evaluate whether a practice is right for you. Some rely heavily on cash flow, while others look at patient base or treatment that has been diagnosed but not performed. Determine what’s most important to you, and evaluate practices based on that.
If you plan to purchase more practices in the future, don’t let that influence your first purchase too much. Many dentists say they plan to buy five or six practices over a three-year period, but that rarely happens for one reason or another. Make the best decision possible and see where that leads you.

“There’s more buyers from a group standpoint this year than last year and that’s true of the year before,” Francis says. “We do still have transactions that go to individual buyers. We have 22 practices under contract right now and five of them are going to individuals, but it’s not the 100% that it was 15 years ago.”

At one time, banks would lend 115% of the purchase price to give the buyer enough working capital to buy a practice and all the necessary equipment to run it, Bryen says. They have backed off that a bit since the COVID-19 pandemic, now maybe giving 85% of the purchase price and requiring the seller to hold a note. That can be scary to both a buyer and a seller, which may also have an impact on sales to individual dentists.

Of course, dental practices are still good investments for banks, Francis says, and money is still being lent. So, if you’re interested in buying a practice, assemble a strong team and start looking. Just know you will be competing against large DSOs.

Individuals do have one advantage over DSOs: flexibility. DSOs typically have guidelines and policies they must follow for a practice purchase, Bryen says. Individual dentists don’t and can work with the seller to come to an agreement everyone is happy with.

Bryen sees a future where the industry becomes even more consolidated. Most dentists don’t want to take on the responsibility of a practice when they know they can make $200,000 a year as part of a DSO without worrying about the administrative side or going into more debt.

Today, larger practices are going almost exclusively to DSOs, and Francis doesn’t expect that to change moving forward. But just because the industry is consolidating doesn’t mean there aren’t still opportunities for individuals who want to buy a practice of their own, now and in the future.

“The space is already consolidated and there’s still mom and pop practices out there that thrive as single entities,” Francis says. “You just have to find a niche.”