Weighing the Pros and Cons of Dental Service Organizations

If you like being your own boss and can’t imagine reporting to someone as part of a management structure, you might want to think twice before becoming part of a DSO.

Do you want to grow your dental practice? Do you want to provide a wider range of specialty type services? Do you still enjoy practicing clinical dentistry, but are tired of the business management side of the equation?

If you answered, “Yes” to any or all of the above questions, one consideration might be to solicit the management services of a dental service organization (DSO). But perhaps “solicit” isn’t the correct word.

“It’s not just management of independent practices,” explains Bill Kalogredis, chairman of Lamb McErlane Attorneys at Law’s Health Law Department, and a member of the National Society of Certified Healthcare Business Consultants. “They basically take over the practice.”

So if you’re not ready to let go of the reins, a DSO arrangement not be for you. But if being part what is certainly larger, but perhaps also a more efficient organization that might have increased purchasing power, a DSO might be worth considering.

WEIGHING THE CONSIDERATIONS

According to Kalogredis, the typical DSO purchases a practice from a dentist. It might be a very successful solo practice, or one owned by multiple dentists. The DSO then owns the non-clinical side of the practice — the equipment, rental control of the property, and so on. The dentist still owns the clinical practice and employs the staff.

The DSO model certainly has its advantages. Often enabling smaller dental practices the opportunity to use modern technology to provide high quality care to patients. And while it’s a model that has been catching on, the American Dental Association Health Policy Institute indicates that 7.4 percent of all practicing U.S. dentists are affiliated with DSOs.

What’s drawing dental practices to DSOs?

“Some [dental practices] have decided to get bigger, and through a DSO concept they can do so under one big umbrella, even if they’re in different locations,” Kalogredis says. “In some cases the sellers might be getting a little more money when they sell to [a DSO]. Not every time, but in some cases, they do.”

THE DOWNSIDE

If you’re just looking to do clinical dentistry and willing to give up aspects of management, a DSO might be in your best interest — especially if you’re at the end of your career and might be leaning toward working part-time. But, if you like being your own boss and can’t imagine reporting to someone as part of a management structure, you might want to think twice before becoming part of a DSO.

Beyond control, there’s the issue of money. Kalogredis explains that the DSO purchasing your dental practice wants to make money. How will you be paid? Will it be straight salary, or a percentage of collections?

“That’s what ownership is about,” he says. “They’re buying your practice because they want to make money on the deal, and you’re going to be paid as the worker bee versus a worker being an equity owner.”

And a drawback to that type of employment agreement might be the presence of a non-compete clause. Then, if three months or six months or two years down the road you decide you don’t like the working arrangement, you’re stuck because the non-compete indicates you cannot practice within a set amount of miles of your current location.

“You may now have a boss who may tell you what supplies they want you to use, or where they want you to work,” Kalogredis says. “And unless you build it into the contract, you’re not necessarily going to pick what dentists you’ll be working with, and who’s going to cover the patients you’ve served for the last 20 years.”

BANDING TOGETHER

Can practices — one general dentist, an orthodontist and a periodontist — band together to form their own DSO to gain similar benefits to those of larger organizations? Kalogredis says they can, but he doesn't see it happening too often.

“A lot of people don’t want to get involved in the way of management and dealing with partners,” he says. “It can be good or bad, depending on who the partners are.”

However, Kalogredis has pulled groups together — he calls them mergers — and says the resulting entity is able to expand more easily and readily, and perhaps more efficiently, because it has more subspecialties covered, just as with the DSO model.

“There’s a lot to be said for the different approaches,” he says. “But if I was a dentist — unless I’m planning to retire shortly — I don't mind just selling out to a good organization that I’m happy with and getting a reasonable price for my practice. Because I’m not going to want to be that involved any more in the management side or the administrative side.”