Dental Service Organizations - The What and Why of DSOs - Part 1 of 6

You may have heard about these DSOs (Dental Service Organizations), and perhaps you arrived hereinafter googling around to learn what the fuss is all about.  Welcome! In this new blog series, we are going to explore:  Why form a DSO?  How to structure a DSO?  What are all of these agreements that go into the DSO infrastructure?  And most importantly (wink, wink), how to work with Stock Legal to buildout a DSO?

Today, you’ll get an overview, starting with some statistics: 

• In 2015, 85% of dentists were owners.  Dental school prepares a dentist to go out and start his or her own practice. That landscape makes the dental industry ripe for consolidation, and outside investors (like private equity) are looking for those types of opportunities.  Add to that the pressures and drive for efficiency, increased competition for patients, and a job market in which talent is scarce, and it helps to explain the trend towards DSOs. 
• According to Morgan Stanley, today 8.3% of US dentists are affiliated with a DSO, and the largest percentage of those dentists are between the ages of 21-34.  Why is this? DSOs are a great way to give young dentists a small piece of a larger equity puzzle (spoiler alert - more to come on this in future parts of this series).  Where does this trend go?  Experts predict that this will reach 25%-30% by 2025 and almost 50% by 2030.  Let that sink in for a moment.
  

Another big why – Economies of Scale:  When you group resources in one place and use those resources to support multiple practices, the overall cost of those services is lower and negotiating power (aka leverage) is enhanced. 

What does that mean in a DSO setting?  Let’s say you have multiple practices, each with their own separate back office staff.  If you can consolidate all of that “back office” work in one entity, write tight standard operating procedures around that work, and then streamline the back office services out of one central DSO to all of your practices, you will be more efficient (which should translate into lower costs).

What do we mean by “back office”?  Think about all of the non-clinical services – marketing, bookkeeping, accounting, billing, collections, etc. 

A few more words on private equity – Bloomberg in 2017 reported that the overall market for dental services was $73 billion in 2017.  That’s a huge market, and that size of a market is a huge draw for outside investment like private equity.  The DSO model helps to facilitate that investment, especially in states with the corporate practice of medicine doctrine (which says only dentists can own dental practices). 

If you are here because you are trying to figure out how best to grow your dental practice, you might check out Begin with the End in Mind (Part #2): What Are You Trying to Build…and WHY?!. In this blog, Tusk Partners walks you through an exercise in what are you trying to build, and more importantly, why.

At Stock Legal, we help dentists to evaluate their current practice model, and if a DSO is the right structure, we build out the infrastructure and draft the agreements needed to transition into a DSO.  We often do this work for a fixed fee for our DSO clients.  

If you’re considering a DSO and want more information or legal counsel, please contact us! We’re prepared to meet your timeline.

*The choice of a lawyer is an important decision, and should not be based solely on advertisements.*