I don’t think it’s a stretch to say that dentistry is constantly evolving. We’ve come a long way from the local dentist pulling teeth after giving the patient a shot of whiskey. We’ve even evolved beyond what I learned in dental school 15 years ago. At the time, we were required to do a cast post and core as a requirement. I have never done one since. We were taught to do “bonded amalgams” in dental school. Never have I done one since. We took x-rays on film and physically processed them in dip tanks in dental school. All of us can point to procedures/practices that we did in dental school that we don’t do anymore. But dentistry has evolved even since I’ve been practicing. We now “take” impressions digitally. We can scan a patient’s mouth and have dentures digitally made. The next frontier is AI that will read your radiographs and tell you where the cavities are at. I’ve seen a robot that places implants flawlessly. It’s crazy to see how quickly dentistry has changed even in the short time that I’ve practiced.
The way we practice has changed as well. Dentistry used to universally be practiced 8-5, Monday through Thursday. It was forward thinking to open on a Friday, and if you did, you only worked a half day. Now there are practices open on Saturday and Sunday. Offices are open into the evening. I’ve practiced in a city that had a group practice called Night and Day Dental. They were open until 10pm. I worked for a group that was open 66 hours every week, 12 hours 5 days a week, and 6 hours on Saturday. Back in the day most practices were solo practitioners. Now, giant group practices are dominating the dental landscape, and that’s what I want to talk about today.
DSOs (Dental Service Organizations) are quickly sweeping the nation. While they have been establishing themselves in urban areas throughout the country for the past couple of decades, they are now encroaching on the smaller, rural communities as well. I know this topic has been covered ad nauseam, but since this is my blog, you’re going to get my two cents about them as well. Here is who the DSOs benefit the most, the DSOs. They don’t come in and buy your practice to then have to work it. They don’t have to deal with the patients and the staff. They simply implement their systems and tell you to get after it. This is also why they contractually bind you to work for them for a minimum of 5 years after the sale of the practice, in most cases. You don’t get to ride off into the sunset with your saddlebags filled with cash. You sign up to be their employee for 5 years. Your way is no longer. It’s now the company way. You have to ask for time off. You don’t have access to the office checkbook/bank card anymore. All of the benefits that you “enjoyed” as a practice owner are now dust in the wind.
When I sold my partnership in Colorado and moved to Raleigh, I was working for a group as an associate while I was looking for a practice to buy. I worked there for 8 months, and I was miserable the entire time. A large chuck of that misery was the fact that I was living alone without my family, but the remaining misery was because I hated working for someone else. I hated not being able to do what I wanted to do, when I wanted to do it. I was grateful for the job, but I had become accustomed to working for me. I even had to request time off to go home and see my family for a long weekend. When you sell to a DSO you are working for someone else, especially if you sold a solo practice. You think they want you gone from the practice with no one producing? Spoiler alert, they don’t
The extreme upside of selling to a DSO is that they are going to offer you more money than anyone else. It’s not even close. When every other bank/lending institution is going to want to be around 70% of the average of the three previous years of collection, the DSOs are going to offer 125%. It sounds too good to be true, and to a certain degree it is. If you think they are doing this out of the kindness of their hearts because you’ve been such a great dental provider and employer to your staff, you are mistaken. They are going to not only make that money back over the 5 years that they own you, but they are looking to package your practice, along with the other 437 practices that they bought last year, and flip it to a bigger fish for even more money. They call it recapitalization. When they sell your practice again, the proceeds trickle down to you again and you get to “resell” your practice again. I’m sure I’m oversimplifying this and getting it all wrong, but I have known multiple people who have gone this route and that’s how they all describe it to me. What I will never be able to understand is how they can recapitalize for more money. If my practice is collecting $1 million and they buy it for $1.25 million, I don’t understand how they can then sell it again for $1.75 million when it’s still a $1 million practice. Now I understand that they are going to supposedly decrease your overhead and increase your production, which makes the practice more valuable, but not to the degree that they are going to sell it for. I’ve spent a fair amount of my free time buying and selling cars over the years. I could’t imagine paying $10k for a car, driving it for 5 years, selling it for $15k, only to have the next guy buy it and sell it for $50k the next year.
Let’s set the math part of this aside. Where I feel like the DSOs are creating a problem in dentistry is with new grads and younger dentists. I can foresee a day where there are no more private practices. Where kids coming out of dental school will have to work for one of the many DSOs. The opportunity to purchase a practice and run it the way you want is quickly disappearing. While the vast majority of dental students say they want to own their own practices, that reality seems to be quickly fading away. What I do know, is that the greater likelihood of them being able to own a practice is in a rural setting as opposed to a urban area. In the town that I practice in currently, we have one part-time orthodontist who practices 2 days in our town and 2 days in a neighboring town. Within the past year he sold to a DSO. There is another general practice in a neighboring town that sold to another DSO, as a solo practitioner. We are not an area that’s on anybody’s radar, yet the DSOs have found their way here.
I get the financial aspect of selling to a DSO and I have strongly considered doing the same. You are absolutely going to get more money selling to a DSO than from anyone else. If you’re in the situation that I’m in right now, which is that I am the sole owner of three practices with hopefully more to come, you are going to be hard pressed to find a single buyer who can qualify to make a large purchase like that. I’m either going to have to find a group of individuals who can pool their resources to purchase my practices, break up the group and sell the practices individually, or sell to a DSO and jump through their hoops. In reality, when you sell to a DSO that money is gone six months later. You’ve paid taxes, paid off debt, took a sweet vacation, and then invested the rest. You’re now in a position where you are someone’s employee and you’re staring down 4 1/2 years of a prison sentence, and hopefully you made enough money to walk away after that contract is up. Again, this is assuming you sold the practice/practices because you wanted to retire.
Another scenario that makes sense is that you enjoy doing dentistry but you don’t enjoy running the business. As long as you’re amenable to giving up the freedom that comes from owning your own practice, then sell to a DSO and work back for them. You can most likely keep your staff, continue to work full time, and wash your hands of the stresses of having to run the practice. I don’t mean to paint the DSOs as ruiners of dentistry. I think I’ve outlined the benefits of selling to, and then working for, a DSO. My fear is that they will monopolize the dental landscape in the not too distant future. This scenario will ultimately prevent younger dentists from owning practices and will discourage kids from going to dental school in the first place. If I knew when I applied to dental school that I would never be able to work for myself, I would’t have gone to dental school. I definitely wouldn’t go $400k+ into debt to work for a corporation for sure, but that’s what facing the dental students in the years to come.