Home Practice Management DSO’s Friend or Foe

DSO’s Friend or Foe

by Kevin Coughlin

The following is an opinion piece, based on 33 years of owning a group practice in Massachusetts with 14 general dental practices. For those of us old enough you may remember a time when everyone thought dental insurance would be great for our profession. Many argued how we would see more patients, and that our patients who would receive insurance benefits, would be able to afford even more care and treatment.

Do you think anyone will wake up Monday morning and say to themselves,” thank God I take dental insurance!” I ascribe to the notion that nothing is all bad and nothing is all good; however, let’s be honest, most clinical practicing dentists spend the vast majority of time determining what their patient’s dental insurance plan will cover and what it won’t. Most dental plans require reduction in our fees. Most dental plans will require unnecessary treatment and tests to validate what we provide for treatment. Most dental plans require a personal attorney to explain the contracts that we are required to sign. On the up side, some would argue that dental insurance makes treatment less expensive for our patients, I, however, clearly do not feel that way. Just think of how many hours are spent dealing with our patients’ dental insurance plans and all the nuances associated with those plans.

Let’s fast forward to today. My topic is DSO’s or Dental Service Organizations. It appears that DSO’s are the fastest growing aspect of dentistry today. What do they have to offer? Perhaps a great exit strategy or perhaps assistance with the management of day-to-day business of dentistry. Possibly the ability to negotiate lower supply cost, or perhaps expertise in HR and insurance issues. There are perhaps many more perks, but I think I have made my point. What are we giving up? CONTROL and please do not discount this issue.

The majority of dentists I know enjoy autonomy and take pride in running and managing a successful practice. For those of you considering this direction, I strongly suggest that you ask yourselves a very important question about the DSO you are considering. Who is backing that organization? Is it a VC or venture capital firm who has an obligation to shareholders to promise a return or multiple on EBITDA (Earnings Before Interest Taxes Depreciation and Amortization)? Is it dentist owned or a combination of both? You should ask yourselves these questions:

• Who will hire and fire employees?

• Who will control treatment plans, doctor and hygiene schedules, dental laboratories, employee benefits, office hours and fee schedules?

• Which dental plans are accepted and which are not?

I am not here to influence your decision, but to provide information and guidance that perhaps you may not be able to get honestly, fairly, and straightforward. I ask each of you to thoughtfully consider my comments and think long and hard, but keep an open mind. Sometimes what may be good for an individual may not be as good for the profession. Culture, personality, drive, determination will all ultimately point you in the direction that best suits you.

Perhaps I can offer some guidance to ask the right questions and make sure you fully understand your decisions.

Let’s start at the beginning, corporate dentistry in general means a variety of practice modalities in management services at a minimum are provided in a manner that is organizationally distinct from the scope of activities performed by a dentist with only his or her practice. In most cases corporate dentistry refers to practice modalities in which practice services are provided via a contract with a third party organization that is not controlled by the practicing dentist or dentists. In many cases this organization is funded by the investments of a for-profit entity that are not directly engaged in the clinical practice of dentistry and are not usually dentists.

Corporate dentistry can have a bad connotation, however it can, and could, be good. Our country is filled with many types of corporations that bring value and innovation to customers. I suggest you remember that corporations are made up of people with different interests and just like having good people and bad people we can have good and bad corporations. To me the issue is finding out whether this corporate entity is good or bad for you, before you sign not after. Included in corporate dentistry you have DSO or dental service organization, you have MSO or management service organization, or a combination MSO/DSO or lastly DMSO or dental management service organization.

For this article I will focus on DMSO which can have outside equity ownership or no outside equity ownership. First, let’s walk through a DMSO without outside equity ownership. You should understand that a MSO cannot exist without a DSO component, but a DSO can exist without a MSO so long as the DSO has its own internal management component. In this type of model the group has a number of PC’s that has no internal management but does have a service agreement with a single third party MSO. In this model the primary revenue interest is not the same party or parties with primary clinical interest. So profitability and productivity goals are driven by the MSO not by the DSO. What this means is profitability is based entirely upon business service agreement fees which vary directly with each practice revenue stream and not tied to any Wall Street valuation in preparation for the sale of the MSO.

A DMSO with outside equity ownership the main difference is in the ownership of the MSO. In this model the outside equity ownership has an interest in maximizing the value of their acquisition to position itself for the highest sale price. The goal is to take the present value of future cash from the business operations as a multiple of EBITDA or EBITA to provide expectation of growth. This constant drive to increase value can create a bubble almost like a Ponzi scheme scenario and may create the largest gap between high quality of care and high profits.

I suggest as you contemplate all your options for a career in dentistry you should ask the following questions and how important each area is to you and your family.

1. How important is work life balance to you?

2. How important is interaction with other dentists to you?

3. How important is a flexible schedule to you?

4. How important is a guaranteed salary to you?

5. How important is less interaction with insurance companies to you?

6. What is your current student debt?

7. How important is growth to you?

8. What type of leadership skills do you have?

9. What type of business skill do you have?

10. What kind of exit strategy are you looking for?

In summary please keep an open mind. But please be well informed. These are important decisions, I suggest you fully understand that equity backed DMSO may have a short life of 3-7 years and then another group will come in and additional changes will occur.

Kevin Coughlin DMD, MBA, MAGD can be reached at kcdmd5@yahoo.com or 413-519-9421 (Eastern time cell number).

Currently Heartland dental in the largest in the USA followed by Aspen, Pacific and DCA or Dental Care Alliance. Prepare yourself and your practice because change is on its way and whether you like it or not it will have an effect on all of us.

To delve deeper into these topics please visit TheProfitableDentist.com or call 1-800-337-8467 and request a copy of Dr. Coughlin’s box set which includes: Both of my audio interviews with full-length written transcripts and two of my published works, “Your Tooth Is Killing Me, The Balance Between The Clinical Aspect Of Dentistry And The Business Of Dentistry” and “Just Enough To Be Great In Your Dental Profession, Processes And Procedures For Success.”

25 years

I have thoroughly enjoyed your newsletters. I think you are doing a great job, and providing an invaluable service to the dental profession. It’s great to have access to a publication that ‘cuts through the bull’ and concentrates on the truth!

Dr. S.W.

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