Navigating Dental Service Organizations and What Every Practice Owner Needs to Know

Key Takeaways:
  • DSOs offer financial relief and reduced admin work but may decrease income and control over the practice.
  • Weigh the benefits of cash payments and resources against the loss of decision-making and flexibility.
  • Careful research and professional advice are crucial before deciding to partner with a DSO.

 

In recent years, Dental Service Organizations (DSOs) have become a significant force within the dental industry. These entities contract with dental practices to handle management and support tasks related to administration and non-clinical operations. While DSOs were once primarily considered by retiring dentists looking to simplify their exit strategies, younger dentists are increasingly exploring this route. For dental practice owners, understanding the pros and cons of working with a DSO is important in making an informed decision. 

The Pros of Partnering with a DSO 

  • Initial Cash Payment: One of the most immediate benefits of selling to a DSO is the initial cash influx. This can provide a substantial financial cushion and allow for greater flexibility in personal and professional financial planning. 
  • Revenue Sharing: Many DSOs offer revenue-sharing models that can be attractive. This arrangement allows practice owners to benefit from ongoing revenue streams while reducing their day-to-day management responsibilities. 
  • Access to Technology and Resources: DSOs typically have more extensive resources and can provide access to cutting-edge technology and equipment. This can enhance the quality of care provided and streamline various operational aspects of the practice. 
  • Reduced HR/Admin Responsibilities: By handling administrative tasks, HR and other non-clinical operations, DSOs free up practice owners to focus more on patient care and clinical duties. This can lead to improved job satisfaction and better patient outcomes. 
  • Reduction of Stress: The administrative burden of running a dental practice can be substantial. Partnering with a DSO can alleviate much of this stress, allowing owners to enjoy a better work-life balance and spend more time with their families. 

The Cons of Selling to a DSO 

  • Potential Reduction in Income: While the initial payment can be significant, the ongoing income for the practice owner may decrease. This is due to the revenue-sharing models and the shift in how profits are distributed. 
  • Loss of Decision-Making Power: One of the most significant drawbacks is the potential loss of autonomy. DSOs often have protocols and guidelines that practice owners must follow, which can limit their ability to make independent decisions about their practice. 
  • Loss of Flexibility: Along with reduced decision-making power, practice owners may find that they have less flexibility in their day-to-day operations. This can impact everything from scheduling to patient care strategies. 
  • Contractual Obligations: Entering into a contract with a DSO involves various obligations and terms that must be adhered to. These can be complex and restrictive, potentially leading to long-term commitments that may not always align with the owner’s vision for their practice. 
  • Pressure to Generate Revenue: DSOs are businesses with a focus on profitability. As a result, practice owners may face increased pressure to meet revenue targets, which can lead to stress and potentially impact patient care quality. 

Making an Informed Decision 

For dental practice owners, the decision to partner with a DSO is significant and multifaceted. It’s essential to weigh the immediate financial benefits and reduced administrative burden against the potential loss of income, autonomy and flexibility. Here are some steps to help make an informed decision: 

  1. Conduct Thorough Research: Understand the various DSO models and what each offer. Look at case studies, speak with peers who have gone through the process and consider consulting with industry advisors. 
  2. Seek Professional Advice: Engage with financial advisors and legal professionals who specialize in the dental industry. They can help you navigate the complex contracts and financial implications. 
  3. Evaluate Long-Term Goals: Consider your long-term professional and personal goals. How does partnering with a DSO align with your vision for your practice and your life? 
  4. Assess Financial Health: Before making any decisions, have a clear understanding of your practice’s financial health. This includes revenue, expenses and profitability. A dental accountant can provide invaluable insights here. 
  5. Understand the Impact on Staff: Consider how the transition to a DSO will affect your staff. Their roles, job satisfaction and career development are essential factors that can impact the overall success of the partnership. 

Questions? 

Dental Service Organizations offer a viable option for practice owners looking to alleviate administrative burdens and gain financial flexibility. However, the decision to partner with a DSO should not be taken lightly. By understanding the advantages and drawbacks, conducting thorough research and seeking professional advice, dental practice owners can make informed choices that align with their personal and professional goals. At Adams Brown, we specialize in guiding dental professionals through these critical decisions, ensuring they achieve the best possible outcomes for their practices and their futures. Contact an Adams Brown dental CPA today.