11 Learnings for DSOs: Takeaways from Becker’s “Dentistry: The Next Five Years”

DSO leaders are bullish on the industry over the next five years. From diversified growth trends, to new generations of doctors, to reoriented industry goals, the near future of dentistry looks to be exciting.

From the many round table discussion during the event, the general consensus was that the trend of growth, market awareness, and group consolidation will continue to ramp up as the DSO model continues to popularize.

Below is a summary of key learnings, highlights, and predictions we took away from the conference:

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‍A New Breed of Doctors‍

Seller doctors are getting smart on equity and the acquisitions process, which may lead to better deals and decisions for well-performing private practices. Moreover, single practices are dialing in their growth metric trajectories to match the benchmarks required by DSOs for acquisition.

The increase of market awareness that the current generation of doctors has demonstrated is expanding the options and opportunities for practice growth. This trend is embraced increasingly by younger doctors and by female doctors

Consolidation Trends

As expected, DSO leaders see a continued trend of consolidation, but primarily with smaller groups. It’s not likely that large DSOs with 50+ locations will represent most of the M&A activity in the next 5 years.Single practices will continue to appear, but will offer newly graduated doctors with an expectation for growth via M&A instead of an exit decades in the future.

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Less DSO Stigma

There will be less stigma around partnering with DSOs. Since their inception (and fueled by their growth and consolidation), there have been several myths about DSOs and the acquisition process.

Ideas of a loss of autonomy, a changing brand identity, and relentless production quotas are expected to become less prevalent around the narrative of DSO partnership.

As older doctors head into the later years of their professional careers, the question of “how do I monetize my life’s work” is often top of mind. It’s expected that transitioning to DSO ownership will be a more common exit option for these situations.

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‍A Focus on DSO Culture Alignment

A factor that DSOs will weigh more heavily in practice acquisitions will be culture alignment. Rather than just performance and location metrics on paper, DSOs will more emphatically consider the fit of the doctor and staff. 

Practices that exhibit traits including openness, positivity, and mental flexibility will have an advantage over practices that lack those traits. The purpose of this will be to create synergistic value from practices that align culturally with DSOs to make transitions easier and growth more predictable.

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Higher Standards

With improving clinical processes and climbing revenues from single practices comes a higher set of standards for acquisition. DSOs will raise their thresholds for practices in the near future to ranges starting at ~$1.5 million in production with profit margins above 20%.

What is more, there will be non-starter red flags to look out for when considering practices to add to a portfolio. Many of these red flags stem from the work-ethic and integrity of the selling doctor. There will be a renewed focus on the alignment of long-term goals of doctors and DSOs. The goal is to limit the number of doctor sellers who just want a check and before “checking out”.

DSOs want to partner with Initiative-taking doctors who want to grow their practice with DSO assistance and resources. This “fueled autonomy” is intended to help doctors develop in an environment where DSOs are steering the ship while the doctor can focus on patient care.

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Diversification‍

There will be an evolution of DSO identity affiliations and a diversification of specialty dentistry acquisitions. While the majority of DSOs are currently focused on general dentistry, it’s expected that many organizations will look to incorporate new specialty practices in the near future.

These new acquisitions will focus on implant practices, periodontics, & pediatric dentistry, with other specialities like endodontics and orthodontics also gaining attention on the DSO radar.

The aim for this shift will be to create referral synergies and to account for seasonality to balance a portfolio of practices.

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Changes in the Competition Atmosphere ‍

As consolidation continues and more groups look to scale the operations, market competition will shift from a “who can give the best offer” to a “who can provide the most value” frameset.

There will be an element of nurturing practices with good growth trajectories. In this environment, DSOs will look to be a friend and resource even if a practice isn’t ready for acquisition. The value-add from these proto-partnerships will give DSOs better candidates from their selection of practices when they look to expand to new locations. The DSOs that pivot faster to this strategy and that provide the most value for dentists will see the most success.

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4-5% year-over-year growth‍

DSO leaders expect a continuance of the current trend of growth in dental. With this industry growth will come more attention and influence from private equity and other firms that don’t traditionally invest in dental.
As all boats rise, the partnership model of general dentistry/specialist referrals will grow as the swelling market gives more opportunities for these partnerships to shine. These partnerships may give rise to a new breed of dental groups.

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New DSO Structures‍

There will be an expansion of new DSO ownership models that will be more attractive to a wider range of doctors looking to scale their practices.

From doctor/investor ownership hybrid organizations, to associate network affiliations, to de novo-oriented sub-brands of DSOs, the list goes on.

It’s predicted that there will be something for everyone out there looking for the next evolutionary stage of their practice.
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The timeline of DSO growth is accelerating

‍While still at a steady trot, the acquisition process is getting faster as DSOs better understand and can identify practice fit. Also, with modern M&A tools and processes, due diligence will become more routine.

Outside of acquisitions, the build out of de novo practices will be streamlining, as well.

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Patient Outcome Reorientation‍

There will be a transition to focusing on patient outcomes instead of just doctor satisfaction. DSOs that invest in these outcomes internally will see the most success in the near future.

Between DSOs, this patient-oriented focus will likely lead to a new medium of competition with the patient experience ultimately improving as an outcome.

While some of these predictions simply follow the trends we’re seeing right now in the industry, what’s important to note is that while elements and targets of growth are shifting, the overall DSO industry sentiment is positive.

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Special thank you to Becker’s Dental & DSO Review for putting on this event. For a recap of the agenda and for relevant DSO resources.

Pearly was proud to be a sponsor and contribute a data driven white paper discussing patient billing trends report that you can download for free here.