Why the future is DSOs
DSOs are continuing to grow and capture more market share and greater revenue.
A recent report by William Blair, a global investment banking and asset management firm with more than 1,400 employees, over $80 billion in client assets, investment banking transactions covering more than 35 countries and 730 companies, and $230 billion in value since January 2012, states that DSOs are undergoing very strong and rapid growth and are a solid investment if well managed.
“To summarize, we have seen a surprising proliferation of dental service organizations over the past five to 10 years, with the largest chains growing their number of practices at an annualized rate of 13 percent to 14 precent, by our estimates, compared with a 2 percent to 4 percent pace of broader dental spending,” the William Blair report states. “We believe DSOs currently own or control approximately 16 percent of total practices in the United States. We expect that DSOs will grow at approximately 15 percent annually over the next five years, implying U.S. penetration could reach 30 percent by 2021.”
While DSOs have an annualized growth rate of 13 percent to 14 percent, solo private practices are shrinking at 7 percent per year, according to the Health Resources Institute of the ADA. The math couldn’t be any clearer. DSOs will continue to capture greater and greater market share, along with an increasing portion of the dental dollar, while solo private practice will continue to experience decreasing market share and declining revenues.
Given these statistics, nearly all the emerging, small and medium sized groups have their sights set on becoming a DSO. They see the success of Heartland Dental, Pacific Dental Services and Aspen Dental at the top-end, DECA Dental Group and North American Dental Group in the middle and numbers of regional DSOs such as Acierno Dental and Blue Tree Dental. They see these entities continuously growing and generating increasing market share along with greater and greater revenues. These group practices see the DSO model as a real opportunity for themselves, and they are aggressively moving forward.
The emerging, small and medium group practices realize professional management, economies of scale, negotiating leverage, an enhanced P/E ratio, the increased asset values and the ability to adapt to change are all directly improved by being a DSO. They recognize that the best way to succeed in the future will be as a DSO. The groups appreciate that the trend is sustainable expansion of DSOs.
Yet, most dentists and their political organizations are resisting the obvious—that DSOs are the future. Rather than figuring out how to optimize their values and assets within a DSO ecology, most dentists are up in arms about DSOs, trying to stop their growth and expansion and “digging in their heels.”
Rather than seeing the opportunities this new landscape of DSOs can offer them, they are entrenched trying to protect the past, strongly clinging to the notion that solo practice will be sustainable. But the evidence is totally contrary to this assumption. Somehow, they believe if they complain loud enough, if they complain long enough, that they will stop DSOs from coming to their neighborhood.
What dentists should be doing
Rather than complaining and whining, what dentists should be doing is having totally different conversations about DSOs. “What is the possibility for myself, my skills, my assets, my retirement plans, given DSOs will dominate the future?” dentists should ask. Instead, their conversations are why DSOs don’t work and what’s bad about them. They do not realize these conversations won’t change anything. These conversations won’t make a difference.
The kinds of conversations dentists are currently having about DSOs will not impact the future. Why? Because these conversations have no power. They just make something or someone wrong, or someone or something right. These conversations are filled with blame, fault, judgment, opinions, resentment and anger. These conversations have no individual responsibility at their core. They mostly consist of gossip, rumors and vilification of DSOs.
What kind of conversations should dentists be having then? If the future is going to be DSOs, the questions they should be asking are, “How should I participate in this future?” and “With whom should I be speaking?
Continue to page two to read more...