Private Practice vs the Intrusion of DSOs
DSOs have billions of dollars to invest to build and acquire dental practices and compete for patients. Your average dentist is struggling to pay their bills. Their ability to keep pace with modernization and advertising makes it difficult to compete for new patients. DSOs choose high visibility ground floor locations while older dentists cannot make the investment to move. Is the handwriting on the wall that Private Practice will no longer exist in the near future? There are currently several distinctive types of DSOs coming into power
- Branded DSO - examples would be Aspen Dental, Great Expressions, etc. where the entity puts its branded name on the facility.
- Corporation Dental Center - an example would be Walmart, Walgreens Dental Center where the entity has another primary business but has opened a Dental Center at one of their high traffic/visibility locations.
- Non-Branded DSO - an example would be Heartland where they 'silently' own offices but leave the Selling doctor's name on the door, so the patients do not know they are now visiting a DSO.
- Dentist Owned DSO [DDSO] - entrepreneur dentists who are in the business of acquiring practices they can manage but not necessarily treat patients themselves. At least its owned by a dentist.
I get the DSO News to keep track of the alarming rate of expansion of DSOs. Here is an example of how rapidly they are investing to take over dentistry https://groupdentistrynow.com/dso-group-blog/top-10-dso-dental-group-practice-stories-of-2019/ . 40 years ago, there were only a handful of these places. They all struggled and eventually closed. Now they are popping up all over like weeds. Many dentists are worried it's the end of Private Practice. Many are selling out to corporate dentistry before it’s too late. I have good news. Most dentists have not sold out to Corporate dentistry. Of the practice transitions, I have been involved with only about 1 in 10 was to a corporate entity. It was a good fit for them. They wanted to keep working for years to come but owning their own office had become too much of a financial burden. They were able to sell their practice and get a long-term position doing the dentistry they love to do. Their patients followed them to a new and modern facility with other dentists on staff to cover when they were away. And, the dentist could go away on vacation knowing the patients would have someone there in an emergency.
90% of Practice Sales still go to Private Practice Buyers
Most transitions were from an older dentist looking to move or retire in the near future to a Buyer dentist who actually wanted to do dentistry. What a novel concept. So different from all the DSO entrepreneurs who want to purely manage the practice. These transitions have been very successfully done and the Buyers with a renewed sense of purpose have put the effort into the practice to increase the Gross revenues over what they bought. Banks will lend the purchase price as well as 'fixer-up' and equipment upgrade money to modernize the facilities and make them competitive in appearance with the new DSO down the street.
Private Practice is a continuity of care for many years. I practiced in the same neighborhood in Private Practice for 35 years. People knew when they came to the office that it would be me there to take care of them. They built up comfort and trust that they were more relaxed than going to a stranger in a strange office. Being a dental patient is nerve-racking enough. Going someplace you are comfortable a trust your doctor is huge. Call me in 35 years and let me know if these DSOs have survived that long. No way their dentist associates are not going to turn over 10 times in that span of time. I worked at these DSO entities in 1980 when I graduated NYU Dental. By 1984 I was in practice for myself. No way I was staying an associate for someone for my whole career.
Cost of doing business is much higher now than when I graduated but the money is more readily available to buy a practice. I was laughed out of the Bank in 1980 when I went to borrow money for a practice. But today, I see recent grads getting hundreds of thousands of dollars to buy an office and follow their dreams. I think the new grads have in some ways more opportunities than I did back in 1980. But my overhead was much lower on a percentage basis back then. We could operate on a small budget and small starter Gross Revenues and still make a profit. Overhead today is significantly higher, and the breakeven point is higher. But, the default rate on Dental Practice Acquisition loans is under 1%. So, banks are lining up to lend money. Come get it at 3.5-5% for up to 15-year repayment terms
Mergers and Partnerships
Many dentists would greatly benefit from merging practices into one location with a neighborhood dentist. Most dentists think they prefer working alone. I found working with a dentist who split many common expenses and gave me coverage when I was away to be a far superior way of life than a solo practitioner. It's not a crime to call a dentist in your neighborhood and go have coffee and see if you can make a deal to merge into one location. Rent, Insurance, cleaning, front desk salaries combine into a big monthly expense. Cutting that in half is HUGE. Consider that most practices net 35% which means that for every $1000 saved that almost $3000/month less dentistry you need to do before your fixed monthly expenses are paid and you only have variable expenses like lab and supplies to pay. That’s where the most profitable portion of your revenues are.
Talk to someone in your situation who is also an associate dentist. It could be a classmate or an associate in the same office. Maybe they would like their own office too. Buying a practice together, investing half as much, having someone else responsible for half the monthly expenses, the ability to keep working part-time as an associate while you and your partner put three days apiece into your office which keeps it open 6 days a week. Buying new equipment like a Panorex, CBCT, compressor, an autoclave is now HALF the price because you are sharing these assets
There are many advantages to partnerships and mergers. Yes, things can go bad if the partnership is not set up fairly to both. Perhaps some sort of expense sharing agreement would be best for some? But if you are going to compete with a DSO you need a strong bottom line. You need to keep updating the office and equipment. You need to keep advertising to bring in patients. You can offer something no DSO can offer-YOU!
ADA did NOTHING to protect their members!
We all have patients who worked for companies or unions. Especially the unions protected their members from being undermined by unfair competition. ADA just let these Venture Capitalists and Corporate Entities to own dental offices. A dentist has to go to college and dental school for 8 years while amassing hundreds of thousands in debt as well as hundreds of thousands in lost wages. The dentist starts their career at 26 years of age with the weight of that debt hanging on them. They now can go work for an investor who didn't have to get a license to practice dentistry, but rather just needs to find someone to use their license to form a DSO. Just does not seem like a fair competition that the owner of the DSO does not need a dental license. Depending on State laws it is possible the licensed dentist 'owns' the entity but is required to pay the DSO a 'management fee' to run the practice. It just does not seem like fair competition. If the dentist had worked and saved for eight years; as well as not spending $700,000 on education, they could build their own Dental Office and hire dentists who are drowning in debt.
PRIVATE PRACTICE WILL SURVIVE and THRIVE
Yes, there is a great future ahead for private practice. But the small part-time 2-3 day/ week practice cannot survive alone. Merging or being absorbed by a full-time practice in your vicinity will allow those private practice Sellers to continue to work part-time and the Buyer private practice will acquire all those new patients into their practice. 100% financing is easily available for a successful full-time practice to acquire a part-time practice. A full-time practice could acquire a part-time practice doing approximately $14-16,000/ month in revenues for $1,000/ month in loan payments. It’s a no-brainer if that opportunity arises.
And if the part-time practice is referring out endo, ortho, implant placement, bone grafts, membrane placement, OS, etc.; and your office can serve the needs of those patients in your office, you will have thousands of dollars each month in additional revenues that you did not even pay for in the purchase of the practice! Because the purchase price was based n the existing Gross revenues and does not calculate for work referred out. Dentists need to WORK TOGETHER. You cannot rely on the ADA to represent or protect your interests.
Call us to discuss your individual situation
We have created a network of brokers around the country who are there to help you decide what’s best for you. Contact the broker in your area to discuss your situation. My team and I at US Dental Practices LLC are centered in the NYC Metro area. Extending into Upstate NY, all of NJ and CT. But we can consult with you and refer you to a broker in your area if necessary. We have a Free Practice Valuation Tool on the website here https://www.usdentalpractices.com/dental-practice-valuations.
If you need a comprehensive and formal practice valuation we can prepare one for you at a competitive and cost-effective price. Contact us at your convenience.
Dr. Bill Lossef