DSOs are facing new challenges as private practices make a comeback and new hurdles test their stability. As groups work to improve their reputation and build trust between patients and providers, many are wondering whether these efforts will be enough down the line.
Previous years saw DSOs rapidly expanding their networks through acquisitions and de novos in existing and new markets, thanks to the availability of capital and high demand. However, higher rates and increasing operating costs have led to financial challenges for several groups.
Sarasota, Fla.-based Dental Care Alliance and Morrisville, N.C.-based Affordable Care reportedly transitioned into lender control following restructuring challenges earlier this year. Matt Hendrick, Co-Founder of Elevate Dental Partners, said this could signal the end of the “growth at any cost” era in the industry.
“Dental practices succeed because of trusted doctor–patient relationships, experienced clinical teams and consistent standards of care,” he said. “These elements take years to build and cannot simply be scaled through financial engineering alone. When organizations grow too quickly without equally strong investments in operational infrastructure, leadership development and clinical alignment, pressure begins to surface.”
Now that DSOs’ financial models are being tested, Mr. Hendrick said organizations are shifting their focus from network expansion to building strong operational structures. They are also prioritizing regional density over a more scattered national presence, along with financial models that support sustained growth.
“The first wave of consolidation proved that scale could be achieved. The next phase will test which organizations can translate that scale into durable operating models,” he said. “Groups that balance growth with strong clinical leadership, disciplined financial structures and genuine support for dentists will likely outperform those focused primarily on expansion alone.”
Another challenge facing DSOs is low practice supply. TUSK Practice Sales recently reported that while 69% of DSOs plan to boost acquisitions, there is a low-supply environment that is expected to continue for the next nine months. This will lead DSOs to become more selective of their deals, placing more scrutiny on financials, operations and practice performance projections.
An emerging hurdle for DSOs is increased oversight of their transactions and pushback from industry leaders seeking to protect patient care and clinical autonomy. Several states have introduced legislation to limit corporate entities’ ownership of dental practices and their influence on clinical decision-making. Most recently, Kentucky modified its Dental Practice Act to bar individuals who are not licensed to practice dentistry or entities that establish dental reimbursement rates from controlling clinical decisions. Illinois is also weighing an amendment that would require any transactions involving healthcare facilities or provider organizations to be subject to the state’s reporting requirements.
Organizations have also spoken out against corporate dental ownership to protect patient care and clinical autonomy. In December, the American Economic Liberties Project released model legislation that would strengthen corporate practice of dentistry laws. The model legislation not only prohibits non-dentists from owning practices, but bans common workarounds including DSOs.
Clinical autonomy and overbearing expectations are largely driving the push away from DSO affiliation, according to Ross Chavkin, DDS, founder and owner of All County Oral & Maxillofacial Surgery. Dr. Chavkin and Suzanne Villani, the practice’s COO, expect independent dentistry to make a comeback.
“Big DSOs will give you all these promises and that nothing’s going to change things. That is until you have to hit those numbers and then things start getting outsourced,” Ms. Villani said. “When that happens, patients become very unhappy because they can’t speak to somebody like they used to be able to. I think that colleagues will tell each other to not go into private equity. Down the line, I could see that private practices all start banding together to keep doing our own private thing.”
At the Becker's 5th Annual Future of Dentistry Roundtable, taking place September 14-15 in Chicago, dental leaders and executives will gain insights into emerging technologies, practice growth strategies and the evolving landscape of dental care delivery, with a focus on innovation, patient experience and operational excellence. Apply for complimentary registration now.
