DSOs that opted for more strategic acquisitions during previous years are now reaping the benefits, and the ones that focus on patient convenience and affordability now will continue to see success in future years, according to one exec.
Dallas-based Smile Doctors Chief Strategy Officer Jonathan Kaufman recently spoke with Becker’s to discuss the challenges facing DSOs and the decisions that will separate top-performing organizations from their competitors.
Editor’s note: Responses have been lightly edited for clarity and length.
Question: What do you think are the biggest challenges facing DSOs this year?
Jonathan Kaufman: I think one of the biggest is just the payer landscape. The payer landscape is tricky. I think there was a lot of focus on Medicare Advantage and some of these Medicare supplement plans and some of the reimbursements that existed there. That tailwind is largely gone. There’s no doubt that there’s market pressure, so I think you’ve got really changing payer dynamics, and as medical benefit plans change and become more expensive, how do you look at dental plans as an employer? That’s putting a lot of pressure on DSOs. There was a really nice period after COVID where there was a lot of excitement around the DSO marketplace. There were many great DSOs out there, and there are still a lot of great DSOs, but I think those that are doing well right now are those that have been very disciplined in their financial structures and how they’ve thought about things. Those that are struggling took advantage of a marketplace and, unfortunately, haven’t really necessarily been able to grow into what their expectations were.
There were groups that were just buying up practices or buying groups of practices and just kind of shoveling them all together and saying, “Hey, look, our EBITDA has grown by X,” and then there were groups that were strategically looking for acquisitions to bring onto their platform. It was not an EBITDA builder. It was, “How do we acquire these guys and then integrate them into our platform?” It seems like those that have done integration to the platform well are not seeing as many headwinds as those that were just kind of like, “Hey, I’m going to gobble up everybody and see if I can build a big P&L.”
Patient dynamics are [also] changing. The way patients look for care, the way they search for care, the way they decide on care — it’s becoming a really interesting, unique journey. AI is changing a lot about how patients look and determine where they’re going to go for care, and I just think DSOs are dealing with a changing patient dynamic and how patients find them, and that is a challenge.
Q: What is going to separate successful DSOs from lower-performing ones?
JK: Whether you’re branded or non-branded, if you are offering patients convenient times, if you’re offering them affordability in how they can pay for things, if you’re offering them access to schedule and convert in a way that is really easy to them, I think that is going to largely determine half the success, and then the other is really just being able to provide an experience that is up to par with other businesses … There was a Reader’s Digest article a long time ago that [said] if you go to 10 different dentists, you’re going to get 10 different approaches to the exact same treatment. One of the cool things that companies like Videa and Pearl and those for the DSO markets have done is almost provide that second opinion to say, “This is what you need.” Those that are embracing AI-based diagnostics as a supporting mechanism to demonstrate to patients like, “Hey, I’m not just racking up this bill. I’m not just throwing in these other things. This is very consistent. This is what you need. This is what will happen if you don’t.” — that is what is going to differentiate DSOs going forward, in my opinion.
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