Some industry observers say DSO consolidation is losing steam. Alex Sharp, DDS, CEO of Scottsdale, Ariz.-based Shared Practices Group, doesn’t see it that way.
“There are some people saying that the consolidation is slowing down,” Dr. Sharp told Becker’s. “That’s not my experience.”
He said the bigger questions are how far consolidation will go and how quickly it will happen.
Why dentistry won’t look like other healthcare sectors
Dr. Sharp said dentistry will consolidate less than other parts of healthcare that went through the same shift.
“I don’t think dentistry will ever get as consolidated as pharmacy,” he said. “I don’t think dentistry will ever get as consolidated as family medicine or primary care.”
He pointed to the market pressures that let Walgreens, CVS and Rite Aid replace independent pharmacies, and to hospitals absorbing much of primary care. Dentistry, he said, is headed for a split.
“I think there’s going to be the big consolidated winners, and there’s also going to be a litany of individual mom-and-pops that still run things with their own two hands and have a smaller individual footprint,” Dr. Sharp said. “But they can provide things to the marketplace that are very hard to scale and hard to provide at the scale of 2,000 or 3,000 practices. So that’s why there’s going to be room for everybody.”
The next 18 to 24 months
Dr. Sharp said the bigger change is in how large DSOs grow. They used to add one location at a time. Now they buy entire groups.
“We’re going to see these bigger players that historically have grown in the unit of individual locations now buying up a 40-location group or buying up a 75-location group,” he said. “So with one stroke of a pen, they can grow via double-digit locations rather than an individual.”
Recent deals fit that pattern. In October, Effingham, Ill.-based Heartland Dental closed its transaction with Alpharetta, Ga.-based Foundation Dental Partners, a 33-practice DSO. In July, Miami-based Guardian Dentistry Partners reached a definitive agreement for a strategic majority acquisition of Florham Park, N.J.-based Select Dental Management, which has 38 locations.
Dr. Sharp said buying a group isn’t necessarily easier, but integrating one platform is “more straightforward” than integrating many separate practices over time. He also expects some struggling groups to sell off practices, and those practices will need buyers.
“One man’s trash is another man’s treasure,” he said. “Other groups that are maybe more able to drive integration and to add value are going to gobble up these practices.”
He said that will speed up the move toward a more concentrated market, where a handful of companies hold the largest share. “You’re going to see meaningful momentum on that evolution in the next one and a half to two years,” Dr. Sharp said.
