De novo growth shows no signs of slowing — 3 experts discuss DSO market trends

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De novo growth shows no signs of slowing — 3 experts discuss DSO market trends

While solo private dental practices are diminishing in the U.S., dental service organizations are experiencing rapid growth and present a solid investment opportunity if managed properly.

 During a July 10 webinar sponsored by LendingUSA and Solutionreach and hosted by Becker's Dental Review, three leaders in the dental industry discussed key trends in DSOs and what the future holds for the market. Participants included:

  • Jerry Rhodes, CEO of Sarasota, Fla.-based Dental Care Alliance
  • Arwinder Judge, MD, chief clinical officer of Syracuse, N.Y.-based Aspen Dental
  • Brian Colao, member and director of Detroit-based DSO industry group Dykema Gossett

Emerging markets for growth opportunities

States such as Texas and Florida saw accelerated growth in the DSO market. Recently, Dental Care Alliance tapped into the southwest region in Arizona. Mr. Rhodes said one primary reason why these warm-weather states offer DSOs such a considerable opportunity for growth is that they are attractive places to live, which makes the recruiting process easier.

"These are the states that are going to support continued growth and opportunity for DSOs," Mr. Rhodes said. "I think the DSO concept is generally accepted and they have great commercial environments."

Aspen Dental, a large DSO with practices in 41 U.S. states, is always on the lookout for potential growth opportunities and will end 2019 with approximately 820 offices nationwide. It plans to open 80 offices this year with another 85 offices in 2020.

In late June, Aspen Dental opened its first California practice in Modesto as part of its west coast expansion and will open five more offices in the state by 2020. The company also opened its first of 12 dental practices in North Carolina in February.

"We like to go to areas where doctors don't want to go and we like to bring access to care to patients in those places, but the plan is really to go into every state," Dr. Judge said. "There's not a part of the country that doesn't excite us."

Canada is a target rich environment and is the market which most excites Mr. Colao. "It is the great frontier and we've recently done the second and third largest transactions for DSOs in Canada," Dr. Colao said.

How recent graduates are viewing DSOs

Echoing the trend across healthcare in general where younger physicians are opting for employment over entrepreneurial opportunities, DCA achieved significant success tapping into the graduate dentist pool.

"The sense I get is that they are very hungry to get employed quickly," Mr. Rhodes said. "A lot of them are graduating with significant debt and anxious to get experience, employment and opportunities as quickly as possible. I think they view DSOs as a great entry point for their careers."

The average dental school graduate owes $287,331 in student debt, which is  four times the amount that new graduates owed in 1990, according to the American Dental Education Association Survey of Dental School Seniors, 2018 Graduating Class Tables Report.

"The world has shifted as far as how dentists view DSOs," Dr. Judge said. "I think dental school graduates view DSOs very favorably. What I find is these students are not only looking for compensation but also looking for a balance in life and mentorship programs."

Acquisitions versus de novo growth in the DSO market

What sets Aspen Dental apart from other DSOs is that it operates completely under de novo growth and has never entered into acquisitions. Every practice under the company's brand averages over six-and-a-half new patients a day, according to Dr. Judge.

"When you go into de novo offices you can pick the real estate you want. When doctors come into the practices from a recruiting standpoint, they see the best technology that's out there," Dr. Judge said. "It gives us a lot of advantage in terms of where we want to go location-wise and real estate-wise and bringing the right kind of demand and success to the doctors."

DCA completes a small percentage of de novos per year but its primary focus is acquisitions. Stability, practitioner turnover and growth opportunities are three practice elements that DCA assesses when deciding on acquisitions, according to Mr. Rhodes.

"We want to see practices that we think can afford some additional product line growth as well as expanding their footprint," Mr. Rhodes said. "Hopefully we'll see a staff that is also interested in growing and expanding their capabilities and skills."

There are some markets that exhibit a saturation of de novo growth however opportunities are so widespread that the de novo trend will continue to develop, according to Mr. Colao. Acquisitions may take center stage in the future but currently de novos remain in pole position.

Find out more about Solutionreach by clicking the link, and view the full webinar here.

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