How macroeconomic challenges will affect DSOs: 5 notes

A new report from Moody's Investors Service, a financial research firm, predicts DSOs will be heavily affected by slowing economic growth and rising interest rates. 

The report, released Aug. 5 and shared with Becker's, examines how economic conditions will affect healthcare sectors, including credit risk. Sectors of the healthcare industry featured in the report include pharmaceuticals, hospitals, insurers, medical device companies and DSOs. 

Five notes:

  1. Moody's expects U.S. Real Gross Domestic Product growth of 2.1 percent in 2022 and 1.3 percent in 2023, a decrease from its May forecasts of 2.8 percent and 2.3 percent, respectively.
  2. The company noted in its report that slowing economic growth and persistent inflation would lower demand for elective or deferrable dental services that patients typically pay for out of pocket. 
  3. Many self-pay patients rely on third-party financing to obtain credit to fund their dental care, but this trend could be stumped by slowing economic growth and lead to less demand for dental services.
  4. DSOs that have captive financing operations could be exposed to rising bad debt expenses during an economic downturn.
  5. How five macroeconomic challenges will impact DSOs
    • Slowing economic growth: More significant impact
    • High inflation: low impact
    • Supply chain disruptions: low impact
    • Labor shortages: low impact
    • Rising interest rates: more significant impact

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