4 challenges facing DSOs

Increased costs, staff recruitment and skepticism from dentists are some of the challenges facing DSOs in 2023.

Becker's has spoken to several DSO leaders so far this year to discuss their growth, expansion plans and the challenges they're facing. 

Here is what four leaders have told us this year: 

What made a DSO critic switch sides

Gary Kadi. Founder of NextLevel Practice: We know when the cost of money goes up, our doctors are going to get paid less. I'm looking at the indicators that are going to be the elements that are going to affect the multiples doctors can get for their practice. So there's a sense of urgency around this for two reasons. We know this industry will consolidate at about 60 percent and we're about halfway there. So what's happening is we're looking at the pipelines and seeing how many people are in those pipelines and about when we think the 60 percent consolidation is going to happen, and then we're looking at the money and the multiples our doctors are getting because if our doctors don't get the generational wealth we're getting now, that's going to affect our future. So it's an outside constraint that we need to pay our attention to.

The double-edged sword facing DSOs

Barry Lyon, DDS. Chief Dental Officer for the Division of Orthodontics and Pediatric Dentistry at Dental Care Alliance (Sarasota, Fla.): Every DSO and every private dental practice continue to face the frustrating task of recruiting, training and retaining employees, whether they are clinical or clerical. According to the American Dental Association, more than 70 percent of owner dentists claimed hiring administrative staff was challenging and more than 50 percent of owners said recruiting associate dentists was challenging. This has driven dental practices to create positive work environments to increase employee loyalty and retention. 

The pent-up demand for dental care since the pandemic has shown little signs of diminishing. As a result, competition for hiring providers is keen among DSOs. This double-edged sword of increased needs for dental services against a shortage of providers has kept DSOs constantly seeking providers to meet that demand.

'They're making the decisions': How 1 PE-backed DSO is empowering dentists 

Kristen Cusack. CEO of Phase 1 Equity (Southlake, Texas): The biggest challenge is that there are mixed feelings about what a DSO is. Everybody in the market knows that, whether you're a DSO or not. There are definitely some doctors who are very skeptical. So if I would say anything, it's overcoming how people feel about that in general ... So there's that bringing together of the things they maybe have been missing and helping them over the hump of, it's scary to change when you feel like things are going pretty well. I like to use the phrase, "The enemy of great is good." It's really good out there if you're an orthodontist and a pediatric dentist. I think the temptation is to say it's all just going to stay that way. What we want to do is help support doctors in the ways we know are coming for them in the industry. How can we help them make sure they're prepared as there are more DSOs, that they're prepared as there are potential changes in the way reimbursement works and that they're really able to continue to grow and thrive? That's where combining the best of both of our skills really makes a big difference. That barrier will continue to be there because if things are really good, then you kind of want to say, "Well, do I want to make change?" This is us really looking at the fact that things are changing. It's a matter of how we help make that change positive and help make that change continue to benefit the doctors.

What's next for Sage Dental after hitting 100 offices

Jim Mizouni. Chief Development Officer and Senior Vice President at Sage Dental (Boca Raton, Fla.): The company didn't grow any practices at all for a three-year period. We did fairly aggressive growth to get up to the 50s in 2015, 2016 and 2017, and then had to take a pause. One of the challenges in any kind of growth industry is that you're so focused on growth it can be very difficult to actually call that hiatus, take some time and evaluate the quality of the business. Here at Sage, it was a three-year process in which they didn't have a development function. Those three years were dedicated to making sure that operations were all as good as they can be. If you look at the history of a lot of highly successful multi-unit businesses across multiple industries, you'll frequently see in their history that they grow, they start to run into issues and sometimes the really successful ones pause, build their foundational base and then go out and grow again. That's what happened here at Sage. 

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