DSOs could begin to merge amid economic challenges, 1 exec predicts

DSOs and other management services organizations could start to merge as economic challenges continue into 2024, according to Richard Hall, CEO of Irving, Texas-based U.S. Oral Surgery Management. 

The oral sugery-focused management services organization, which supports practices across 26 states, is focused on several growth opportunities this year, including practice acquisitions, de novo offices and surgeon recruitment. 

Mr. Hall recently spoke with Becker's about USOSM's goals for this year and the trends he is following in dentistry.

Editor's note: Responses were lightly edited for clarity and length.

Question: What are USOSM's top priorities in 2024?

Richard Hall: We have a number of them. Organic growth and de novo development are probably at the top of the list. We're going to continue investing heavily in our surgeon recruiting department and the initiatives underway there. We also have launched some quality initiatives that we're excited about with regard to establishing oral and maxillofacial surgery centers of excellence. 

Q: What key strategies are in place to expand and grow your footprint?

RH: [De novos have] always been a part of our strategy, but it has not been as large of a component as our M&A activity has been. We're going to continue to do strong M&A, but at the same time, we're going to try to complement the de novo development in a bigger way. We have a lot of opportunities available to us to do that, so this year we'll probably do four to six de novo startups.

We'll add about $130 million of acquired revenue this year. We've done that the last two years in a row, so we'll continue to seek new practice partnerships and then the surgeon recruiting and mentorship program we've begun will continue to attract new surgeons to apply so that we have the surgeons necessary to support the de novo expansion we expect. 

Q: What are the biggest challenges facing DSOs and MSOs today?

RH: The biggest one is the macroeconomic conditions with the cost of capital more than doubling over the last 18 to 24 months. Fortunately, we're not in this category, but many DSOs and MSOs are in a position where they just can't get the debt they need to continue to fund their growth. 

Staffing challenges are subsiding to some degree, but they are still certainly another one of the major challenges from an operational perspective. We also are seeing some downward pressure on patient buy-ins, particularly in discretionary spending areas like implantology. 

Q: Do you expect to see a large shift in DSO activity because of these economic challenges?

RH: Yeah, I do. Debt availability is very tight and expensive. I think that's going to limit the growth for those DSOs that don't have availability to that capital. We're in a very strong capital position going into the year and have more than enough dry powder to fund our M&A projections for 2024. 

I do believe we are likely to see some consolidations of DSOs this year as some will begin to merge, and that will be driven somewhat out of necessity more than strategically. I do also see that the back half of 2024 and the first half of 2025 could present much more favorable markets, so it's really about weathering the storm for some of these DSOs and MSOs that are in a tight capital position right now. If they can make it through to the back half of 2024, I think things will improve from that point forward. 

Q: What other trends are you following right now?

RH: We're continuing to look at technology as a big goal to improve efficiency and the patient experience. We're looking at legislation, particularly around medical loss ratios and license portability. Those are two things the ADSO is supporting significantly and those are the primary trends we're keeping an eye on.

[MLRs] could certainly improve accessibility. I think the last time I saw the statistic, something like 50% of people who have dental insurance don't even use [it] because of the copays and limitations, so anything we can do to improve access to oral healthcare is something we should support. 

Q: What is your proudest accomplishment of 2023?

RH: Despite the economic pressures we all experienced in 2023, we had a very solid growth year, adding $100 million in acquired revenue and growing organically. Our surgeon recruiting was very strong last year and we anticipate it will be strong this year. The last thing we're most proud of is taking a position on clinical quality. We launched two significant clinical quality initiatives this year. One is a study around implant failures and the second one is the establishment of OMS centers of excellence. We're helping our practices achieve that accreditation. 

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