Understanding and Evaluating Associateship Opportunities
Large Group Practices and DSOs: Special Considerations

Course Author(s): David G. Dunning, MA, PhD; Robert D. Madden, DDS, MBA

Large Group Practices and DSOs: Special Considerations

In 1964, song writer Bob Dylan penned the song “The Times They Are a-Changin.” The song has remained popular for over 50 years. Many music critics cite the song’s lasting popularity to its everlasting message of change. For the most part, people are reluctant to embrace change because it carries with it a disruption to everyday routines. Those who wish to maintain the status quo, over time, will gradually and most assuredly be left behind in their respective field of endeavor. As W. Edwards Deming inimitably quipped, “It is not necessary to change. Survival is not mandatory.” Change has come to define our world in the 21st century. Transformations in the healthcare professions are exemplified by demographic shifts, educational competencies, degree requirements; technology and practice settings.

During the past decade, the types and number of group practices have grown. Today, increasingly more dentists practice as corporate employees, as opposed to associates in traditional practice settings. Similarly, there has been growth in the number of dentists in partnerships or multiple-ownership arrangements. The percentage of dentists in traditional solo practice has declined to approximately 85%,30 and some would argue that the percentage is now more likely between 65 to 75%.

What accounts for these changes, and are they likely to continue? Listed below are a number of reasons why changes have come to dentistry and will likely continue.

  1. Future growth in the U.S. population will continue to come disproportionately from racial and ethnic minorities and immigrants.
  2. Non-Hispanic white births are less than 50% of all births in the U.S.31
  3. Americans covered by commercial dental insurance peaked in the late 1990s and has continued to decline in the 21st century.9
  4. Total U.S. expenditures on dental care services have plateaued over the past five years.32
  5. The number of dental graduates now exceeds the number of dentists leaving the workforce each year.
  6. New dentists are increasingly graduating with higher debt levels.
  7. New graduates have a greater interest in work-life balance than previous generations of dentists.
  8. Due to debt load and life style balance, more young dentists prefer salaried positions as employees than have past generations of new dentists.

How has the dental marketplace shifted in responding to these changes? In part, these fundamental changes have contributed to the continued growth of large practices, group practices (multiple dentists working in the same or multiple locations) and Dental Support Organizations (DSO). Both enjoy the benefits of economies of scale when compared to solo practices. Dr. Roger Levin, a noted dental practice consultant, author and lecturer, astutely commented about DSOs and their competitive advantages: “these businesses pose stiff competition for traditional solo practices by promoting a lower-priced alternative and accepting more insurance” and they “have the potential to transform a geographic market virtually overnight.” Nevertheless, Levin concedes that “traditional practitioners can remain competitive by focusing on building value, through personal attention, and strong customer service, extensive experience, community involvement and uniqueness.”33 One additional major advantage traditional solo practitioners have is the stability of doctors and auxiliary personnel. As stated in the beginning of this section “people do not like change.” This is perhaps especially true of healthcare providers. For this reason, the solo practitioner will still maintain a profitable niche in our delivery system for healthcare services.

Large group practices offer some advantages with regard to economies of scale over the solo practitioner. However, DSOs enjoy much greater capital structure, economies of scale, and national presence. Large group practices tend to be a more localized model, whereas DSOs tend to be more regional/national. The formation of large group practices seeks to take advantage of maximum use of facility and staff. Large groups often are able to enjoy purchasing discounts with regard to dental supplies and laboratory expenditures. While this may pose an advantage over a solo practitioner, the advantages posed by the national DSOs far outweigh the competitive advantages of large group practices.