Are the Days of the Independent Practice Numbered?
For folks who live in the dental services organization (DSO) and mergers and acquisitions (M&A) worlds - such as yours truly - it sometimes feels that there is only so much more consolidation that can happen before every dental office in the country is forced to affiliate with a massive DSO to survive. Anecdotal evidence argues that the private-equity (PE) backed DSO M&A game has a shelf life of another 5-10 years before the entire industry is consolidated, akin to many of the hospital supergroups we now see monopolizing that space. However, upon taking a step back, it is clear to see that there is still plenty of green space for individual and small group practices to grow. While a DSO exit may very well be the best option for many of these individual practice owners, they should consider the fact that there is still very much a market for recruiting and grooming a successor to continue the legacy of the practice, if they so desire. Let’s start by looking at the numbers.
The Strength and Appeal of DSOs
Though we have yet to see updated data for 2021 or 2022, the ADA’s Health Policy Institute published a 2019 report that analyzed DSO-affiliation growth broken down by age group. It is clear to see that, while all age groups have been increasing affiliation over the course of the past decade, the youngest sector – those graduating dental school and/or entering their early career lifecycle – have gravitated to the DSO model in droves. Strong compensation plans, signing bonuses, benefits and the ability to advance within the organization are just some of the selling points for the recent grad trying to decide on a path forward. In traveling the country and speaking with hundreds of dental students, many will inform us that they have 3, 5 or even 10 offer letters from DSOs and are trying to understand the differences. While that discussion is beyond the scope of this article (check out our blog on Associate Agreements here), it is safe to say that single-owner locations are struggling to compete to recruit top talent. Similarly, when a long-time practice owner enters the market to sell their practice, DSOs are generally able to offer significantly better exit scenarios; combining a higher purchase price with equity in their growing organization.
The Road Less Traveled
All that said, the numbers still tell another story. Despite the fact that DSOs seem to be everywhere, of the estimated 200,000 dental practices across the United States, as of 2019, only an estimated 10% were actually affiliated with a DSO. At the end of 2022, Yahoo Finance reported that the compound annual growth rate (CAGR) of the DSO industry is expected to increase by 15.8% between 2023 – 2030. Though that is a daunting number to the new provider looking to practice outside of the DSO model, it still leaves some practice opportunities, albeit it will take more searching to find the right opportunity.
By no means do we take the position that DSOs are the evil empire of the industry. They absolutely fill a role for both new providers entering the market, as well as those looking to exit and maximize the value placed upon their practice. The “American Dream” is, after all, still predicated upon one’s ability to fulfill a vision and realize financial independence as a result…nothing wrong with that! But for those whom take the doomsday view of “affiliate or die,” there is still light at the end of the tunnel. The key is to realize that there are options no matter where you are in your dental career lifecycle. The consolidation will certainly continue to ramp up, and thus, perhaps it is a very different discussion in 15-20 years. But for now, that is still more than enough time for an early career provider to carve a path of their own.
Consider All the Options
If you are an associate looking for an independent roll, a provider looking to purchase a practice of your own, or a tenured provider looking to find a successor, Marti Law Group is here to help you begin your search. While we are not brokers or recruiters, we maintain strong relationship with industry professionals who can absolutely guide you in the right direction. As your trusted legal partner, our objective is to help you achieve your goals, and stay out of legal trouble while doing so! Give our office a call at (860) 552-7770 or email email@example.com for a free thirty-minute consultation.
 American Dental Association Health Policy Institute. 2019. https://www.ada.org/publications/new-dentist-news/2021/december/hpi-shifting-practice-patterns.  https://www.ada.org/publications/new-dentist-news/2021/december/hpi-shifting-practice-patterns  Yahoo. 2022. https://www.yahoo.com/now/dental-organization-market-size-share-163900896.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAMpX-iIGmmqMimCgdg3fvofvIBubm8dYUxkY71DtIYOIJLuE0VxWUJECsTs0oNDG1XP6UB0rHKtnf998viG61kVQ1MHD8lUn44HRAOPXO9h7pKpM5pQcOYjNMeUBt0FhlTwUbnI6j32Nv_4vCmcSipDVCzNFyaIlU7xGw1e6VaN1