Is there a DSO bubble?

Let me be clear: I do not believe that the dental service organization business model is going to disappear. But I do believe that the rapid growth of the DSO industry that we have seen will likely not continue at the same pace.

Sep 25th, 2017
Content Dam Diq Online Articles 2017 09 Dso 1

This article originally appeared in the Principles of Practice Management e-newsletter. Subscribe to this informative twice monthly practice management ENL here.

I WAS RELAXING ON THE BEACH THIS SUMMER WHEN A FRIEND OF A FRIEND approached me with a business proposition. Normally I would try to keep my thoughts on more pressing matters, like how cold my beer was at that moment, but his offer caught my attention. You see, he was involved in some private equity operation on Wall Street and he had heard I was a dentist. “I hear there’s good money in owning dental practices,” he wondered out loud. “I might want to get some coworkers together and start buying practices.”

I was recently a guest on The Dentalpreneur Podcast with Dr. Mark Costes and I used the term “DSO bubble.” I wish I could say that I had coined that term, but Dr. Michael Davis mentioned it in his June 2017 Dental Economics article titled, “Potential Storm Clouds on Horizon of DSO Industry.” A quick Google search shows that Dr. Alex Giannini, CEO of Blackford Dental Management, a leader in the DSO industry, used the term in an October 2016 article. So I can safely say that I’m not the first person to be thinking along these lines.

Let me be clear: I do not believe the DSO business model is going to disappear. According to ADA research, from 1992 to 2012 the market share of large group practices grew. I am one of many who study these trends who believe that their market share will continue to grow. But what I believe, and what Drs. Davis and Giannini believe, is that the rapid growth of the DSO industry that we have seen will likely not continue at the same pace.

There has been great interest from private equity groups to enter the dental industry. While there are DSOs that are enjoying success, others have grown too quickly, are unable to obtain capital to fund future growth, or have failed to attract dentists for long-term employment. The consolidation of these less successful DSOs has already begun.

That friend of a friend who approached me last summer may be too late to enter the DSO space. If he does follow through, he’ll need to realize that the dental profession must be managed differently than other businesses. The DSO model will continue to be a viable option for some dentists and their investors for the foreseeable future. But for those just looking to make a quick buck, I’m afraid I’ll have to burst their bubble.

Cheers,

Chris


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