Over the last few decades, clinic ownership within dentistry has changed drastically. The dental clinic of yesteryear, offering a model of solo practitioner along with an associate or two, has taken a back seat within the industry. Driving this change are younger dentists that wish to have more mentorship with colleagues and want to avoid the stress and isolation of running a clinic by themselves. Other key factors include the desire for a more favorable work-life balance along with a larger sense of community, thus the evolution towards Dental Support Organizations (DSO’s).
Historically, the original model of private practice with an independent clinician offered great reward including autonomy and an opportunity for success both professionally and financially. However, with escalating interest rates, overall costs to run a business, student debt load, keeping abreast of the advancements towards digital technology and pandemics – the challenges to be independent now seem daunting. In the past, those working as associates in these practices often had a ROFR, also known as right of first refusal, for those wanting to eventually purchase the clinic, but these days, not as many are keen to take on the added responsibilities. Many now are wondering what’s out there for both those young dentists looking to establish themselves, and those looking to transition and eventually retire. While there is still great satisfaction to be enjoyed within independent clinic ownership, the increased appetite for a variety of different models has also forced an evolution within the world of Dental Support Organizations.
The early model DSO’s took 100% ownership of their clinics, which presented attractive and immediate financial benefits for the former clinic owner(s) along with reduced administration and management responsibilities, allowing a greater focus on clinical excellence. It also offered a prescribed time frame, many times a contract of 5 years, for the eventual retirement, often coined “exit” of the dentist.
As the years progressed, other, more partnership-based DSO models evolved and became more sought after, as many clinicians wanted a percentage of equity as they continued to help grow the practice. This newer model allowed the principal to enjoy a percentage of ownership with a variety of different equity streams, depending on the partnership group.
With these shifts, however, autonomy was still a point of discussion, with many dentists preferring to choose their own supplier, laboratory, and other industry partners. Combined with a desire for greater collaboration within their community, mentorship and continued education, a new business model has arisen, which holds great interest to both the seasoned and new dentists of today. It encapsulates many of the attractive benefits of the traditional independent clinic and that of the more mature corporate model: true collaborative partnership, clinical independence, education, mentorship, financial reward, shared resources, and a great sense of community.
While there are dozens of different models when buying or selling, below are several options along with specific aspects for consideration, starting with a purchase of a clinic.
- Private practice with full ownership
- For an independent purchase, the factors discussed above, such as interest rates and the costs to run a business, need to be considered, along with one’s ability to be entrepreneurial. Think about the transitioning dentist – what is their time frame, and can you work closely with them, (if you haven’t been working with them already, as an associate?) The same applies to the current staff. This option offers the greatest autonomy and allows one to build and shape the clinic with their own ideas. However, debt load, and the burdens of business ownership with everything that goes along with that, while prioritizing patient care, can be taxing depending on the individual.
- Private practice with partial ownership
- Buying into a practice that offers the former owner(s) of the clinic the ability to get some equity out, can be an attractive option. You and your new business partner(s) can share in the administration and management needs, in addition to the costs. While you may not enjoy the economies of scale and reduced pricing the DSO’s have established, cost sharing even among several partners, whom you can now collaborate with on a daily basis, can certainly help with overhead. Finally, an equally important aspect is determining if there are shared values and similar treatment philosophies. The decisions you will make together will be many, and ensuring there is alignment is critical.
- Dental Support Organization
- Not all DSO’s are the same, aside from established business processes and pricing advantages due to scale. Structures differ greatly, so ensure when researching this option, you speak with them all. Percentages of equity in the clinic vary considerably, and many DSO’s nowadays will work with your goals, as long as it makes sense from a business perspective. As a new clinician starting with a DSO, if you’re buying one of the former dentist’s equity, what interest rate can the DSO attract on your behalf? There are only several that can promise anything below prime, so do your research. Another huge benefit of working with a DSO, is a pre-established platform for training, for both leadership and traditional CE, in addition to mentorship, critical to any new dentist. Many promise that platform but be mindful of what these programs actually offer and ensure it’s not been added on as an afterthought. What other benefits are they offering from a financial and support perspective and is it sustainable? What is their corporate culture, and is it inclusive and collaborative? These are key aspects to consider ensuring both you and the team thrive, which in turn goes a long way for an enhanced and positive patient journey. How much autonomy from a clinical perspective will you have, and will you continue to be able to work with your preferred industry partners, such as laboratories and distributors?
Similar to the points above, options for a clinic sale include some of the following:
- Private practice – full sale
- Finding an independent practitioner to purchase your clinic given the interest rates of today may be tougher than in the past, but still a viable option. With that in mind, think about your transition time, a mentor/mentee relationship potential, and again shared clinical philosophies. As a former owner, now associate if you plan to stay on, how prepared are you that you will no longer make all the decisions, some of which you will not agree with?
- Private practice – partial sale
- Similar to a partial purchase of a clinic, bringing on a partner needs to be given great consideration. Again, shared values and alignment within overall patient care will help when opinions differ around the many aspects of running a business together. Realistically, you will never agree all of the time. Think about how the decision-making portion of the clinic will be divided and the hiring and onboarding of new team members.
- Dental Support Organization
- What does the structure of the sale look like? Is your equity in both the clinic and the corporation itself? Are there targets to hit quarterly or annually, and if so, if they are not met, what is the penalty? Seek out those few DSO’s that do not impose such penalties. Other financial considerations are revenue streams and/or special bonuses – are they assessed and paid on a quarterly or annual basis? What is the timeline for your eventual exit? A number of DSO’s today now tailor that to your retirement goals. Are there aligned values and treatment philosophy? Will you have autonomy and the ability to maintain your previous industry relationships with distributors and labs? Be protective here, as these are valuable partners, many of whom you’ve worked with for years. Lastly, what is the corporate culture and is there open and transparent communication? Are you a number, or do you have access to those sitting in the C suite? As discussed earlier, seek out those DSO’s who are founded on the principles of partnership, mentorship, resource sharing and support. The outcome being greater patient care, the highest levels of training, and the best team experience possible.
As with any business agreement, full comprehension of what is being proposed is of significant importance. While contract negotiation is generally not part of the curriculum in dental school, going in with confidence, knowing you can make any changes will set you up for success. The service agreement, restrictive covenant, and understanding how production, thus your compensation is broken down are key factors in mitigating problems down the road. Although you will be relying heavily on the sound advice of your lawyer to better understand the terms and language in the contract, an accountant and likely financial planner to identify tax advantages, and establish professional corporations and family trusts, having a basic working knowledge of these aspects will ultimately save you money.
There is no one size fits all. Given needs differ within various stages of one’s career, understanding what’s happening within the industry at all times ensures you can be well prepared to make the best decision when the time is right for you.
About the Author:
Sarah Cox is an experienced healthcare professional who has worked within sales, operations and marketing for several large dental organizations over the last two decades. She is currently the Director of Acquisitions and Development, with Passion Dental Group, a dental support and partnership organization dedicated to a network of forward-thinking dental clinicians who are committed to working together in a supportive community, creating exceptional patient care. Sarah can be reached at sarahcox@passiondental.ca