No doubt, DSOs are shifting the dental industry landscape. There’s a couple of different reasons you might be considering joining or selling to a DSO: 1) you may be nearing retirement, 2) you are looking to get support from a DSO to handle administrative tasks and manage the business side of your practice, or 3) you may have some other financial or strategic reason. If you’re amongst the dentist owners who are considering the switch, here are eight factors to consider before joining a DSO.
8 Factors to consider and the questions to ask before joining a DSO
1) Getting to know the DSO
A DSO’s track-record, history, and overall experience is a good place to start the conversation. You’ll want to get a couple of core questions answered up-front.
- When did they purchase their first dental practice? This gives you perspective about their tenure, longevity, and depth of experience.
- What practices do they own in your city, region, or state? This is important to determine competitive scope, support proximity, and collaborative opportunity.
- Are the DSOs goals, mission statement, and vision aligned with your practice?
- What type of DSO arrangement are they proposing? Some DSOs may provide limited support while others provide comprehensive support. Some DSOs may be interested in buying your practice while others offer more of a partnership.
By asking these fundamental questions at the outset, you can begin assessing the fit of the DSO with your practice or group.
2) Operational and technology support
Support for your practice operations, workflows, and technology are key discoveries in getting acquainted with a DSO.
A DSO can be a substantial advocate for technology upgrades, insurance network negotiations, and keeping your team trained and equipped. An appeal of selling to DSO for many is the opportunity to off-load much of the administrative tasks to their corporate support teams.
The capacity of a DSO to handle matters of compliance, technology acquisitions, and insurance networks is a strong point of evaluation.
To help you get started, a few questions to ask about a DSO’s operations and technology include:
Software, equipment, and office decor:
- What are their policies on whether your practice has to switch to new software and if so, what kind of support do they offer?
- Will the DSO own any of the equipment or will the practice continue to own them?
- Will there be any new equipment or changes to office decor?
- How will electronic health records be managed?
- What specific operational and administrative tasks does the DSO take on?
- How will the DSO work in tandem with your front office staff?
- How will digital marketing be managed by the DSO?
- How is accounting, billing, and collections handled under your arrangement?
Insurance and vendors:
- What insurance will the DSO accept?
- How will relationships with dental plans and vendors be affected by your new arrangement?
- Who will be responsible for maintaining professional liability insurance?
3) Financial, legal, and tax implications
As with any major business decision, it’s imperative that you fully understand the financial, legal, and tax implications of joining and selling your practice to a DSO. In fact, the American Dental Association urges dentists to consult with an attorney before entering an agreement with a DSO. For accounting and financial questions, you may also find it helpful to consult with an accountant or financial advisor.
To find an attorney, you can ask for referrals from other dentists or you can search for an attorney through a lawyer referral service with your state or local bar association.
Points to cover with your attorney and professional advisors may include*:
- Any concerns you have about the proposed agreement including termination, indemnification, or non-compete clauses.
- Does the agreement comply with federal and state laws and regulations regarding DSO ownership?
- How will compliance with federal and state laws change after joining the DSO?
- Are there any potential or current lawsuits involving the DSO?
- Will you need to update coverage for professional liability insurance and how is the indemnity clause impacted by the DSO arrangement?
- Can you terminate the DSO arrangement and what would be the consequence of doing so?
- Any employment, tax, real property, estate, compliance, or other legal implications of the sale where an attorney can protect your interests.
Tax and Financial
- Potential tax consequences of the sale.
- What is the financial health of the DSO?
- Are there potential timing issues you should be aware of?
- What are the tax and financial implications if ownership and maintenance of equipment switch hands to the DSO?
* This information is provided as general guidance and is not intended as legal or professional advice or opinions. As each transaction is unique, please seek the advice of a properly qualified attorney or professional within your jurisdiction.
4) Collaboration and professional growth opportunities
Keep in mind that a DSO has internal professional depth. Affiliated dentists within the organization can become your go-to network for skill growth, mentoring, referrals, and clinical collaboration.
- Confirm the DSO’s continuing education policies and find out what opportunities there are to develop collaborative relationships through annual events, etc.
- Ask about their specialist network and the protocols for accessing them.
5) Setting and understanding expectations
Given that many dentist owners look to the DSO option to gain more work-life balance, it’s also important to set and understand mutual expectations. Especially if you’re not looking to retire soon, it’s best to have a strong understanding of expectations so you can envision how the DSO arrangement will affect your work-life balance.
- What are the expectations for the daily and weekly clinical schedule?
- How much administrative responsibility will you have?
- What role will you have in HR (Human Resources) decisions (e.g., hiring, firing, compensation, etc.)?
- How is time-off determined and what are the allowances?
- What are the production goals for clinicians and the overall practice?
- How will treatment planning and pricing be handled?
- Who will select outside vendors? Are there preferred vendors?
6) Vetting the DSO
Beyond inquiries with the DSO itself, it’s also helpful to gain outside perspectives. Interview other dentists who have sold to them and find out about their positive or negative experiences with the DSO.
You can ask these questions to gain insight into the DSO’s corporate personality.
- Did they follow through on their contractual obligations in a timely manner?
- How much deference do they give for clinical skills, knowledge, and experience?
- How have they retained, trained, and supported the existing teams both clinical and business?
- How responsive is the DSO when problems arise?
- How is their change management? Did they have an acquisition protocol?
- How do they engage with your current suppliers, labs, vendors, etc.?
Speaking with multiple references will help you better gauge the overall character of the DSO to determine if they’re a good fit or not.
7) Real property considerations
Another consideration is the treatment of real property under the DSO. In closely aligned DSO relationships, the DSO may purchase the property and lease to your practice or lease it themselves and sublease it back to your practice. In other less closely aligned relationships, there may be no change in how the property is held.
It’s important to cover details such as:
- A fair and equitable sale price and/or monthly rent amount
- Terms and timeline for a lease (if applicable)
- Property upgrades, repairs, taxes, dues, insurance, etc.
- Rent increases or lock-in factors
- Does the DSO have private equity debt covenants that prevent it from purchasing real property?
8) Negotiating the agreement
Once you’ve vetted all other areas, you’ll want to negotiate and clarify the terms of the agreement with your attorney. Negotiating the price and all other terms will ensure that your interests are protected and that you’ll be happy with the agreement.
You’ll want to know:
- What performance standards (if any) are expected post-sale?
- What is the production pay? How are bonuses paid?
- What benefits are offered?
- What does vacation time, sick leave, maternity/paternity leave look like?
- Are there any opportunities to receive equity ownership (depends on the DSO arrangement)?
- Is there a required timeframe to stay on-board and is there a penalty for early departure?
- How is the sale structured? Full amount or percentage of total up-front? Are there any production requirements attached to sale payout?
Another piece of the offer conversation should involve any equity. DSOs differ on how they provide and frame equity. Considerations such as stock, company debt, growth and expansion potential, the type of equity (your practice or the DSO’s), equity payouts, etc. are important to clarify.
Other DSO resources
Entering into an agreement to join a DSO can be a very mutually beneficial arrangement as long as you go into it understanding all aspects of the sale.
You’ve worked hard to build your practice. Joining a DSO should help bring more work-life balance, patient-centered care, and growth for you and your practice.
The following resources will help you keep your finger-on-the-pulse of DSO trends and growth:
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