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Taking a look at DSO money versus OSO money and the long-term benefits and drawbacks of both.
Positives when joining a dental service organization (DSO) for dentists include a reasonable amount of money at the closing, a decent living from the operations, and the hope that, in the long-term, there will be an upside that provides a large amount of money or valuable stock as the DSO progresses.
For those joining the DSO, the amount of money at the closing may be significant. Based on the dentist’s practice and its earnings and benefits that the owner has been receiving, the concept of the DSO may be a good one in that the operating costs should be substantially reduced with a sound administrative team. With enough members, the DSO should provide a safe environment with professional employees available to pick up the slack when 1 or more have quiet production and collection days or weeks. From an overall plan, the dentist who is selling to the DSO and joining its staff will now have little administrative work to do. This is normally a good thing because dentists in general abhor the non-clinical side of their job.
As their annual compensation and benefits seem reasonable and the upside has a positive outlook, the DSO may be a terrific move for the general dentist who may have some specialty skills.The dentist joining the DSO may feel that the long-term outlook gives the him or her something they could not attain on their own. The DSO compared to an orthodontic service organization (OSO) is another story, particularly based on the amount of funds at the closing and the annual compensation of the orthodontist compared to the general dentist who may have some specialty skills.
The OSO’s Approach
The most significant difference between the general dentist joining a DSO and the orthodontist joining an OSO is the comparison in compensation on an annual basis between them. At the closing of the transaction for each, the general dentist with some specialty skills will earn a reasonable amount of money for their sale to the DSO. In comparison to their historic earnings, the annual compensation and benefits of the DSO will be in a range that is not too distant from what their earnings had been. For the orthodontist, it is almost impossible for the OSO to pay them commensurate with what their prior earnings had been. For the orthodontist, the funds paid at the closing won’t be significant enough compared to their history of earnings to make much difference after tax. The orthodontist must look at the long-term hope that there may be another OSO that is bigger than the existing one they have joined, or a venture capital or hedge fund that will offer a large amount of money to buy out his or her interest in the OSO.
There are a couple of points that the orthodontist will consider when deciding upon the offer from the OSO for joining.One of the most important will be the “safety net,” of having more than 1 practice to support the lifestyle of the potential seller to the OSO. The fear of a downturn in the orthodontist’s practice may be offset by the upturn or stability in another practice that is within the group of orthodontic practices that are part of the OSO.
Another factor is the upside that the group approach offers compared to the ceiling within one’s own practice. This is a similar approach that the DSO has to offer the dentists joining it. This is the concept that the sum of the parts will equal a larger whole at the end of the journey. This is supposedly when the larger DSO or venture capital fund buys out the group for an amount higher than one could achieve on their own. It also gives the “safety net,” of being part of a larger group compared to continuing going solo.
Comparing DSOs and OSOs
Other than the issue of money, benefits, and the long-term hope of a bigger buy out of their interests, 1 of the major similarities between the DSO and the OSO is that the owner who is selling to the group tends to have a disdain for all administrative duties. After working all day at their clinical job, the administrative duties still must be resolved. Personnel issues, health care, accounting, and other administrative chores are part of the owner’s obligations for completion. This issue helps the clinician make up their mind to end the aggravation of this type of work and join the service organization. During each career prior to engaging the service organization, the general dentist and the orthodontist may have retained professionals to undertake many of the administrative duties. These owners still had the ultimate responsibility of completing each of the administrative jobs. For those owners who had professionals attending to these chores, a longer period will be taken to decide upon joining the organization.
Making the Decision to Join
From the amount of the sale price to the service organization to how much will be received at closing, the financial side of the DSO or OSO, is a major detail to have a concern. The annual compensation and the upside of the eventual sale at the end of the line when another service organization is involved, are of major importance. Another issue is not being the owner anymore. This is a big transition and, besides the money, the emotional part of the transaction can take a toll if not prepared. Thinking and consulting with trusted advisors is a must prior to making this life changing decision. Having a dental CPA and attorney who understand the profession of dentistry will assist greatly in determining what road to take.