13 minute read
The Invisible Hand: The Landscape of DSOs Today
What Adam Smith wrote about in 18th-century economics is driving many DSOs today.
By William S. Bike
Adam Smith wrote in the 1700s about how an economic “invisible hand” can lead to positive outcomes for an industry.(1)
In dentistry today, there also is an invisible hand running many practices: “invisible” dental services organizations (DSOs).
DSOs “provide nonclinical business services to dental practices, including administrative, marketing, bookkeeping and financial services,” according to Eileen O’Grady, director of programs at the Private Equity Stakeholder Project, a nonprofit that researches and reports on private equity investment in multiple sectors.(2)
O’Grady authored a 2021 report that pointed to the dangers of private, completely profit-driven equity firms’ DSOs buying and running dental practices.(2)
Private equity generally comes from institutional investors such as pensions, insurance companies and wealthy individuals or families.(3) Dentistry began seeing significant private equity investment in the late 1990s.(4)
“They would buy a practice, change the name immediately, and everyone got mad, so they figured out they’d better change a few tactics,” said Wes Lyon II, CPA, CFP, president and CEO of McGill and Lyon Dental Advisors, Charlotte, North Carolina, and AGD Impact Financial Management columnist.
Enter the invisible DSO.
“Invisible DSOs often allow practices to retain their name and branding, which can help preserve goodwill and retain patients,” said David Haynes, MBA, of Menlo Dental Transitions, Tempe, Arizona.
“You don’t have that stigma of being corporate dentistry,” said Lisa Gushin, DDS, FAGD, a dentist in Fayetteville, North Carolina. “You’re not wearing the scarlet letter ‘C’ on your chest.”
“What makes an invisible DSO different from a regular DSO is that the invisible DSOs — the good ones, anyway — want to become a doctor’s silent partner by buying anywhere from 51% to 80% of the doctor’s ownership stake,” explained Chip Fichtner of Large Practice Sales (LPS), an Irving, Texas-based company that specializes in invisible DSO partnership transactions. “This is critical — the doctor retaining ownership and continuing to lead the practice with skin in the game as an owner.”
The theory is that “an owner-led practice will be more profitable and easier to manage than an employee-led practice, such as you might find in the branded DSOs,” he said.
“One of the myths in the invisible DSO business is that they are all backed by private equity,” Fichtner continued. “They are not. Billions of dollars went into invisible DSOs last year that were not from private equity.”
Haynes noted, in invisible DSOs, “private investors — often a group of doctors — form an entity, pool their money, buy multiple practices and operate them under a unified back-end infrastructure while keeping the individual brand identities intact.”
Gushin noted that, in her state of North Carolina, a DSO must be run by dentists because “a dental office has to be owned by a licensed dentist.” No state allows the practice of dentistry by a nondentist, and most states do not allow nondentists to own practices either. Only Arizona, Mississippi, North Dakota, New Mexico, Ohio and Utah allow unlicensed entities, such as DSOs, to own practices.(5)
Invisible DSOs are becoming increasingly common. “Today, there are over 1,000 invisible DSOs in the United States,” Fichtner said. “The invisible DSOs last year had somewhere north of $5 billion invested in them. They are operating in all 50 states.”
A 2023 article in ADA News revealed that 13% of dentists nationwide were affiliated with a DSO, and, for dentists less than 10 years out of school, the figure was 23%.(6) “In 10–15 years, 75%–80% of dental practices will be consolidated,” said Brian Colao, leader of the Dykema Dental Service Organization Group.(7)
Benefits and Drawbacks of Selling to an Invisible DSO
“The main benefit of selling to an invisible DSO is that you get to continue treating patients without the hassle of operational tasks, such as accounting, marketing and human resources,” Haynes said.
“The typical setup is that the dentist sells and stays on for a number of years, and the DSO spreads out the buyout,” explained Eoin Halpin, DMD, FAGD, AGD Dental Practice Council member, Washington County, New Jersey.
In Gushin’s case, she sold to Heartland Dental, which has more than 1,750 practices and is the largest DSO in the country.(8)
“I got top dollar,” she said. “Selling the practice was seamless and easy. I chose five years as my contract with them. After five years, if I’m happy, I stay. If I’m not happy, I can find another place in the company or just go on my merry way.”
“They kept a six-figure holdback [a retention of a portion of the purchase price], and they pay me one-fifth plus interest once a year,” Gushin said. “That keeps me honest, because I have to maintain the output they bought the practice for.”
She noted that another dentist she knows, however, “got too comfortable and started working only two or three days a week. He didn’t uphold his end of the deal and was surprised when he didn’t get his holdback.”
Ben A. Bratcher, DDS, MAGD, past president of Texas AGD, partnered his practice with MB2, which defines itself as a “dental partnership organization.” A DPO is similar to a DSO, but in a DPO the dentist retains a minority ownership stake, while in a DSO the dentist may transfer full ownership. He said “the positives for me were both financial and professional. By partnering with MB2, I was able to monetize the equity in my practice while maintaining complete control over clinical and day-to-day business decisions.”
Another benefit is being able to sell a practice, period. Bratcher found that when he wanted to sell, it was “virtually impossible to find a buyer among recent graduates, who are already strapped with excessive debt from school.”
“Being able to sell my practice to a new dentist for the price Heartland paid me was not realistic,” Gushin agreed.
Close to a quarter of dentists starting out are more likely to join DSOs compared with more experienced dentists.(9)
Halpin is happy working for a DSO, but, as an industry observer, he warns dentists of some possible drawbacks.
For dentists who want to still be managers, “that typically doesn’t happen,” Halpin said. “Business operations are outsourced to the main hub of the DSO.”
Concerning favored dental materials, the DSO “may say you cannot buy that product, or it may heavily discourage it,” Halpin added. Some dentists are fine with that. DSO procurement teams “negotiate with all the major vendors to secure significant discounts across the board,” Bratcher said. “They also negotiate the best pricing for services such as clear aligners and labs. Additionally, in my opinion, one of the best features is the leverage they can exert on insurance carriers.”
Because of economies of scale and lower operating costs, they may also accept more Medicaid and CHIP (Children’s Health Insurance Program)-eligible patients.(2) And, when a crisis like COVID-19 hits, they may be better positioned to handle it.(10)
DSOs are “paying 30% less for supplies and 50% less for implants, and, in many cases, they’re getting reimbursed at higher rates from insurance payers,” Fichtner said, citing LPS internal data. “Some of these invisible DSOs have 20 people in their headquarters helping recruit everything from front desk personnel to associate dentists for their partner practices across the country. They’re also helping them attract new patients primarily through digital marketing.”
“There are a lot of continuing education (CE) opportunities within the company,” Gushin added. “I actually learned how to do Invisalign late in my career [through Heartland].”
Like Halpin, Lyon also warns of some drawbacks.
“Not all of the money may be guaranteed, and you’re not really the boss anymore,” he said. “You’re somebody’s employee. You have to look at the five years of profit you give up. The DSO owns the profit, so look at what they pay you, and then compare that to five years of owning your own practice or selling to an individual. Look at what you are guaranteed in cash and what’s not guaranteed.”
Lyon offered a startling statistic: “Out of every 100 practices that think they’re going to sell to a DSO, it’s probably a good idea for three of them.”
Fitchner advises that, when selling a practice to a DSO, “dentists should not be representing themselves in this transaction. They’re very complex. Our average deal has 320 pages of documents.”
He also feels that a typical dentist’s attorneys or accountants “don’t know anything about what an invisible DSO is and how to negotiate an agreement with them.”
Haynes explained that “an experienced dental practice broker by your side can help you negotiate favorable earning before interest, taxes, depreciation and amortization; multiples; work-back terms; compensation; rent rates if real estate is owned; allocations; equity splits; structure; management fees, etc.”
Bratcher also advises that sellers and their representatives examine profit-sharing, exit clauses and management structure.
In one case where LPS got involved at the eleventh hour, the firm obtained for a dentist $42 million — more than double their original negotiated price.
“This was a dentist who was willing to take $19 million. So, net of our $3.5 million fee, he got $20 million more — more than double what he was about to take,” Fitchner said.
Patient Relationships
An early criticism of corporate DSOs was the fear that they would dictate patient care decisions.
Today, however, Fichtner said, “all of the DSOs — good, bad, visible, invisible — will leave the clinical decisions up to the doctors. Not just because they have to from a legal standpoint, but also just because the doctors need to make the clinical decisions and dictate the treatment.”
“Patient care, treatment decisions and all aspects of the patient experience are 100% the responsibility of the treating doctor,” Bratcher said. “The patients have not, and will not, experience any difference in their level of care.”
Haynes, however, said, “in some cases treatment decisions can be influenced by corporate goals — which is why it’s crucial to understand the clinical autonomy terms in your agreement.”
Fichtner noted that invisible DSOs “are on the cutting edge of technology” because they can afford breakthroughs such as artificial intelligence (AI).
Continuity of care can be an issue. Lyon warned that “while the selling doctor is still there, he or she is still usually in charge of the treatment. When the next doctor comes in, that’s when things get a little dicey. Some DSOs do a fine job in patient care. Some are mills.”
The transition itself, however, is often so seamless that when a dentist sells or partners with an invisible DSO, “the patients don’t even know that the dentist has a new partner,” Fichtner said.
“But shifts in administrative policies or staff turnover could subtly impact patients’ experiences over time,” Haynes warned.
Impact on Associates
Fitchner believes that, for the associates, an invisible DSO acquiring a practice is “all win-win for them. The invisible DSO’s basic operating philosophy is: ‘We want owner-doctors to operate our partner practice.’ So, any of the really good invisible DSOs are going to create a path to ownership for those associates. Typically, those pathways to ownership do not require the associates to borrow money to buy a piece of the practice.”
Lyon, however, warns that associates “should be wary of any offers to buy shares in the DSO in case they’re locked into working for the DSO for too long a period. “And they want to be careful regarding what they sign in a noncompete clause or agreement,” he said.
Bratcher concludes that invisible DSOs are typical of the invisible hand ubiquitous in business today. “I had no idea the last time I ate at a Chili’s restaurant that it was owned by Brinker International. It is very common in business for an entity to own multiple brands.”
William S. Bike is a freelance writer and editor based in Chicago. He is a former director of advancement communications for the University of Illinois Chicago College of Dentistry. To comment on this article, email impact@agd.org.
25 Questions Dentists Should Ask a DSO When Considering a Sale
When did the DSO purchase its first practice?
How many practices does the DSO own in my city and overall?
How long has the DSO’s leadership team been in place? (This is a reflection of the DSO’s stability.)
What is the formula for practice valuation? Earnings before interest, taxes, depreciation, and amortization? Percentage of collections? Multiples?
Where is the capital coming from that the DSO will use to purchase my practice? (To avoid being leveraged by a creditor.)
Does the sales price depend on the practice’s post-sale performance?
Will the practice remain in my name?
What will I be compensated for my production after closing?
What is the DSO’s required work-back period? What occurs if I leave early?
How are the DSO’s sales structured? Is the entire purchase price in cash at close? Is there a holdback or earnout?
What class of stock will I receive?
How much debt does the DSO carry?
Will I be a partner or an associate?
Is the DSO planning any recapitalization? How will that affect my practice?
Can my practice under the DSO grow or add locations?
Is my equity eligible for recap at the same terms as the DSO?
Is my equity in my practice or in the DSO?
Does equity pay dividends? If so, how frequently?
What will my percentage be vis-à-vis production and collection?
What degree of autonomy will I have in leading the practice after the DSO comes in?
What services will be provided for our practice? Will there be a CE allowance?
What are the details about health insurance, disability insurance, life insurance, malpractice insurance and a 401(k)? What provisions will be made for my family’s safety and future if something should happen to me?
What is the policy concerning days off, vacation, etc.
If I own my building, will the DSO buy my building or rent it from me?
May I speak with doctors who have partnered with the DSO previously?
(Questions compiled from interviews with Ben A. Bratcher, DDS, MAGD; Chip Fichtner; Lisa Gushin, DDS, FAGD; Eoin Halpin, DMD, FAGD; David Haynes, MBA; and Wes Lyon II, CPA, CFP.)
For More Information on DSOs and Corporate Dentistry
“Private Equity and Dentistry” AGD Impact, December 2023
“To DSO or Not to DSO?” AGD Impact, September/October 2020
AGD’s 2013 Investigative Report on the Corporate Practice of Dentistry, agd.org/dental-practice-advocacy-resources/career-tools/selecting-a-practice-model
References
1. Smith, Adam. The Wealth of Nations. New York: The Modern Library, sixth edition, 1994. First edition, 1776.
2. O’Grady, Eileen. Deceptive Marketing, Medicaid Fraud, and Unnecessary Root Canals on Babies: Private Equity Drills into the Dental Care Industry. Private Equity Stakeholder Project, July 2021, pestakeholder.org/wp-content/uploads/2021/08/PESP_ DSO_July2021.pdf.
3. “What Is Private Equity?” British Private Equity and Venture Capital Association, bvca.co.uk/our-industry/what-is-private-equity.html. Accessed 24 April 2025.
4. “Private Equity Investment in Dental Care.” Provident Perspective, October 2017, providenthp.com/wp-content/uploads/2017/10/ Provident-Dental-WhitePaper.pdf.
5. Cutler, Erick. “Although a Non-Dentist May Be Prohibited from Owning a Dental Practice, There Is a Way for Financial Participation.” EisnerAmper Dental Blog, 1 March 2021, eisneramper.com/insights/blogs/dental-blog/dental-practice-management-0421/.
6. Ganski, Kelly. “More Dentists Affiliating with DSOs.” ADA News, 1 June 2023, adanews.ada.org/ada-news/2023/june/more-dentists-affiliating-with-dsos/.
7. “Dental Service Organizations.” Dykema Law Firm, dykema.com/ MnA-2024/dental-service-organizations.html. Accessed 24 April 2025.
8. Busch, Melissa. “These Are the Top 10 DSOs in the U.S.” DrBicuspid.com, 23 Dec. 2024, drbicuspid.com/dental-business/ dso/article/15710563/these-are-the-top-10-dsos-in-the-us.
9. Portalatin, Ariana. “Why Younger Dentists Are More Likely to Join a DSO, Per 1 Exec.” Becker’s Dental + DSO Review, 7 June 2023, beckersdental.com/featured-perspectives/why-younger-dentists-are-more-likely-to-join-a-dso-per-1-exec/.
10. Booth, Jeremy. “Has the Pandemic Really Strengthened DSOs on the U.S. Dental Market?” Dental Tribune International, 24 Nov. 2021, coronavirus.dental-tribune.com/news/has-the-pandemicreally-strengthened-dsos-on-the-us-dental-market/.
