In today’s evolving dental landscape, partnerships have become an increasingly popular way for dentists to grow and sustain their practices. However, navigating these opportunities requires a deep understanding of both the various types of dental practice partnerships available and the legal complexities that accompany them. This article explores the different types of dental partnerships, highlights the importance of well-structured agreements, and provides insights into potential challenges and solutions.

To make informed decisions about partnerships, it’s important to first address some fundamental questions about how they function and what factors can impact their success:

What is a dental practice partnership?

A dental practice partnership traditionally involves two or more dentists sharing ownership, responsibilities, and profits. However, practices can also explore partnerships with dental service organizations (DSOs) and other entities, which offer various deal structures and operational support.

How do professional partnerships work?

In professional partnerships, ownership, responsibilities, and profits are shared, with decisions made collaboratively and finances managed together. Partnerships with DSOs offer enhanced operational support and efficiency, providing comprehensive management services and opportunities for financial growth through equity and recapitalization.

What is a partnership practice?

A partnership practice is owned and operated by multiple dentists under a formal agreement. It offers shared resources and responsibilities, allowing for greater operational efficiency and enhanced patient care. Partnerships with DSOs or other entities can also provide additional resources and management support, enhancing the practice’s growth and operational capabilities.

Why do dental partnerships fail?

Common reasons for failure include misaligned visions, unequal contributions, poor financial management and unclear agreements. These challenges are particularly pronounced in doctor-to-doctor partnerships, where differing goals and commitment levels can lead to friction and conflict.

While private partnerships face specific challenges, partnerships with organizations like DSOs may fail if expectations about support and autonomy are not clearly defined. Missteps in affiliating with DSOs can lead to issues like misunderstandings about operational control and financial expectations, as highlighted in Dental Economics. (1)

Additionally, some partnerships fail due to unattainable earn-up targets — performance-based compensation goals tied to metrics like revenue or profitability (2). These targets can be set so high that practice owners find it nearly impossible to reach them, especially when not given enough operational support. 

Invisible Dental Service Organizations (IDSOs) are a subset of DSOs that operate in a more “hands-off” manner. They may leave the practice’s branding and clinical operations largely unchanged but still expect significant growth. This approach can create a challenging dynamic for practice owners, however, a knowledgeable broker can help you navigate these complexities, advising on what is truly achievable and protecting you from agreements designed to benefit the organization at your expense.

Decoding DSOs, DPOs and IDSOs

Navigating the legal aspects of dental partnerships starts with understanding the types of organizations you might partner with. Private equity-backed groups have developed various strategic branding terms to position themselves as the ideal partners for dental practices. Terms like dental service organizations (DSOs), dental partnership organizations (DPOs) and invisible DSOs (IDSOs) are often used interchangeably, creating confusion among dental entrepreneurs. It’s helpful to understand these terms when considering partnership opportunities.

• DSOs: Dental service organizations provide comprehensive management services like HR, billing and marketing, centralizing business functions to boost efficiency and profitability. They also offer opportunities for financial growth through equity and recapitalization
• IDSOs: Invisible DSOs claim to offer minimal interference and maintain the practice’s brand identity. However, this “invisibility” is often just a marketing tactic. IDSOs may set ambitious growth targets without providing sufficient support, making it challenging for practices to meet these goals
• DPOs: Dental partnership organizations emphasize equity sharing but often function similarly to DSOs in their operations and financial opportunities

When considering these options, look beyond branding to understand what each group truly offers. Whether prioritizing clinical control, brand autonomy or maximizing practice value, understanding the real implications of partnering with a DSO, DPO, or IDSO will guide you in making the best decision for your practice.

Types of dental practice partnerships

Dentists should have a grasp of the various models available to them, each with its unique structure and implications. The landscape of dental practice partnerships is diverse, offering various models to suit different goals:

External investment and expertise models

• Joint venture model: In this collaborative setup, a dental practice partners with a DSO or private equity firm to share ownership and operations. This model combines external expertise with retained operational control
• Equity roll: Dentists sell a portion of their practice in exchange for equity in a larger organization, benefiting from the resources and growth potential of a more extensive network
• Sub-DSO: A practice forms its own DSO, partnering with a larger DSO or private equity group, allowing for brand autonomy while leveraging external support
• Direct investment with private equity: Private equity firms directly invest in a practice, providing capital and business acumen to drive growth and expansion

Structuring a partnership agreement

The foundation of any successful dental practice partnership is a well-structured agreement. This legal document outlines the terms of the partnership, including the roles and responsibilities of each partner, profit-sharing arrangements, and the process for resolving disputes. Key elements to consider when drafting a partnership agreement include:

• Clear roles and responsibilities: Define each partner’s role within the practice, including clinical duties, administrative tasks, and decision-making authority
• Profit and loss sharing: Outline how profits and losses will be distributed among the partners. This could be based on ownership percentages, contributions to the practice or other agreed-upon factors
• Decision-making processes: Establish clear procedures for making major decisions, such as expanding the practice, taking on debt or selling the business
• Dispute resolution mechanisms: Include provisions for resolving disputes between partners, such as mediation or arbitration, to avoid costly legal battles
• Exit strategy: Specify terms for a partner’s exit, valuation of their stake and buyout conditions

Financial planning and management

Effective financial planning is essential for the success of any dental practice partnership. This involves budgeting, forecasting and managing cash flow to ensure that the practice remains profitable. Key areas to focus on include:

• Budgeting: Develop a detailed budget that includes all expected expenses and revenues. Regularly review and adjust the budget as needed
• Cash flow management: Monitor cash flow closely to ensure that the practice has enough liquidity to meet its obligations
• Investment planning: Consider how the partnership will fund future growth, such as expanding the practice, acquiring new equipment, or hiring additional staff

Compliance with state and federal laws

Ensure your practice complies with licensing, labor laws and tax obligations. Stay informed about legal requirements to avoid penalties and legal issues.

Partnership agreements for multiple locations

Expanding to multiple locations requires additional considerations in your agreement, such as resource management, profit distribution, and adding new partners.

Choosing the right partner

Selecting the right partner involves matching your transition goals with the partner’s characteristics, including their professional background, business acumen and alignment with your vision, as emphasized by PTS Consultant Kim McCleskey in DrBicuspid.com (3).

When evaluating potential partners, consider the following:

• Professional background: Ensure that the partner has a solid track record and expertise relevant to your practice’s needs
• Vision alignment: Your partner’s goals and values should align with yours to prevent conflicts and ensure a harmonious working relationship
• Business acumen: Look for partners with proven success in managing and growing dental practices, as their expertise will be invaluable in achieving your transition goals
  

Effective partnerships are built on shared goals and a mutual understanding of each other’s expectations. It is not just about finding a partner but about finding one whose approach complements and enhances your practice’s vision and operations.

Exiting a partnership smoothly

Breaking up a dental practice partnership can be challenging, but with proper preparation, the process can be smoother. As discussed earlier, creating a well-documented partnership agreement in the early stages is key — it clarifies roles, simplifies valuation and ensures a fair appraisal of the practice, helping partners focus on their end goals rather than getting bogged down in details.

• Timing: Align the exit with financial and operational milestones to minimize disruption.
• Valuation: A well-documented partnership agreement simplifies the valuation process. It clarifies each partner’s contributions and stake, facilitating an accurate appraisal of the practice. This helps in setting a fair purchase price and deciding on the next steps.
• Options: Once the valuation is determined, partners can choose to sell to an associate, buy out the partnership, or sell to a DSO. Each option has implications, such as potential success rates or managerial responsibilities, which should be considered based on the retiring partner’s and remaining partner’s goals.
• Communication: Clearly inform all stakeholders, including staff and patients, to manage expectations and maintain trust.
• Legal and Financial: Ensure the partnership agreement is updated to address exit terms and comply with legal requirements. 

A well-planned exit strategy ensures a smooth transition and protects the interests of all parties.

Bottom Line

Dental practice partnerships offer numerous benefits but come with legal and financial complexities. Understanding partnership types, structuring agreements carefully, and planning for potential issues can protect your interests and set your practice up for long-term success.

For help navigating the complexities of dental practice partnerships, contact the experts at Professional Transition Strategies for personalized guidance and support.

References

1. Dental Economics. 5 mistakes dentists make when affiliating with a DSO, https://www.dentaleconomics.com/money/article/14304885/5-mistakes-dentists-make-when-affiliating-with-a-dso
2. Dental Review News. Kyle Francis on DSO, DPO, and IDSO, https://www.dentalreview.news/practice-management/53-dental-practice-business/11191-kyle-francis-dso-dpo-idso
3. DrBicuspid. Choosing the right DSO: Matching your transition goals with the ideal partner, https://www.drbicuspid.com/dental-business/dso/article/15669414/choosing-the-right-dso-matching-your-transition-goals-with-the-ideal-partner

Exciting changes are sweeping through the dental industry, thanks to the rise of dental service organizations (DSOs). With over 375 DSOs now operating in the U.S., this transformative era is creating new opportunities for dentists and elevating the standards of patient care (1). DSOs are not just reshaping practice ownership; they’re transforming the landscape entirely by fostering a culture of innovation and forward-thinking strategies and opportunities for practice growth and development.

The Rise of DSOs: A New Era in Dental Care

Fueled by private equity investments, dental service organizations (DSOs) are rapidly acquiring individual practices, leading to a trend of consolidation that’s allowing dentists to sell their practices for better financial returns and less administrative burdens (2). 

Factors like the skills gap among baby boomers and changing demographics have created a favorable environment for DSOs. As many baby boomer dentists approach retirement, there’s a growing demand for successors to take over their practices. However, younger dentists face challenges such as high student loan debt and limited resources, making solo practice ownership less appealing. DSOs are an attractive option, offering established support systems and financial backing that ease the burdens of practice ownership.

The demographic shift in the dental workforce also means that a new generation of practitioners is looking for flexibility and work-life balance, which DSOs can provide through centralized management and operational support. 

In addition, private practitioners are struggling to navigate macroeconomic challenges that affect many industries today, especially workforce stability. Traditionally, dentists followed a predictable career path, but many are now prioritizing the job security and structured benefits that DSOs offer over the autonomy of owning a private practice. 

This alignment between the needs of new dentists and the resources and stability that DSOs offer is fueling the trend of consolidation. According to the ADA, 13% of U.S. dentists are now affiliated with DSOs, with the number rising to 27% among younger practitioners who graduated five or less years ago (3). 

This trend will continue as DSOs acquire more practices. Our experts predict that the dental industry could see up to 70% consolidation in the next five years, permanently and significantly altering how dental care is delivered (4).

Why More Dentists Are Choosing to Partner With DSOs

New Opportunities and Options

Dentists now have a wealth of new options and flexible paths that were previously unavailable. Today, they can choose from a variety of partnership models when they work with DSOs, which allow them to maintain a level of control while benefiting from the extensive resources these organizations provide. 

For example, two great deal structures for dentists contemplating a sale are equity rolls and joint ventures. Equity rolls involve dental entrepreneurs exchanging a portion of their practice equity for a financial stake in the DSO. This arrangement allows them to participate in the DSO’s growth and success while still retaining some ownership in their practice. It not only provides immediate financial benefits but also aligns the doctor’s interests with those of the DSO, creating a partnership that fosters mutual success.

Joint ventures (JVs) allow dentists to retain a stake in their practice while also receiving a substantial lump sum at the time of the sale. This structure enables them to benefit from the ongoing success of their practice while having immediate access to capital, which they can use for personal investments, such as funding their children’s education or pursuing other financial endeavors.

An increasingly attractive model is the sub-DSO. In this arrangement, practice owners exit debt-free with a significant upfront payment and typically retain a 40% ownership stake and profit share in the sub-DSO portfolio. Unlike traditional models, sub-DSOs allow for equity to be held separately, facilitating growth and expansion. This approach offers multiple return avenues, including equity gains and profit sharing, making it a lucrative option for dentists looking to enhance their overall wealth.

Options like these provide dentists with flexibility in structuring their financial future, whether they want to scale their practices or transition smoothly into retirement.

Benefits of Partnering with a DSO

By joining a DSO, dentists gain access to centralized support in areas like marketing, billing and human resources, allowing them to focus on clinical care rather than the complexities of practice management. 

Many dentists are drawn to DSOs for the opportunity to offload these managerial responsibilities and concentrate on what they do best: patient care. DSOs relieve dentists from the burdens of running a business, including managing payroll, hiring staff and navigating regulatory issues. In addition to operational support, DSOs often provide higher financial returns when selling practices compared to individual buyers, mainly due to their private equity backing.

For some dentists, the decision to partner with a DSO is driven by the flexibility and growth opportunities they provide. Rather than shouldering the financial and operational risks of owning a practice, they can enter a DSO partnership that enables them to focus on clinical work and even pursue executive leadership roles within the organization if they choose (5).

Evolution of Patient Care

One of the most significant changes DSOs have brought is in the area of patient care. Traditionally, solo practitioners managed every aspect of their practice, and it can be difficult to keep up with technological advancements. DSOs, however, have the resources to invest in cutting-edge technology, improving diagnostic tools, treatment options and overall patient experience.

This means better care through more accurate diagnoses, less invasive treatments and faster, more efficient procedures. Additionally, DSOs can offer extended office hours, flexible payment plans and a wider range of services under one roof, making dental care more accessible and convenient.

Moreover, DSOs are increasingly fostering “whole-person” care by integrating dental and medical services. This holistic approach benefits patients, ensuring that their oral health is not treated in isolation but as part of their overall well-being (6). By partnering with medical professionals and leveraging their scale, DSOs can help lead the charge in transforming how dental care is delivered.

The Role of Technology in the Growth of DSOs

Technology plays a critical role in the success and expansion of DSOs. These organizations are often quick to adopt innovative technologies, ranging from digital X-rays and electronic health records to teledentistry platforms. This ability to invest in cutting-edge innovations gives DSOs a significant advantage over independent practices, many of which struggle to keep pace with the high costs of technology upgrades.

In addition to foundational tools, DSOs can advance practices with new technologies such as artificial intelligence (AI) to support dentists and front-office staff (7). AI enhances workflow efficiency, improves patient communication and optimizes appointment scheduling. 3D printing is revolutionizing restorative dentistry with the rapid production of crowns, bridges and other dental appliances, significantly reducing turnaround times and improving fit (8). In cosmetic dentistry and orthodontics, augmented reality (AR) is emerging as a powerful tool for treatment planning and patient education, helping patients to visualize potential outcomes and understand their procedures better (9).

Finally, by centralizing data management and integrating electronic systems, DSOs can ensure consistent quality of care across all affiliated practices. It’s a technological edge that not only differentiates DSOs from independent practices but also enhances their ability to provide high-quality, patient-centered treatment. Overall, the strategic use of technology is pivotal to the ongoing growth and success of DSOs in the evolving dental landscape.

How DSOs are Refining the Business of Dentistry

DSOs are refining the “business side” of dentistry. By consolidating administrative functions and optimizing cost structures, DSOs have made dental practices more profitable. Their financial success allows them to reinvest in their practices, further enhancing the services they offer to patients.

These organizations streamline operations by centralizing administrative tasks, resulting in more efficient, standardized workflows across their affiliated practices. This model not only enhances operational efficiency but also improves profitability for dentists, since DSOs can leverage economies of scale.

For example, DSOs negotiate better rates on supplies and services, reducing operational costs. They also offer marketing support, helping practices attract more patients through targeted advertising and online presence management. By refining business practices and offering comprehensive management solutions, DSOs allow dentists to maximize their earnings while maintaining clinical autonomy.

The Cultural Shift: How DSOs Are Transforming Dental Practice Environments

Traditionally, dental practices were small, family-owned businesses that operated independently. Increasingly, DSOs are recognizing the importance of maintaining the unique culture of each practice they acquire to help both staff and patients feel comfortable with the transition.

As more practices join DSOs, a culture of collaboration and growth is also emerging. For example, some DSOs provide various opportunities for professional development beyond clinical work, such as pathways into executive leadership roles and participation in clinical advisory boards (5). These roles may come with performance-based bonuses and the chance to mentor new dentists, creating a rewarding environment where experienced practitioners can share their knowledge and skills. Certain DSOs may offer training, and career development pathways, making them an attractive option for the next generation of dental professionals.
By focusing on growth and development opportunities, DSOs can foster a sense of community within their organizations. This collaborative environment helps dentists achieve professional fulfillment, personal satisfaction and meaningful connection to their work.

Common Questions

Are DSOs leading to the consolidation of the dental industry?

Yes, DSOs are at the forefront of the consolidation trend in the dental industry. This wave of consolidation is not merely a shift in ownership; it reflects a broader transformation in how dental care is structured, managed and delivered. With their capacity for scalability and resource allocation, DSOs are redefining the competitive landscape, ensuring that practices can thrive in a rapidly evolving environment.

What regulatory changes are being driven by the rise of DSOs?

The rise of DSOs has prompted regulatory changes across the dental industry. As these organizations continue to expand, they attract increased scrutiny from regulatory bodies to ensure quality of care, patient safety and fair competition. 

In Becker’s Dental Review, Ronald Perry, DDS, emphasizes that, “regulatory scrutiny may increase to ensure quality of care and patient safety within the dental industry” (10). This heightened oversight is intended to address concerns about the corporate practice of dentistry and its implications on patient-provider relationships.

Scott Pope, DDS, notes in Becker’s Dental Review that DSOs face regulatory challenges related to “patient privacy and billing practices,” highlighting the complexities of navigating compliance standards across various jurisdictions (10). The evolving regulatory landscape means that DSOs must continuously adapt to meet the requirements of the regions in which they operate. 

DSOs are also subject to scrutiny regarding their impact on clinical autonomy. To address concerns, many DSOs have adopted policies that preserve dentists’ decision-making authority when it comes to patient care. This balance between clinical independence and operational support has become a key factor in their success.

Ultimately, the influence of DSOs on the dental industry will be shaped by ongoing healthcare policy developments, patient preferences and the ability to uphold high standards of care amidst these regulatory changes.

How do DSOs affect the way dental practices are managed?

DSOs have shifted towards more collaborative management structures, offering growth opportunities beyond clinical work. Dentists can focus on patient care while DSOs handle administrative tasks, allowing for more efficient and profitable practice management.

When considering a partnership, it’s important to evaluate the DSO’s support systems and their dedication to maintaining clinical autonomy. While some older DSOs gained a reputation for enforcing strict policies, like treatment quotas, many newer organizations recognize the importance of preserving the unique qualities and successful practices of their affiliates. They understand that the satisfaction of dental providers is one of the most important elements for the success of their investment.

However, some less reputable DSOs still operate. A knowledgeable broker can help you spot potential red flags and direct you toward more reputable DSOs that focus on clinical independence and shared success.

Bottom Line

The dental industry is undergoing a significant transformation as DSOs reshape practice operations and patient care. By providing centralized support and access to advanced technology, DSOs enable dentists to focus on high-quality care while alleviating the burdens of practice management. This shift fosters a culture of innovation and forward-thinking strategies among dental professionals, making it an exciting time to be in the field.

With DSOs rapidly acquiring practices, the current wave of consolidation is predicted to result in up to 70% of the industry being consolidated within the next five years. Now is the time to act; the window for the most lucrative partnership opportunities is closing fast. 

Contact the experts at Professional Transition Strategies today to discover how partnering with a DSO can enhance your practice and support your future plans in this evolving landscape.

References

1. DrBicuspid. Mythbusters: Separating DSO fact from fiction, https://www.drbicuspid.com/dental-business/dso/article/15664821/mythbusters-separating-dso-fact-from-fiction
2. Inc. Private equity and the dental industry’s consolidation curveball, https://www.inc.com/inc-masters/private-equity-and-the-dental-industrys-consolidation-curveball.html
3. American Dental Association. Practice modality by the numbers, https://adanews.ada.org/new-dentist/2024/web-exclusives/practice-modality-by-the-numbers/
4. DrBicuspid. Halfway through the dental consolidation wave: Here’s what entrepreneurs need to know, https://www.drbicuspid.com/dental-business/dso/article/15667122/halfway-through-the-dental-consolidation-wave-heres-what-entrepreneurs-need-to-know.
5. DrBicuspid. 4 key financial considerations when selling to a DSO, https://www.drbicuspid.com/dental-business/practice-sales/article/15678019/4-key-financial-considerations-when-selling-to-a-dso
6. American Dental Association. Practice modality by the numbers, https://adanews.ada.org/new-dentist/2024/web-exclusives/practice-modality-by-the-numbers/