DSOPro polled its 2022 feature article participants to get their thoughts on the future of the industry.
We asked our 2022 featured industry leaders: Where is the DSO industry now? What is the current state of affairs and what will be different from 2022? Where do you predict the industry is headed in 2023? And, any news or thoughts on emerging technologies in 2023?
AI was the topic of conversation in 2022 and seems like it will continue to be a hot technology not just for dentistry, but most if not all industries. However, there are other technologies and advancements that are important for dental groups to focus on, implement, and leverage. Keep your eyes on communication platforms, such as teledentistry and patient recall. Analytics, procurement, and revenue cycle management tools are being examined and implemented as well.
Priyanki Amroliwala
Senior Manager, Talent Acquisition, 42North Dental
We are currently in the process of rethinking our strategic planning for 2023 and the next couple of years because we have all heard “a recession is coming.” We are looking forward to seeing what comes out of it and anticipate more doctor hires and doctors looking to sell their practices due to unstable economic conditions.
We are focused more on internal growth versus practice affiliations. This means that we are asking our doctors to pick up more time chairside, and if they cannot, hiring more doctors externally to add more chair time and grow practices organically versus just through affiliations and denovos.
Technology is consistently changing, upgrading, and moving forward. We have an amazing in-house IT department that keeps up with technology and changing times and moves with agility accordingly.
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Jonathan Moffat
Founder, Aligned Advisors; DSO CFO; Launch Dental
DSO roll ups and startups are happening more now than ever. It has become more acceptable for dentists to sell to a DSO than in prior years.
With the frustrations and highly competitive environment for good staff and good associates, the appeal of selling or partnering with a DSO to let them handle the day-to-day management is greater. For a lot of practices, 2022 was a tough year. Many saw the profits after COVID diminish with the increase of labor and the cost of goods.
We are seeing fatigue from a lot of dentists. After recovering from COVID in 2020 many offices saw an increase in revenue in 2021, then in 2022, with the increase of employee wages, supplies, and just about everything else, net profits were down. Combine that with a trend in decreasing insurance reimbursement rates and a lot of doctors are ready to hand over the reins to someone else, creating an even greater opportunity for DSOs to continue to grow and buy practices. Additionally, we are seeing more single-location practitioners catching the multi-location bug and taking the leap into the multi-location space, adding to the competition for buying up practices. This will continue to be a major topic for 2023.
AI will continue to be incorporated into all facets of dentistry. From providing second opinions in the back to aid and assist the dentist to taking on more of the duties of the front office such as scheduling, patient billing, insurance, even writing policies and procedures and marketing plans with free AI tools like ChatGPT.
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Ali Oromchian, J.D., LL.M.
CEO, HR for Health; Attorney at Dental & Medical Counsel
The technology gap in dentistry has been slowly closing over the last decade. It’s a common joke that dental is 10 years behind medical in terms of technology and innovation, but that’s not the case anymore. In fact, that “tech gap” in the dental industry may be exactly why we’re seeing both emerging and evolving technology adopted at such a rapid pace. No one can deny that as we closed out 2022, we saw more options in tech and higher adoption of new tech than ever before.
But why? What is causing this historical tech “gap” to close in the dental industry? In large part, the growth and success of the DSO model is forcing technology advances industry wide. The pain points felt by most independent dental practice owners is now significantly compounded by the DSO model. Yet, because of the DSO “strength in numbers” strategy, we’re seeing more available funds to invest in tech, a “louder voice” in the tech demands of the dental practice, and a business-forward (ie, tech-forward) approach to solving problems.
Throughout 2022, many dental practices were left in an uncertain state with the rise of so-called “quiet quitting.” Expensive employee turnover, gaps in HR compliance, hiring, and onboarding is likely the biggest drain on profitability in dental practices nationwide. The combination of a fickle job market and rising employment costs left many essential and human-powered functions of the dental practice unsupported.
The opportunity to provide solutions to those pain points for DSOs and dental practices has certainly been seized by technology investors and innovators. With jobs in dental staying in high-demand, often with high-turnover, practice owners are turning to software solutions to maintain efficient quality of care and standardized operations despite the ever-changing employment landscape.
What does this mean for dental tech in 2023? While headlines may be filled with tech layoffs from industry giants like Google, Amazon, Stripe, and more, the dental industry is seeing very different trends: more technology, more access, easier adoption, and more investment firms and innovation companies pouring into dentistry—due in large part to the influence and demands of DSOs.
With hiring and employee concerns topping the list of reasons dental practice owners are losing sleep, the need for complete HR and HR compliance solutions has never been in higher demand. Mounting costs for losing an employee, hiring, onboarding, production loss, etc., can make or break the success of a dental practice. So, companies like HR for Health are providing security and peace of mind that the unique HR needs to protect both employees and employers in the dental industry are met.
Almost every dental practice has experienced headaches and lost profits due to changing HR laws, lack of clarity around HR compliance, poor HR management during practice transitions, employee turnover, hiring, and employee onboarding. However, what may seem like a mere “headache” may actually be a failure to protect your practice investment by mitigating legal risks surrounding HR companies and employment law.
In fact, companies that do not invest in HR compliance software are 4x more likely to face a lawsuit. With the increased frequency of employee turnover, your dental practice has likely never been at greater risk of being non-compliant with employment laws. Thankfully, the dental industry (unlike most other industries) has complete HR compliance technology available to them that is designed and built specifically to meet the unique HR needs of DSOs and other healthcare practices.
2023 is on track to be another record-breaking year for dental technology in the DSO world. As more and more dental practices are acquired, or ownership transitioned to DSOs, the importance and value of HR compliance tech in your dental practices has never been higher. One way to minimize HR risks is conducting in-depth due diligence, including a thorough HR compliance assessment conducted by a certified HR advisor.
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Perrin DesPortes & Diwakar Sinha
Co-Founders, Polaris Healthcare Partners
As in most industries, the majority of activity is driven by the top end of the market, which in our world is private equity-backed DSOs. Private equity groups use debt funds as leverage to make acquisitions, but their cost of capital is up 400 basis points from last year across most indices. This will have an immediate impact on their valuation calculations for existing deployed transactions as well as from previous years due to the fact that most capital market deals are based around variable rate products. This will cause a slight M&A “stall” at the top end of the market while DSOs work to get their business back into compliance with covenant structures. Expect to see M&A levels back to pre-pandemic levels in terms of both activity and valuation.
The “Emerging Group” and “Middle Market” space could stand to benefit substantially due to a lack of competition, if they have secured debt funding. We are still seeing a lot of middle market capital being offered and our clients in growth mode are positioning their businesses for the long term.
This is a year that DR-founded and debt-funded groups could make up some ground in terms of market share gains. For both ends of the market, transaction structure will be very impactful in 2023 and for the upcoming years.
For those looking to exit their business, sellers need to engage the right firm to understand their overall transaction strategy in order to maximize their valuation long term in a market where cost of capital may compress valuation. While some of the “stall” from DSOs will impact the solo and sub-million-dollar EBITDA businesses, those groups with $1,000,000 to $5,000,000+ in EBITDA will continue to command premiums in terms of valuation.
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