IDSO partnerships can unlock serious practice value, but the structure and terms deserve a closer look.
By Genni Burkhart
More dentists in the U.S. are joining Dental Service Organizations (DSOs) than ever before. In fact, the American Dental Association (ADA) Health Policy Institute reports that DSO affiliation grew from 8.8% of U.S. dentists in 2015 to over 13% by 2022, with much higher rates among dentists under 40.1 In some cases, younger dentists have affiliation rates above 20%. At the same time, private equity investment in dental services has grown quickly, with industry analysts noting that billions of dollars have been invested in dental platforms in recent years.2
As more money is invested in dentistry, the value of some practices has actually gone up. Practices with several dentists and steady income are now selling for much higher amounts. Understandably, many owners are looking at partnership options to take advantage of these high values while still running their practices.
One option that has become increasingly popular is the Invisible Dental Support Organization (IDSO).
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The Market Forces Influencing Ownership Decisions
Practice owners often deal with a tough financial environment. Costs for supplies, technology, and staff have gone up in recent years. Payment systems from private and government payers have also become more complex. The ADA reports that educational debt still influences career choices for new dentists, including when and what type of practice they buy.3
Meanwhile, investors see dentistry as a field with steady demand, reliable cash flow, and operations that can be standardized across locations. As a result, more money is being invested in practices that can grow and scale.
For individual owners, these changes create opportunities and challenges. Higher practice values can give owners more ways to access cash than before. However, partnership deals now require careful review of business operations, ownership structure, and exit plans.
How IDSOs Are Structured
Most IDSOs use a minority recapitalization partnership instead of a full acquisition. Usually, this means the owning dentist sells only part of the practice in order to keep a significant share of the ownership, clinical control, and brand. The practice then continues to operate under the doctor’s name with the same team, while the IDSO provides financial support and operational resources.
Unlike traditional DSO models, which often control the brand and management, IDSOs want the doctor to remain the primary leader, providing support without taking over.
However, IDSOs are picky about who they partner with. They usually look for practices that make good money, can grow, have several dentists, and are already profitable before agreeing to a deal.
Financial Implications
How much a practice is worth remains a major concern for owners considering a partnership. In the past, practices were mostly sold when the owner retired and were priced based on local earnings. Now, the best practices can sell for 2 to 3 times their annual income due to strong profits and expected growth.
If the sale is only partial, a doctor can:
- Get a significant upfront payment.
- Keep earning income from clinical work.
- Hold onto some ownership, which could become more valuable in the event of a future recapitalization.
- Set up a clear plan to access retirement funds.
IDSOs can also change how a practice works on a daily basis. Such as lower costs by making group purchasing deals, securing better vendor prices, and offering benefits. They may also help with payroll, following regulations, and marketing. This form of 'centralized support' can also be particularly helpful in finding new staff, especially when hiring in competitive markets.
All of these factors can affect both workload and profits, but the outcomes depend on the organization and the contract details. No two situations are exactly the same.
References
- Schleyer T. Practice modality by the numbers. ADA News. Feb. 20, 2024. https://adanews.ada.org/new-dentist/2024/web-exclusives/practice-modali…
- Cortigiano C. How dentists view DSOs in 2024. Becker’s Dental + DSO Review. June 5, 2024. https://www.beckersdental.com/featured-perspectives/how-dentists-view-d…
- American Dental Association Health Policy Institute. Dental practice research and DSO trends. American Dental Association. https://www.beckersdental.com/featured-perspectives/how-dentists-view-d…
Author: With over 16 years as a published journalist, editor, and writer, Genni Burkhart's career has spanned politics, healthcare, law, business finance, technology, and news. She resides in Northern Colorado, where she works as the editor-in-chief of the Incisor at DOCS Education.
