Consolidation in dentistry, attracting private equity funding and cybersecurity issues are among the top challenges that DSOs are facing going into the fourth quarter of 2024.
Six DSO executives shared their insights on the biggest challenges in the dental space with Becker's.
Note: Responses were lightly edited for clarity and length.
Avi Weisfogel. Founder and CEO of Freedom Dental Partners (Montclair, N.J.): It's the ability to get a private equity recap. It ain't easy anymore, especially for corporate DSOs. Those models are becoming difficult to find private equity recapitalization, which is typically the goal. So there's a couple pieces to it. You start a DSO, what bank is funding your debt consolidation? That's not necessarily an easy thing because not that many banks do this. So you have to understand what it is that a bank would be looking for that would make them comfortable to take debt on all of these practices who have not been together, put it into one node and then go ahead and consolidate that loan. Knowing how to do that is a specialty.
Ash ElDifrawi. Chief Commercial and Brand Officer at The Aspen Group (Chicago): I think the biggest challenge is how quickly consumer expectations are changing. Healthcare, historically, has always been a laggard on how fast it moves as consumer expectations change. Whether it's Amazon getting in the business, private equity investing in the businesses, what you're starting to see is consumerism coming hot and heavy into this area. So consumers have very different expectations. [I think] that's a challenge for most DSOs because how do you keep up with that when you're managing thousands of different locations that have different owners or providers when you can't hold them accountable to a single consistent experience? That's a big challenge because consumers expect that.
Gary Kadi. Founder of NextLevel Doctors Group (New York City): We're about 40% consolidated, we're going to 60%. The next 20 are not going to be the fast track, they're going to be the ones you have to nurture and develop. People were doing market grabs and they were paying too much for practices. They were happy to get the sales just to package it because they thought all of the money was in the recap, and their debt-to-equity ratio suffered. We did a lot of things to mitigate our debt. Our founders did not allow us to transact certain deals because they would affect the recapitalization. That market grab caused people to get greedy and their debt-to-equity ratio went too high, and they haven't been able to recapitalize. We're in a position to do so because we're a highly profitable business with a machine that's built around the company.
Hunter Smith, DDS. Co-Founder and CEO of GPS Dental (Jonesboro, Ark.): From a challenge standpoint, it's been pretty consistent over the last two years. It's a little bit out of the industry's control and more macroeconomic in terms of uncertainty around interest rates and some of the political landscape this year, especially as we head into an election year. Those things, specifically the interest rates, even more than COVID, have impacted our industry. What it's really done is, frankly, brought the cream of the crop to the top. Those that could perform and could execute during those times, which I'm happy to say GPS was one of, continue to raise money, continue to raise funds and continue to do partnerships in the hardest economic times. We've proven ourselves a little bit more directly than those of us who were really flying high when the market was flying high. Hopefully, we get a little bit of reprieve on the debt side, and it does seem like that's normalizing a bit, but those challenges and then executing on a lot of the growth that some of us have had are probably the biggest ones. GPS is in a fantastic position to execute on those and I'll definitely be curious to see how it plays out for the industry as a whole.
Stephanie Townsend. Senior Vice President of Operations of Heartland Dental (Effingham, Ill.): Cybersecurity: The recent CrowdStrike incident highlighted the critical importance of cybersecurity. Fortunately, our IT and operations teams were well-prepared, enabling 90% of our practices to be operational by Monday morning, ensuring patient care continuity. This success is due to constant training and preparation. The strength and scale of our teams, along with their deep operational and support knowledge, are invaluable in such situations.
Stephen Saukaitis. CEO of Select Dental Management (Florham Park, N.J.): Additionally for DSOs, challenges also include managing scalability while ensuring consistent quality across practices, addressing IT security concerns and focusing on organic growth. By building an organization centered on partnership, collaboration and growth, we've been able to overcome many of these challenges and continue to be excited about the future.