DSOs: The Downsides of Centralization


E78 Staff

E78 Staff

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The dental profession has been dramatically transformed by the rapid growth of dental service organizations. DSOs provide business management and clerical support to the practices they affiliate with, enabling dentists to focus on servicing patients. Dentists also benefit from economies of scale in controlling overhead, negotiating with payers, and purchasing office equipment and technology.

One area where DSOs have sought to make the most of their structures and organizational capabilities is in revenue cycle management. RCM includes billing and collecting co-payments and payments from patients and insurers, and, to a lesser extent, prescreening patients and credentialing doctors. As in any business, optimizing revenue and cash flow, including keeping a tight rein on receivables, is a critical objective.

Theory versus reality

For many DSO managers, it was only natural to think that RCM, like other non-clinical operations, could be managed more efficiently and effectively on a centralized basis. In theory, combining what had previously been handled by each individual office would streamline the process, expediting billing and collections and, consequently, lower costs, enhance bottom-line performance, and improve customer service.

In practice, things have not quite worked out as planned.

In fact, at E78 Partners we have been engaged by several DSOs that had centralized RCM structures or that had been moving in that direction but had decided to change course. They found that instead of streamlining collections and billing, managing these functions from one location had created headaches, delays, and disruptions across the board.

A costly mistake

For some, the shift away from decentralization proved to be a costly mistake in its own right. One client came to us after hiring—and subsequently firing—a high-profile consulting firm to help them centralize RCM. They spent more than $1 million and many months only to discover that the new approach was basically unworkable and was undermining cash flow and the firm’s reputation. We’ve been helping them fix and return things to where they were while minimizing the associated fallout.

For some, having a centralized billing and collection operation has had another consequence. Instead of boosting bottom-line performance, it set the stage for a significant cost increase. Following rule changes in certain jurisdictions (e.g., Texas), DSOs that employed this approach were required to pay taxes on services they provided to affiliated dental practices, offsetting at least some of the economy-of-scale advantages.

More to do

In our experience, issues surrounding RCM often serve to pinpoint other potential trouble spots. Indeed, our clients have found that a second set of eyes and industry-specific analyses can yield valuable insights about margins and profitability and unearth opportunities to become more efficient. Having worked with both small and mid-size DSOs, we understand the challenges of what has become a more difficult operating environment.

Talk to us about your specific issue to see how we can help. Contact us today.


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