[co-author: Matt Garvey, RSM US]

Differentiation is critical when navigating the DSO acquisition landscape, according to experts who spoke on a panel at the 17th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 19 and 20 in Chicago.

Experts included Fletcher Boyle, Vice President of Business Development Strategy at Chicagoland Smile Group; Josh Gwinn, CEO, Hero Practice Services; Brandon Halcott, CEO at Tru Dental; Kurt Harvey, Managing Director at Caber Hill Advisors; and Andrew Olsen, Principal at Boathouse Capital. Maria Melone, Managing Partner at MORR Dental Transition moderated the panel.

Here are five key points from the panel discussion.

1. Acquisitions in DSOs continue to be competitive. Doctors are inundated with direct solicitation these days; DSOs are a competitive industry and it is becoming more difficult to find doctors that are un-affiliated. There is lot of pressure to consolidate. When looking at smaller platforms (less than $20 million in enterprise value), talk to those providers about post-closing synergies and opportunities. Try to find a partner that understands these opportunities and that will help accomplish those goals. Bring in experienced and knowledgeable people to get through any challenges. Look for differentiation between your model and others, and look beyond liquidity to find providers who are not simply looking to retire and cash out.

2. Experts agree that solid culture is “table stakes” in attracting potential partners. Of course, delivering value is fundamental. But equally as important is understanding who you are doing business with, and making sure culture, goals, and values are aligned. This is particularly true where incoming doctors will play a large role in the platform. The key to lasting success is to match the practice’s culture with the culture of the firm.

3. With so many options for doctors in the marketplace, private equity firms must elevate their offerings to attract and retain talent. Again, “culture is table stakes.” Salary and benefits packages are also important. However, private equity firms can set themselves apart by also providing regional density so that doctors can work within a platform on a broad spectrum of cases; clarity into career path (e.g., opportunities for progression over time); consistent messaging of mission across all levels; and by removing day-to-day administrative roadblocks so doctors can focus on providing a great patient experience. Find out what practitioners are missing in their practice and match that with what the platform can offer. Finally, equity or financial incentive programs are crucial in attracting and retaining talent.

4. Equity programs are crucial in attracting and retaining talent. Clearly set forth the criteria for attaining equity, such as length of tenure and full-time/part-time status. Provide a matching program where the platform will match a percentage of dollars invested. Remove as many obstacles as possible on the pathway to equity. Doctors will appreciate a platform with transparent culture and that they are sharing in value creation, which provides for a necessary alignment of interests between doctors and private equity firms.

5. Optimize fee schedules with payors wherever possible. Find pockets of need based on geography – understand where payors are underrepresented and leverage the practice’s presence in those geographies for better fees. Leverage the fee schedule of an affiliate practice. Focus on codes that are most important to the business’s revenue as opposed to negotiating the entire fee schedule. Understand which payors are more friendly in your states. Engage a third party to assist with the research and negotiations. Experts also suggest reviewing fee schedules every one to two years. Higher fee schedules lead to higher doctor pay, which leads to greater retention.