What is a Dental Private Group Practice (PGP)?
A Private Group Practice (PGP) in dentistry is a model where one or more dental professionals, typically dentists, own and operate a practice collaboratively. They share services, space, and/or functions to maximize efficiencies that come with scale. While this model has long been prevalent in dental specialties, it has recently gained momentum in general dentistry.
PGPs enable dentists to pool resources, lower overhead expenses, and enhance purchasing power, all while fostering mutual support among practitioners. Unlike private equity-backed Dental Service Organizations (DSOs), these practices are doctor-founded and debt-funded, meaning the dentists themselves own and finance them through cash flow and traditional bank loans.
These practices can take various forms, such as partnerships, LLCs, or professional corporations, and they are typically funded through operational cash flow and bank debt. PGPs vary in size, from smaller, growth-focused groups to larger, more established practices with 10 or more doctors who maintain a dominant market position without aggressively pursuing expansion. In some cases, dentists may initially keep separate ownership and later combine ownership at a mutually agreed-upon point.
Kevin Cumbus, Founding Partner and President of Tusk Practice Sales reports, “Recent data from the American Dental Association (ADA) Health Policy Institute shows more dentists are joining group practices, with numbers steadily rising in 2023. Market research from Grand View Research predicts the dental services market will grow significantly, reaching $657.8 billion by 2028, with group practices playing a major role. A 2023 ADA survey also found that group practices are more likely to invest in advanced dental technologies.”
Advantages and Challenges of Dental Private Group Practices
Private group practices offer numerous advantages, primarily through resource pooling, which reduces overhead costs and enhances patient care through integrated services. These practices benefit from economies of scale, allowing for better purchasing power, streamlined operations, and increased negotiation leverage with suppliers and insurance companies. Additionally, the collaborative environment fosters mutual support among dentists, shared knowledge, and a more comprehensive approach to patient care.
“Having local owners who are deeply invested in the community and the success of their practices can lead to more effective management. These owners are typically more committed to mitigating operational challenges and risks, particularly in areas such as coverage and care. By leveraging their local presence, private dental group practices can enhance patient care and operational efficiency, setting themselves apart in a competitive market,” says Eric Pastan, Director of Skytale Group.
However, private dental groups are not without their challenges. One of the most significant obstacles is often financing, as these groups must rely on limited leverage and direct equity contributions from owners. This can make it difficult to compete with the valuations offered by PE-backed DSOs. Moreover, the lack of a standard hold period and recapitalization timeline in private groups can make it harder for partners to liquidate their shares, potentially deterring potential sellers.
Other challenges include associate turnover, limitations in debt funding, navigating cultural mismatches and key personnel attrition.
As Perrin DesPortes, Co-Founder & Partner at Polaris Healthcare Partners explains, “Many emerging groups share common characteristics and predictable challenges. Often, the founder(s) are still working predominantly in a clinical role and are the largest clinical producers within the group. They struggle to transition into a defined ‘CEO’ role, maintain their income, and replace themselves with an equally capable associate clinician. We refer to this as ‘the Founder’s Dilemma’ because they’re usually unprepared for the income hit during this transition.” DesPortes adds, “Early-stage groups often grow via acquisition but tend to overpay for practices, failing to generate enough revenue or cost reductions to offset debt payments, leading to cash flow issues.”
Despite these challenges, the rationale for building a group practice remains strong. Dentistry can benefit from economies of scale, which can be realized even with just a few locations. Group practices with a common brand can maximize marketing potential, expand service hours, and attract more full-time clinicians, increasing revenue and profitability without additional risk. For founders, creating a business that is not solely dependent on their clinical skills is a prudent strategy for ensuring future competitive positioning.
Navigating the Complexities of Dental Private Group Practices
Private dental group practices offer a compelling alternative to larger, PE-backed DSOs, with distinct advantages in autonomy, flexibility, and patient care. By remaining privately owned, these groups maintain independence from the constraints typically associated with PE-backed models, such as passive board directors, hold periods, and targeted return thresholds. This autonomy may allow private groups to foster better engagement and retention among doctors and staff, create personalized accommodations, and offer attractive exit strategies to sellers who prioritize legacy over maximum financial return.
According to Pastan, “Navigating the complexities of private dental group practices involves understanding the nuanced balance between advantages and challenges, primarily stemming from management and leadership structures. The structure—both legal and operational—can encompass multiple decision-makers and leaders, each potentially holding divergent views on running the offices and managing expenses. Therefore, establishing a clear and effective hierarchy within the group is crucial to prevent conflicts and streamline decision-making processes.”
Recruitment and retention also present hurdles. While private groups can offer more attractive pathways to partnership, there are limits to this model.
Craig Castelli, Founder & CEO of Caber Hill Advisors comments that, “Private groups can typically offer more attractive pathways to partnership as a key means to standing out, but even this has its limits, as private groups risk getting too big to sustain a model in which partners sell shares to associates.”
Castelli continues, “We recently had a client that had remained private for over 50 years, with a long track record of partners selling their shares to associates. Even though shares were sold at a heavy discount to their value in a sale to a third party, they reached the point at which the buy-in became too expensive for associates to bear, driving the group to sell to a larger DSO. While sub-DSO structures mitigate this specific risk, they, too, are not for everyone.”
Private dental group practices must navigate shared decision-making complexities, potential financial inequities among partners, cultural divergences in practice styles, increased administrative burdens, and regulatory compliance issues. These challenges require clear communication, structured governance frameworks, and a collective commitment to patient-centered care. A well-defined Operating Agreement is essential, outlining decision-making processes, profit distribution, and protocols for change of control or sale.
As private groups grow, they may find it increasingly difficult to sustain a partnership model where associates buy into ownership. This issue can become particularly acute when the cost of buying into the practice becomes prohibitively expensive for new associates, forcing the group to consider a sale to a larger DSO.
Founders transitioning to CEO-type roles may struggle to maintain their personal income levels while finding equally capable associate clinicians to replace them. Many early-stage groups grow through acquisition, but they often overpay for practices without realizing the necessary revenue generation or cost reductions to offset debt payments, leading to cash flow issues.
Predictions on the Growth of Dental Private Group Practices
The growth of dental private group practices is expected to accelerate due to several factors. These groups can reduce rising operational costs through economies of scale, meet patient preferences for comprehensive care in a single location, and more easily invest in advanced technologies. With increasing competition from PE-backed DSOs and the complexities of regulations and insurance, private groups are appealing to those seeking to maintain clinical independence and administrative efficiency. Additionally, they offer significant opportunities for professional development and are well-positioned to meet the rising demand for dental services driven by an aging population.
“The growth of dental private group practices is expected to speed up for several reasons. First, they can cut rising operational costs through economies of scale. Patients also prefer getting comprehensive care in one place, and group practices can invest more easily in advanced technologies. With more competition from PE-backed DSOs, and the complexities of regulations and insurance, group practices are attractive for maintaining clinical independence and administrative efficiency. Additionally, they provide great opportunities for professional development and are well-suited to meet the increasing demand for dental services driven by an aging population,” notes Cumbus.
Many PE-backed DSOs that entered the market aggressively post-COVID, driven by low-cost debt, are now struggling with debt payments as borrowing costs rise. This has led to a stall in the recapitalization market, leaving recent sellers with less-than-expected returns on equity. In contrast, those building private groups today are taking a more measured, long-term approach, focusing on fundamentals such as internal growth, profitability, and retaining quality providers.
DesPortes adds, “I personally think the ’emerging market’ group practice space (~1 to 5 locations-ish) is the most exciting and most compelling space in the entire industry. A lot of my positive outlook is based on the ‘advantages,’ but some of it is equally borne out of what we’re living through in the M&A markets presently. There are a lot of people who sold their practice or group possibly a bit prematurely and for an inflated valuation the white-hot post-COVID market and they rolled a lot (~40%) into equity in the parent company.”
These independent, doctor-owned groups can thrive by appealing to providers who value control and offering potential significant returns through equity.
“This shift towards sustainable growth strategies positions private group practices to thrive alongside PE-backed groups, which are likely to maintain a majority market share. However, the smaller, doctor-owned groups have ample opportunities to create viable, enduring businesses. As the dental industry is only 20-40% consolidated, there remains significant room for growth and success for private groups that choose to remain independent,” Castelli reveals.
Private group practices can capitalize on the prevailing sentiment among providers who prefer maintaining control over their practice settings, a flexibility often lacking in larger organizations. Furthermore, the equity component in these private groups can be particularly enticing, as it offers potential for significant returns through future acquisitions at higher multiples.
“Amid current headwinds in the dental mergers and acquisitions M&A space, there has been a shift from simply consolidation to a renewed focus on internal growth and profitability. Dental groups concentrating on enhancing their profitability and achieving true internal alignment of systems and processes are poised to be more attractive for purchase in the near term. This strategic focus positions them for stronger performance in the coming years.” Pastan concludes.
As the dental landscape evolves, PGPs remain a compelling alternative to PE-backed models, combining clinical independence, personalized patient care, and operational efficiency to create sustainable, thriving practices.