Comparing Fee-for-Service and Value-Based Care for DSO Practice Operations

DSOs have emerged as a dominant force in modern dentistry, offering scalable practice operations and significant purchasing power across networks of dental practices.

A factor that has shaped their recent industry expansion has been the payment model they choose to adopt. Impacting elements across patient care, operational strategy, and profitability, this pillar of success is often underappreciated.

Two primary models dominate dental payment systems: fee-for-service (FFS) and value-based care (VBC).

For decades, FFS has been the standard for the dental industry, as it rewards oral care providers for each procedure performed. Contrasting this, VBC represents a paradigm shift, where patient outcomes and long-term oral health improvements are incentivized. 

In this Dentistry Huddle post, we explore the distinctions between these models, their implications for DSOs, and the gradual shift currently happening in the industry.

Fee-for-Service: The Traditional Backbone of Dental Care

In the FFS model, practice revenue is tied to the volume of procedures performed, with payments coming directly from patients or through insurance claim reimbursements.

For DSOs, FFS offers a straightforward revenue model that often aligns well with their business structure. With standardized fee schedules across multiple locations, DSOs can achieve economies of scale, driving efficiency and profitability. High patient throughput, combined with an emphasis on operational efficiency, ensures a predictable revenue stream.

Fee-For-Service Challenges for DSOs

However, the FFS focus on volume over outcomes can create conflicts with patient-centric care. Over-treatment or unnecessary procedures may erode trust, leading to patient dissatisfaction and reputational risks for DSOs.

This model also limits alignment with emerging trends in oral health outcome measurement, encouraging treatment over prevention. As regulations and payer preferences and attitudes shift over time, so too do the best revenue models that complement these changes.
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Value-Based Care: A Shift Toward Outcomes and Efficiency

Value-based care flips the traditional model by tying compensation to health outcomes rather than service volume. Providers are incentivized to prioritize preventive care and patient education, aiming to improve long-term oral health metrics, such as reduced cavities or periodontal disease rates.

VBCs Emergence in Dental

VBC is gaining traction as payers, patients, and regulators demand cost-effective solutions and better health outcomes. 

DSOs (and specifically pediatric DSOs) are uniquely positioned to succeed in a VBC environment. Their centralized resources—such as shared data systems, economies of scale, vendor leverage, and extensive patient networks—enable them to standardize care protocols and improve patient outcomes across their locations.

Looking from a growth perspective, DSOs can differentiate themselves in competitive markets by focusing on patient health outcomes. In many circumstances, doctor owners considering their exit or the next stage for their practices can be enticed by the VBC model.

From here a positive feedback loop follows: Reorienting organization incentives to a VBC system improves patient oral health outcomes, which then improves retention via trust and loyalty. From here, there will be less operational waste by minimizing unnecessary or redundant procedures. This allows for greater attention and resource allocation to further improve VBC initiatives.

Challenges in VBC Implementation

The transition to VBC is not without hurdles. practices must invest in restructuring their data analytics, patient tracking systems, and staff training to meet new performance metrics.

Financial uncertainties also increase under capitation/dental health maintenance organization (DHMO) plans or bundled payment models. This requires robust risk management and operational discipline.

Don’t forget that shifting from a procedure-focused culture to one emphasizing outcomes also requires significant cultural change–for central practice management and for the office staff.

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Key Considerations with Fee-for-Service and Value-Based Care

How RCM Platforms Can Bridge the Gap

Fee-for-service and value-based care both offer enticing benefits, but both are double-edged swords when implemented. Let’s now talk about how to transition from one to the other.

An organization’s tech stack plays a critical role here. From patient account audits and collection calls to data analytics and patient billing engagement, carefully selected software tools can act as the workhorse for streamlining new operations and aligning incentives across stakeholders.

RCM software platforms, such as Pearly, empower DSOs by giving them an Archimedes Lever to maximize collections regardless of the payment model. 

For FFS, Pearly helps optimize cash flow by ensuring timely patient payments and minimizing balances sent to collections. It’s a straightforward approach to creating a predictable trajectory for growth.

For VBC, Pearly provides in-depth and detailed statements to empower patients and give them an easy-to-understand view of their visit history. Integrating this approach can complement outcome-focused metrics, allowing DSOs to track and report patient health improvements.

In an environment where compliance with payer requirements needs to be balanced with maintaining efficiency, this technology can play a pivotal role.

Additionally, advanced tools like AI-driven analytics support proactive care strategies and improve communication, ensuring better alignment with VBC objectives. These tools are becoming increasingly more widespread in the industry.

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The Future of DSOs in a Value-Focused Landscape

Regulatory and Market Trends

As regulators and insurers push for both cost-efficiency and better outcomes, we predict that VBC will likely gain more traction in dentistry. The incentive systems are gradually changing from the top-down and the bottom-up to prioritize overall patient health. 

If transitioned smoothly, this is a win-win for both DSOs and their patients.

DSOs, with their resources, leverage, and scale, are well-suited to effect this change and adapt themselves, provided they invest in the necessary infrastructure and push for cultural shifts.
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Hybrid Models

To bridge the gap between FFS and VBC, adopting a hybrid model might be the interim answer. This combines predictable revenue from FFS procedures with pilot programs focused on outcome-driven care. Hybrid approaches can enable DSOs to balance profitability with innovation, easing the transition toward value-based care.
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Competitive Implications

DSOs embracing VBC also have a distinct opportunity to differentiate themselves, attracting payers and patients seeking cost-effective, outcome-focused dental care. Success will depend on leveraging technology, optimizing workflows, and maintaining financial stability during the transition.
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The upshot…

Fee-for-service and value-based care represent two distinct payment models with unique advantages and challenges for DSOs. While FFS has been the cornerstone of dental practice profitability, the industry’s growing emphasis on patient outcomes may be pushing DSOs toward value-driven strategies. 

With FFS, high-performing DSOs standardize workflows and focus on maximizing chair time–reducing frills and ensuring profitability. However, this model's focus on procedure volume can lead to patient dissatisfaction, highlighting the need for balance.

By adopting a hybrid approach, DSOs can navigate this evolving landscape, ensuring long-term success through a gradual transition all while improving oral health outcomes. 

The most innovative DSOs have started by piloting VBC programs and partnering with insurers to emphasize preventive care. This is especially true in pediatric dentistry where outcomes can be measured in decades instead of months.

Ultimately, the future of dental care lies in balancing profitability with innovation, and DSOs are poised to lead the way.

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