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Although a Non-Dentist May Be Prohibited from Owning a Dental Practice, There Is a Way for Financial Participation

Posted by Erick Cutler, CPA on Nov 17, 2016 11:10:26 AM

The majority of dental practices are either owned by solo practitioners or a collective of dentists that can operate out of a single office or from a number of individual sites. These businesses are generally organized as sole proprietorships, partnerships or professional corporations that are completely owned by licensed dental practitioners. This last distinction is important because most states in the U.S. do not allow unlicensed parties to own or operate a dental practice. Rules in what are known as non-corporate states restrict both individuals and groups from having any ownership in or running a dental office unless all parties hold current, valid dental licenses. These laws also ban revenue- or profit-sharing arrangements between practices and unlicensed parties. Only Arizona, Mississippi, North Dakota, New Mexico, Ohio and Utah allow ownership by unlicensed entities. They are known are corporate states.

The concept of dental practice management (DPM), however, offers a way for unlicensed personnel to tap into dental practice revenue, even in non-corporate states.

Exploring Dental Practice Management

Individuals and organizations, including private equity groups, have shown increasing interest in owning and investing in dental practices. A large part of this stems from the passage of the Affordable Care Act, which is expected to continue to bring newly-insured clientele into dental offices and boost industry-wide revenue.

DPM allows private equity firms and other investors to take part in a dental practice and share in its success without revenue- or profit-sharing agreements or actual ownership. Instead, a DPM organization will enter into an exclusive agreement with a practice to supply dental practices with management and administrative services, also known as non-clinical activities. These include back-office tasks such as office management, staffing of non-licensed personnel, IT services, insurance, regulatory compliance, billing, payroll and other accounting activities. Many DPMs also provide marketing and advertising services. The DPM collects fees for these services, creating a direct line of revenue from the practice to the unlicensed entity, often a private equity group.

The practice is still fully owned by a licensed dental practitioner and only dentists  can perform patient care and other clinical activities. These tasks include evaluation and diagnosis, making decisions regarding treatment, performing procedures, preparing health records and hiring or firing licensed dental professionals.

DPM companies don’t just benefit investors, however. They also provide substantial rewards to dental offices. Hiring a DPM can eliminate most, if not all, of the routine administrative work that can take up a large part of a dentist's time. Too often, dental professionals are bogged down in paperwork and other time-consuming tasks that are nonetheless essential to the practice. This takes time away from the most important and valuable functions a dentist performs: treating patients. Support from a DPM organization means better patient care, better outcomes and fewer administrative duties.

The idea of using third-party service providers to fulfill human resources, clerical and accounting tasks isn’t new. The problem that many practices encounter is that these services are often handled by separate businesses, which makes it difficult to streamline office management procedures and control costs. Using a DMP company to perform routine administrative duties outsources these non-clinical activities to a single entity, simplifying costs and processes. DPM organizations are also well-versed in dental practice operations, ensuring knowledgeable management decisions and proper compliance with laws and regulations.

Understanding the Legal Requirements

For non-corporate states, keeping the interests of business entities separate from patient care activities is paramount, even when the two are working together via a DPM contract. This ensures that decisions regarding patient care are only influenced by what’s best for the person in the dentist’s chair, not outside parties.

These laws prohibit all revenue- and profit-sharing, including fee-splitting, kickbacks and referral fees. The DPM must charge a reasonable price for its services at either a flat fee or hourly rate, and the total compensation must be at the fair market value. In addition, all received funds must relate directly to the services the management company provides.

Texas, in particular, has strict laws when it comes to DPM organizations. Since February of 2016, the Texas Dental Practice Act requires all DPM organizations operating in the state to register with the Texas Secretary of State each year. These regulations make it imperative for DPM organizations to regularly assess their contracts to ensure all arrangements are in compliance to avoid running afoul of the law.

Although DPM organizations play a sizable part in the dental practices they serve, the clinical and regulatory responsibilities of dental professionals remain the same. In this way, the barrier between business and patient care remains intact, and patients can rest assured that their dentists are making prudent treatment decisions. It also ensures that dentists stay in control of their business decisions and can expand, downsize, sell or close their practices as they see fit. Customers across all industries are demanding increasingly valuable services that are both lower in cost and more efficient. The dental profession can’t afford to limit its options, and DPM companies are stepping up to answer the call.

Contact the Dental CPAs at Goldin Peiser & Peiser to discuss if a DPM is beneficial to your practice for other strategies on how to make your practice more financially successful.

Topics: Dental