How a non-licensed person can work with a dental practice, including the use of an administrative / management services company
By Matt Dickstein
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Over the years I’ve received more than a few phone calls from non-dentists who want to financially participate in a dental practice, whether by investment or the sharing of profits. Usually these people are related to the dentists or work closely with them. Sometimes they are the accountants for the dental practice. The fit seems natural and beneficial for all concerned because the dentists only want to focus on patient care (not admin or marketing) while the non-dentists only want to work on the business side of the practice.
Only dentists who are licensed in California may own shares in a dental corporation or be a partner in a dental practice (with certain minor exceptions).
The policy behind the law is to prevent unlicensed persons from interfering with the dentist’s professional judgment. The dentist must have sole control over all health care decisions. This includes obvious decisions such as the need for referrals outside the practice, and it also includes less obvious decisions such as: (1) how many patients the dentist must see in an hour; (2) how many hours a day the dentist must work; (3) hiring and firing of dental associates, technicians and assistants (at least as concerns their clinical competency); (4) setting the parameters for insurance contracts; (5) coding and billing procedures for patients; (6) selecting dental equipment and supplies; (7) content of advertising for the practice.
The dentist may not delegate any of these decisions to an unlicensed person, including to a management service company. The dentist may consult with unlicensed persons in making these business decisions, but the dentist must have ultimate responsibility for the decisions.
Many people question whether this law still makes sense in today’s world, but irrespective of all that, it’s the law and you must comply. If you violate the law, you put your license at risk.
Working with the Dental Practice without Breaking the Law
With these concepts in mind, let’s turn to how a non-licensed person (usually an administrative / management service company) can participate in a dental practice. The key is to provide goods and services to the dental practice without tripping any of the prohibitions above. For example, the non-licensed person can lease office space and certain equipment to the dental practice, or provide back-office administrative services including accounts payable and billing services, or provide staffing of non-licensed personnel. None of these functions, in themselves, involve ownership or profit-sharing in the dental practice.
It is extremely important that the non-licensed person (and the administrative / management service company) receive compensation that is fair market value and directly related to the goods and services provided, for example, flat lease rentals or hourly billing amounts. The dental practice may not pay any percentage or portion of its gross or net profits to a non-licensed person, as this would constitute a form of ownership in the dental practice. A share in revenues constitutes a partnership share, and that’s ownership.
The management service company is a common structure that non-licensed persons use to participate in a dental practice. Here non-licensed persons perform the administrative and back-office functions permitted by law (see above), thereby freeing the dentists to spend more time on patient care. Usually the dentists provide patient care through a professional dental corporation that they wholly own, while the non-licensed persons provide their services through an ordinary corporation or an LLC that anyone can own. The two sides use contracts to link the management service company with the dental corporation and to provide the terms of service and compensation.
I hope this article has been useful to you.