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Bruce Bryen is a certified public accountant with over 45 years of experience and is a part of Baratz & Associates CPAs. He specializes in deferred compensation, such as retirement planning design; income and estate tax planning; determination of the proper organizational business structure; asset protection and structuring loan packages for presentation to financial institutions. He is experienced in providing litigation support services to dentists with Valuation and Expert Witness testimony in matrimonial and partnership dispute cases. He is also a financial writer for several dental journals. You may contact him at 609-502-0691 or at Bryenb@baratzcpa.com.
Regulatory difficulties can create obstacles for DSOs when attempting to get access to operate in certain states.
There are many states where their legislatures have passed laws that prohibit anyone not licensed as a professional dentist to be able to own a dental practice either directly or indirectly. The dental service organization (DSO) organizational structure typically has a licensed dentist or dentists owning and operating the clinical side of the DSO.
The management service side of the DSO may or may not have licensed dentists owning that part of it but may also have hedge funds, venture capital firms, investment bankers or other private investors within the ownership group. Sometimes the DSO employs 2 company structures so that the clinical side and the management side of the DSO are separate businesses.
The struggle for the DSO is to convince the state board of dentistry where they want to operate that their structure is legitimate with non-licensed dentists being part of the organization and they comply with the law. There is an incredible amount of money involved for the DSO in the short and long term where inevitably, an initial public offering may take place. The founders and early investors will earn an enormous amount of money when the final transition occurs, and they can “cash out.” One can be sure that the best attorneys and expert advisors will be retained by the DSO to present their case to the state board of dental examiners. They will attempt to convince the state board to allow their organizational structure to be acceptable. The designs and models used by these experts will attempt to circumvent what they see as glitches that may vary from the actual terminology in the legislative act of the state that may be denying access to the DSO.
What Are Some of the Problems and Potential Solutions?
There may be a myriad of problems potentially with some solutions but the basic rule is that the state boards of dentistry resisting the DSOs do not want non-licensed dentists to be owners. To overcome this problem, some of the DSOs will appoint a licensed dentist to be the owner with compensation and effectively offer that dentist a minimal role in the operations just so that he or she is designated as the owner. In an attempt to circumvent the specific guidelines of the legislative act, the model used by many of the DSOs is similar.
The DSOs want their MBAs and monied people to run the organization. The problem for the DSO occurs when the state does not want it this way and is willing to go to court to keep the DSO out. The state may feel as if the DSO has unlimited money to go to court and to stay in court until they prevail with a judge who may be willing to listen to business verbiage that legally overrides the law’s intent. The DSO will attempt to use a factual presentation that does comply with the law but not the intent of the statute. The attorneys representing the board of dentistry probably have a budgeted amount to spend and also a time frame to resolve the issues and to keep the DSO out of the state. Unfortunately for the state, the DSO will probably continue returning to it even if they incur losses in court until they eventually do win or the state’s dentists push their board to accept the DSO concept. The individual dentists may join after a marketing campaign by the DSO targeting them and describing their earnings potential. They may urge their board to allow the DSO to join the state and the state may feel that they will eventually lose the battle to keep them out anyway.
More Problems For the State
The typical dentist’s biggest source of aggravation is the management side of the practice. When they see that administration and management are mostly dispensed with by employing the DSO concept, many states see their dentists fall in line and start supporting the DSO. They then pressure their state legislature to adopt amendments to the current law so that by using certain guideline models, the DSO can operate in the state previously trying to keep them out. As mostly offered in any type of debate, it’s almost always about the money. DSOs are big business. Once the wining and dining of the local dentists begins, there is not much a state government can do to stop them. The attorneys and experts hired by the states will use the law as it is written to delay the DSOs from coming into the state. When the amendments take place to the legislative acts, the state’s attorneys don’t have that power on their side to support the previous arguments that were used successfully to retain the individual local concepts of dentistry and big business then takes over.
Reasons for Acceptance by the State and the Local Dentists of the DSO
Because the DSO concept offers excellent current income and no management headaches, the individual dentist sees a great invitation to continuing his or her career and working where the patient is, rather than with the attorney, accountant and other administrative advisors. The model includes a great exit strategy built into the organization and a transition agreement without the worry of finding a buyer. It isn’t long before the state concedes and the dentist practices dentistry and not economics and personnel management by joining the DSO.