22 Jun Trust Me, This Will Only Hurt A Little Bit: Ownership of a Dental Practice in Texas
We are routinely asked by professionals to assist them in establishing entities through which they will provide their professional service. One such professional service that provides some unique legal considerations is the area of dentistry. And those considerations become exponential when the client wants to set the structure up in a way to expand the concept to other states.
Many professional services require the professional entity to be owned and/or operated by the professional or at least someone licensed in that profession. Lawyers own law firms. Accountants own accounting firms. It would seem only logical that a dental practice that is operated as an entity is owned by a dentist, right? Wrong. States surprisingly differ on who can own a dental practice, and the differences are becoming even further blurred.
The majority of states follow the “corporate practice of dentistry doctrine”, which states that only dentists can own dental practices. That doctrine precludes business entities not owned by dentists from owning and operating dental offices and employing practitioners while collecting fees paid by patients. Texas is one of those states.
The theory behind the “corporate practice of dentistry doctrine” is to ensure that dentists are able to exercise professional medical judgment relating to a patient’s health care needs without financial or other outside pressures. The doctrine supports the independent judgment of a dentist to make decisions in the best interests of the patient.
This is all codified in the Texas Dental Practice Act and the Rules and Regulations of the State Board of Dental Examiners. Some of the key language is the requirement that the owners, board of directors, and shareholders must be licensed to render the “same professional service as the professional corporation”.
But in 2015, while staying true to the corporate practice of dentistry doctrine, the Texas legislature opted to accommodate the idea of non-dentists being involved in a dental practice by permitting “dental service organizations” or “DSOs” to be involved in the operational and management side of a dental practice. However, the DSO can have limited involvement and is subject to regulatory oversight. A DSO is a separate entity from the dental practice and is usually owned by non-dentists (but may also be owned by dentists). A DSO contracts with the dental practice to handle billing and other administrative tasks. Cases since 2015 have recognized a DSO’s control of the administrative functions of a dental practice, from leasing equipment and filing insurance to managing the finances of a practice, leaving the actual dental work to the dentists.
When a DSO is involved in the management of billing and administrative functions of a dental practice, regulations require such entities to register annually with the Texas Secretary of State. Specifically, if a DSO provides “two or more business support services” to a dental practice, such as office space, billing and marketing, IT services, staffing, procurement services, or accounting services (including billing and payroll), the DSO must register and annually disclose its owners, whether the owners are dentists or non-dentists, which dentists the DSO provides services to, and a list of the business support services being provided by the DSO. Not surprising is that there is an annual $150 filing fee payable by the DSO to the State of Texas, and a civil penalty for each day for a DSO that does not properly or timely register.
So, while dentists in Texas must own a dental practice, or the entity that owns the dental practice, they can form and/or contract with a DSO to provide a litany of administrative functions. This permits economies of scale, shared services, and hopefully more-focused dentists providing services to their patients.
Other states that subscribe to the corporate practice of dentistry doctrine are also permitting DSOs to be involved in dental practices, and there is growing momentum to do so. Finally, some states simply permit anyone (dentist or not) to own and operate a dental practice.
It is important for anyone owning or operating a dental practice in Texas, or anywhere really, to know what their state rules and regulations are related to these issues.
ABOUT THE AUTHOR: Bradley W. Rapp is a Shareholder at Rapp & Krock, PC in the Business Transactions group.
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