Common Dentist Legal Questions
We have prepared a list of the questions we most often hear from dentists at each stage in their careers to serve as a resource.
Working as an Associate
2. Do I need a lawyer to negotiate my associate dentist contract?
3. What key terms should I look for/be concerned about in my associate dentist contract?
6. Is the non-compete in my associate dentist contract enforceable under Arizona law?
Buying A Practice
10. As a dentist making an offer to buy a dental practice, what should I put in a letter of intent?
12. Should I keep the seller/prior practice owner on as an associate dentist after buying a dental practice?
13. When I buy a dental practice, should I require a non-compete with the seller?
Owning A Practice
15. Should I buy or rent my dental office?
16. Do I need an employee handbook for my dental office? Can your law firm prepare one?
17. I am a dentist in Arizona. What kind of benefits do I need to provide my staff?
19. I am a dentist with my own practice. Should I partner with a DSO? What are some of the pros and cons of partnering with a DSO?
20. One of my dental patients posted a bad Yelp/Google/online review. What do I do?
Selling A Practice
21. When should I start planning to sell my dental practice? When do I need to contact an attorney?
22. Should I sell my dental practice to corporate dentistry? Do I need to have an attorney review the contract documents?
23. What should I do with patient credits when I am selling my dental practice?
Personal Legal Questions
24. I am a dentist setting up my estate planning. Do I need a will?
25. I am a dentist with a will. Do I need a trust? Can your law firm help with this?
27. I am a dentist in Arizona. What happens to my dental practice if I get a divorce? How do I protect my dental practice?
Working As An Associate
1. I heard Arizona is an at-will state. Is it a good idea to have an employment contract as an associate dentist?
You don’t have to have a written employment contract, but it is usually a good idea.
An employment contract allows both sides to clearly spell out the key employment terms. This avoids the possibility for misunderstandings in the future and allows you to know your rights under the contract. A good, thorough employment contract can also anticipate and resolve future questions that may not be at the top of your mind at the time, but may become important later on.
Some examples of the potential issues that can arise include: what happens if a malpractice claim is filed against me after I quit? Will my employer’s insurance cover me? If I am paid on collections, can I still get paid after I leave? How much time can I take off for vacation and sick days? Are there any restrictions on my ability to work? And the list goes on.
While sometimes these things can be worked out informally, if you have a good relationship with the practice owner, it is better to have everything in writing. Having a written employment contract can provide certainty even if there are changes down the line. You never know what the future holds, if relationships will deteriorate or the ultimate decision-maker for the practice will shift that responsibility elsewhere.
Another thing to keep in mind is that Arizona is an at-will employment state. This means that, if you don’t have a written contract, you can be fired immediately, with or without cause. If you have an employment agreement in place, you will usually have some notice before your agreement is terminated and you may even be able to negotiate terms, such as a severance payment.
2. Do I need a lawyer to negotiate my associate dentist contract?
You can and absolutely should negotiate the terms of your employment contract. Even most corporate dental practices can be flexible on some of the contract’s terms.
The employer almost certainly had an attorney prepare the employment contract. That attorney drafted the contract with an eye to protecting the employer’s interests, not yours. So, even if you and the employer agree on the basic terms, like the amount of compensation and the fringe benefits, you should still have your own experienced dental attorney review the contract.
3. What key terms should I look for/be concerned about in my associate dentist contract?
The employment contract should, at a minimum, state the basics. These include the following:
1. How you are being paid (production versus collection versus per diem compensation).
2. What other benefits you will get with the job. Typical benefits can include health insurance, malpractice insurance, retirement contributions, CE reimbursement, and personal time off.
3. How the agreement can be terminated, and how much notice is required.
4. What constitutes “for cause” termination.
5. The extent of any restrictive covenants, like the non-compete and the non-solicitation agreements.
6. Whether and how you can access patient records following termination, such as if you are sued or get a board complaint.
4. The dental practice owner wants to make my compensation percentage-based. Which is better: payment on collections or production?
This depends on how production and collections are defined, and what percentage is being offered. This is important because many practices will justify paying a lower percentage by basing payment on production, but they can sometimes define “production” in a way that, at the end of the day, you are essentially being paid on collections.
In theory, payment on production should become due as soon as you treat the patient. The dentist should get paid based on the amount billed by the practice, regardless of when, or even whether, the practice ultimately gets paid for the work.
In reality, many associate agreements allow the practice to adjust “production” based on bad debt, patient write-offs, and insurance discounts. This usually takes the form of a reduction in your future compensation when amounts are written-off.
If your associate agreement contains this type of definition, then it really is not much better than collections. Although you may get paid sooner for your work, you are still carrying the risk that the patient or the insurer won’t pay the bill and your compensation will take a hit.
5. What is the difference between an employee and an independent contractor in Arizona, and why does that matter for an associate dentist?
The primary relevant difference lies in who will be responsible for payroll taxes.
Social Security and Medicare taxes are paid evenly by the employee and the employer. The Social Security tax is 6.2% for both employers and employees, up to the yearly cap. The Medicare tax is 1.45% and isn’t capped. Therefore, if you are classified as an employee, the practice will have to pay an additional 7.65%, on top of whatever it pays you.
Many employers like to classify associates as independent contractors to shift the burden of paying these taxes on to the associate. If you are classified as an independent contractor, you will be responsible for paying all of the payroll taxes. Employers can also save on worker’s compensation and unemployment insurance by classifying an associate as an independent contractor, rather than an employee, as Arizona law typically does not require independent contractors to be covered by worker’s comp insurance.
Although it might make financial sense for the employer to classify the associate is an independent contractor, it might not be wise. The IRS has a balancing test that looks at several factors to determine whether a worker should be classified as an independent contractor versus an employee. These factors include, among others:
1. Who has control over the worker’s schedule?
2. Does the worker provide his own tools?
3. Is the worker free to work at other facilities, or is he or she expected to only work for this employer?
4. Does the worker receive any benefits in addition to the monetary compensation?
In many cases, these factors weigh in favor of an associate being an employee of the dental practice. This is important because if the associate is misclassified, the employer can get hit with a claim for back taxes and fines by the IRS.
6. Is the non-compete in my associate dentist contract enforceable under Arizona law?
Generally speaking, non-competes are enforceable in Arizona as long as they are reasonable in scope and do not pose an undue hardship. This all depends on specific circumstances like the location of the practice, the availability of other dental employment options, the availability of other treating providers, and the distance and duration of the non-compete.
In the context of an associate dentist, courts have determined that a reasonable non-compete in the Phoenix metropolitan area may be 3-to-5-miles for a period of one year. This allows the employer some protection against an associate taking his business. It also allows the associate plenty of choices for employment.
However, what might be reasonable in Phoenix or Tucson might not be reasonable in smaller towns. In smaller towns, a 5-mile non-compete might mean that the dentist has to move, leaving the town with fewer dentists and no alternative treatment options.
One wrinkle in Arizona law is that, if a court determines that a non-compete is overly broad, the court cannot fix or rewrite the non-compete provision with what it believes is a reasonable radius or duration. Instead, the court must strike the provision and it becomes unenforceable.
This means that if an employer puts a clearly overly broad non-compete provision in a contract (such as insisting on a state-wide non-compete or a radius of 50 miles), you may not want to try to negotiate around it. Instead, when you leave that employer, you can challenge the enforceability of the non-compete.
Unfortunately, there is no clear rule for what constitutes a reasonable non-compete under Arizona law, as it is always a situation-specific determination. In the event you challenge your non-compete, the ultimate decision will be made by the court as to what is reasonable. If you are uncertain about whether a non-compete is enforceable or want to pursue an opportunity that may violate the non-complete, an attorney can help with assessing its enforceability and, if necessary, negotiating a modification of the non-compete.
7. What is a Dental Services Organization (“DSO”)? What is it like to be a dentist working for a DSO?
A Dental Services Organization (“DSO”) is a type of corporate dentistry where the dentist is often a hybrid of an associate and practice owner.
The typical model involves three different companies: (1) the entity that actually performs the dentistry, which is completely owned by the dentist; (2) a management entity, in which the dentist is a minority owner; and (3) the main corporate entity, such as Pacific Dental, which provides corporate support for the management entity and is the main owner of the management entity. The dentist pays a buy-in for his portion of the management company, but it is much lower than the cost of buying an entire practice.
Usually, the dentist is paid like an associate, based on collections or production, through the dental entity. The management company employs the staff, owns the equipment, holds the lease, and controls all of the administrative functions of the practice.
The corporate entity controls the management entity. The corporate entity, through the management entity, controls all of the non-clinical aspects of the practice and, in exchange, gets a sizeable management fee every month. Whatever is left after the dentist is paid for his work and after the management fee is paid is split according to the dentist’s ownership percentage.
This type of arrangement can have its benefits. The buy-in is much less than the cost of purchasing 100% of a practice. Also, the dentist can focus on dentistry, rather than administrative tasks.
However, you will not have control over the operations of the practice. You will also only get a fraction of the profit, after the management fee has been paid.
That being said, other companies, like Heartland Dental and MB2 Dental, have other variations of this set-up that can provide other benefits beyond base compensation, such as additional bonuses if the practice meets certain production thresholds in the years following the sale or a percentage ownership in various entities that can generate future income in other ways.
If you have any questions about whether working for a particular DSO is right for you, consult with your financial advisors and your attorney to help you assess the pros and cons.
Buying A Practice
8. I am a dentist looking to buy a dental practice. What do I need to know and do I need an attorney to prepare/review the practice sale contract?
The first step in buying a dental practice is to assemble the team you will need to make the purchase successful. You will need an attorney to either review or draft the necessary contracts for the sale.
Unless you have the resources to pay in cash, you will need to have a lender on board. You may also want to have a real estate broker involved to negotiate a lease or purchase of the building in which the practice is located.
You may also want to involve a financial advisor, practice consultant, CPA, and/or broker to determine what price you should pay for the practice. You will also want to use the CPA or financial consultant to conduct financial due diligence on the practice.
This may seem like a lot of professionals, but remember that this is going to be one of the most significant, if not the most significant, purchase you will make. As such, you will want to make sure that you are making a fully-informed decision, and going about it the right way.
9. Once I have an attorney and my team of advisors, what is the timeline to buy a dental practice? What are the steps that need to be accomplished?
You should have your team of advisors on-board and ready to go before you start the purchase process. Once you do, the timeline of a practice purchase typically plays out as follows:
1. Talk with your financial advisor about your personal financial situation, what kind of cash flow you will need from the practice, and how much debt you can afford to have.
2. Talk with your lender to get an idea of how much practice you can afford.
3. Identify a practice that fits your needs. Many practice brokers will list the practices they have for sale online, or you can reach out to practice brokers to help with your search. Keep in mind, though, that most practice brokers represent the seller, not the buyer.
4. Once you have identified the practice you want to purchase, work with your CPA or practice consultant to determine whether the price offered is fair, or whether you want to negotiate a lower offer.
5. Submit a Letter of Intent (“LOI”) to the seller. The Letter of Intent should contain the key terms for the purchase, but it should be non-binding and simply serve as a road map for the attorneys drafting the formal practice agreement.
6. If the seller accepts the LOI, the seller’s attorney will typically prepare the sale documents.
7. Set a closing date, which is the day when ownership changes hands. Typically, this will be about 30 days after the sale documents are signed, in order to give you time for due diligence.
8. Perform due diligence on the practice. This includes reviewing the financials of the practice with your advisors, inspecting the equipment you will be buying, and, if possible, meeting with the staff. You may even want to shadow the seller for a day or two in the office to see how the practice functions.
9. Work with the landlord to get an assignment of the lease from the seller to the buyer. This can often be a roadblock in the process. Most leases require that the landlord approve of any assignment. If you don’t get it, the landlord can declare you in default and terminate the lease.
10. After your due diligence is complete and you have finalized the financing, you will close on the purchase of the practice.
10. As a dentist making an offer to buy a dental practice, what should I put in a letter of intent?
The Letter of Intent (“LOI”) is the roadmap for the dental practice sale. It should have the basic terms like the purchase price and the closing date. It should also include whether the seller is staying on after the practice.
If the seller insists on an earnest money deposit or down payment, that should be included in the LOI. As a buyer, you will also want to make sure you know when and how the earnest money will be refundable.
Some other terms you might want to add to the LOI include:
How will the purchase price be allocated? The allocation is largely for tax purposes, and is usually divided between the tangible assets, like equipment, furniture, and supplies, and the intangible assets like goodwill. The allocation can be important because the tax rate will vary for both you and the seller, based on the allocation.
What due diligence can you perform? The LOI should spell out the type of access you will have to perform your due diligence. This should include financial records as well as access to the physical office to inspect the equipment.
If possible, you may also want to see if you can interview the staff before the closing date. This may not always be possible, though, as many sellers will restrict access to staff until after the closing date, especially if there is no earnest money deposit.
How will Accounts Receivable be treated? Depending on the practice, there could be tens of thousands of dollars in receivables that have been earned, but not yet received, as of the closing date. Sometimes, the seller will keep ownership and send out invoices. Sometimes, the seller will keep the receivables, but the buyer will collect on the seller’s behalf. In this scenario, the buyer also gets a small collection fee.
In other cases, the seller will sell the receivables to the buyer. This is usually discounted off of the face value, with older receivables having a heavier discount. The decision on how to handle receivables is typically based on a number of factors, including collection history, the total amount of the receivables, and whether the buyer can obtain additional financing to purchase the receivables.
How will work in progress be treated? Work in progress are cases that have been started before closing, but won’t be completed until after the closing. For example, the seller may have made an impression for a crown at a pre-closing appointment, but won’t actually seat the crown until after closing.
As a practical matter, you will want the seller to complete as much work in progress as possible prior to closing. If there are any remaining cases, you may want to allow the seller access to the practice to finish those cases up, or you may choose to complete the treatment. However, there can be questions about how to divide fees between the buyer and seller, and it can be best to resolve this in the LOI.
These are just a few items you may want to include in the LOI, and you should consult with your attorney before submitting the LOI to ensure that you and the seller have agreed on all of the major deal points before the attorney begins drafting the contract.
11. When buying a dental practice, what is the difference between an asset purchase and a stock purchase?
The difference between the two lies in what you are actually buying. In an asset purchase, you are buying all of the assets of an entity, but you are not necessarily assuming any of the liabilities. The seller’s entity, usually a PLLC or a PC, will continue in existence, but it will just be a shell entity, with no assets after the closing.
In a stock purchase (for a PC) or a membership purchase (for a PLLC) what you are actually buying is the individual doctor’s interest in the company. This means that the entity will continue in existence, and will continue to own all of its assets, but just with you as the owner.
Unfortunately, this also means it will continue to have all of its liabilities as well, for which you will now be responsible. Although you can contract around some of these issues with careful drafting of indemnification provisions, you may ultimately be responsible for an undisclosed liability.
The majority of dental practices are asset purchase agreements. Structuring the transaction this way will give the buyer a fresh start, without any of the seller’s baggage. However, there may be circumstances in which a stock purchase is advisable, or even necessary.
For example, if the practice works with AHCCCS or has very favorable insurance reimbursement rates, you may want to keep those contracts in place to avoid a lengthy credentialing and re-contracting process.
As another example, if the landlord refuses to approve an assignment to the new entity, the lease may allow you to assume the lease without the landlord’s approval by buying the doctor’s interest in the company (note, though, that many leases treat a sale of a membership interest as an assignment).
Deciding which form the sale should take can be a complicated question. It is something you and the seller should agree upon after consulting with your legal, financial, and tax advisors.
12. Should I keep the seller/prior practice owner on as an associate dentist after buying a dental practice?
In a lot of cases, it makes sense for a buyer to have the selling doctor stay on as an associate after the sale, at least for a short time. The seller can help with the transition and answer any questions you may have about the office. Having the seller remain for a brief transition can also help re-assure patients.
However, in most cases, the transition period should be fairly brief, a few months or, at most, a year. For one thing, there may not be enough work to have two doctors working in the office. Additionally, some doctors find it difficult to transition from the role of being an owner to an associate, which can create unnecessary stress.
If the seller is staying on as an associate, you should definitely have a written employment agreement. The employment agreement should have all of the key terms of employment, just to ensure that there is no confusion.
This employment agreement is typically attached to the purchase agreement as an exhibit. Unlike the purchase agreement, though, it is typically prepared by the buyer’s attorney, since the buyer will be the employer. Your lawyer should guide you through the process of preparing the employment agreement to make sure you have an enforceable and effective agreement in place.
13. When I buy a dental practice, should I require a non-compete with the seller?
Yes, you absolutely can and should have a non-compete in place with the seller.
There should be a non-compete, regardless of whether the seller is staying on as an associate. Otherwise, the seller could simply open up a new practice across the street from your existing practice and siphon away all of the goodwill that just cost you hundreds of thousands of dollars.
One thing to keep in mind under Arizona law is that courts will generally allow broader non-competes when made in connection with the purchase of a practice than they will for employees. What might be an unreasonable non-compete for an associate might be fully enforceable against a seller. This is because Arizona courts recognize that when you invest hundreds of thousands of dollars in a practice, you are entitled to more protection than if you are simply working as an associate.
Additionally, most lenders have specific non-compete requirements before they will loan money to buy a practice. Many lenders will require a 10 mile non-compete radius for a period of 2-3 years, although your lender may have other requirements.
Regardless, it is important that you have step-down provisions in your non-compete. That way if a court determines that the non-compete as drafted is overly broad, there will be a fallback that will remain enforceable.
In addition to a non-compete, you should also have a non-solicitation provision in the sale agreement that prevents the seller from recruiting the practice’s staff away from you. It may also limit the seller’s ability to advertise his services. Although you have to be careful not to interfere with a patient’s choice of provider, you do not want the seller to be able to set up a practice just outside the non-compete area and send flyers to former patients advertising his or her new practice.
Non-compete and non-solicitation agreements need to be carefully drafted to ensure that they are as strong as possible under Arizona law. If you have any questions about how to maximize the effectiveness of these agreements, you should contact an experienced dental attorney.
Owning A Practice
14. How do I open a new dental office? What legal issues are involved in starting a new practice? Do I need an attorney to assist me?
The first step in opening a new dental office is usually to form an entity for the practice. For most of our clients, we typically recommend that they form a professional limited liability company (“PLLC”). Although a PLLC can’t insulate you from malpractice claims, it can protect you against other types of liability, and there may be tax benefits as well.
Once the PLLC is formed, the next step is usually picking a location. Working with a practice consultant can help you narrow down a general area for your office. Working with a real estate broker can help you identify the exact space for your new office, whether you are buying or leasing.
Both leases and purchase agreements are complex, and should be reviewed by a lawyer. With a lease, you will have a relationship with a landlord that will last 5 or 10 years, or longer. You want to make sure you are aware of the potential issues in that relationship. You also want to make sure to understand your rights and obligations under the lease and that it is drafted in the most favorable manner possible to you.
With a real estate purchase, you will want to make sure there are no problems with the title. An attorney will conduct a title review and let you know if there are any easements or liens that may impact your ownership. If the property is in a property owners association, you will also need to review the Covenants, Conditions & Restrictions (“CCRs”) to make sure that you are able to use your property as planned.
Once you have leased or bought the property, you will need to work with a dental equipment supplier to outfit your office and you will also need to hire staff. For the staff, you will want to have an employee handbook in place or, at a minimum, some written protocols and procedures. This is especially important in health care, given the importance of the HIPAA privacy laws. In Arizona, you also have to be aware of the mandatory paid time off and wage laws.
Opening a dental practice is a long and complex process. There are a number of potential pitfalls that can expose you and your practice to liability. If you have any questions about the process, you should consult with an experienced healthcare attorney for guidance.
15. Should I buy or rent my dental office?
There are pros and cons to each approach, and the best fit depends on your particular goals and circumstances.
After you locate a property, you will receive the office lease (if you are renting) or the purchase contract (if you are buying). Both of these should be reviewed carefully because dental offices have specific requirements that most other offices do not. For example, you will need space for a compressor, plumbing for air and water lines, and sufficient power for lab equipment.
Your lease should address these issues, especially if the space was not previously used for a dental office. Ideally, you will have enough of a tenant improvement allowance to build out the space, but that raises additional questions.
Will you be able to use your own contractor, or will you have to use the landlord’s? What is the timeline for completion of the work? When and how will the tenant improvement allowance be repaid?
In many cases, leases provide that you must pay all of the initial costs for the tenant improvements; only after you have opened for business is the landlord required to reimburse you.
There are other things you have to consider in the lease as well. Is it triple-net or gross? If it is triple-net, what operating expenses are included in the CAMs (Common Area Maintenance)? Are there caps on operating expenses? Who is responsible for maintenance? Is there an extension option? Is there a relocation provision? Are you required to provide a personal guaranty? Will you be able to assign the lease if you sell your practice? What happens if you die or become disabled during the lease?
These are all things that should be discussed with the landlord and addressed in the lease, with language drafted by an experienced attorney in order to ensure that the lease is as favorable to you as possible.
16. Do I need an employee handbook for my dental office? Can your law firm prepare one?
You are not required by law to have an employee handbook. However, it can be a very good idea to set ground rules, expectations, and disciplinary processes for your staff.
In dentistry, in particular, having an employee handbook is important. Among other things, the handbook should reinforce HIPAA requirements, establish protocols for handling hazardous materials, and set office standards for interacting with patients.
Although having a handbook can be helpful, you have to be careful with what goes into it. The employee handbook essentially acts like a contract between you and your staff. If you have something in there that is poorly drafted, it could have unintended consequences. For example, the handbook could change the employment from being at-will to one in which you are required to provide notice before terminating an employee.
Additionally, it is not enough to just have an employee handbook. You also must follow the handbook. If you don’t, you could face a wrongful termination claim from an employee. You should always consult with an experienced attorney, both for the creation of the handbook and as questions arise in the management of your staff.
17. I am a dentist in Arizona. What kind of benefits do I need to provide my staff?
In Arizona, the key employment benefit you need to know about is Arizona’s Paid Sick Leave law. Beginning in 2017, Arizona businesses must provide paid sick leave. For practices with more than 15 employees, staff will accumulate 1 paid sick hour for every 30 hours worked, up to 40 hours per year. For practices with under 15 employees, staff will accrue 1 paid sick hour for every 30 hours worked, up to 24 hours per year.
The paid sick leave can be used for the employee or for a sick family member. There are nuances to this which could allow employees to accumulate more than the minimum amount of sick time, so you should consult with an attorney in deciding what policy is best for you.
Additionally, depending on the size of your practice, you may also need to consider the Affordable Care Act (“Obamacare”). Generally speaking, it only requires that an employer provide health insurance if the employer has 50 or more full time employees. However, smaller businesses can qualify for tax benefits by offering their employees health insurance, subject to the requirements of the ACA’s Small Business Health Options Program.
Many practice owners may also choose to take advantage of other benefits to help both themselves and their employees. These can include retirement plans, short and long term disability plans, or flexible spending and health savings accounts. If you think these might be benefits you want to pursue, you should check with an attorney and accountant to ensure you are maximizing your tax savings from these programs.
18. Should I buy into a dental practice as a part-owner dentist? What are the benefits/risks? Do I need a contract/should I have an attorney review the contract?
This depends on the circumstances, but it tends to work best when you have already been an associate at the practice for some period of time. That way, you know the practice and staff, and you should have a handle on the financial information of the practice. Perhaps just as importantly, you know who your business partner will be.
If you are looking at buying into a practice, there are a few things to iron out. How will you determine the purchase price? How will the purchase be financed? How will control of the day-to-day operations of the practice be managed? Will there be an option to buy the remainder of your partner’s interest out when he or she retires? What happens if one of you dies or becomes disabled?
These are just some of the questions you should be asking yourself and discussing with your new business partner. This can be especially important when one doctor is used to being the sole decision-maker for the practice. Often, this can lead to friction over the control of the practice. Without clear rules on how the partnership should be operated, this friction can lead to a toxic environment.
Unfortunately, we frequently see dentists enter into partnerships without much forethought and without any legal guidance. If something unexpected happens or if the parties just don’t get along, trying to unravel the partnership can be long and costly. We have been involved with partnership disputes that have taken years to resolve because the parties did not plan ahead when deciding to become partners.
19. I am a dentist with my own practice. Should I partner with a DSO? What are some of the pros and cons of partnering with a DSO?
A Dental Support Organizations (“DSO”) can be a good way for a dentist to get started in practice ownership. DSOs can also be a good choice for older dentists with established practices who are looking to get rid of some of the hassles of practice ownership and focus on dentistry. However, they have some drawbacks and are not for everyone.
The typical DSO model involves one of two scenarios. The first involves a dentist who has been working as an associate. The dentist and the DSO will enter into an agreement under which the dentist and the DSO will pay for part of the cost of starting a new practice or buying an existing practice. The dentist will have a minority interest in the new practice, but will pay much less than if the dentist was responsible for 100% of the cost of buying or starting the practice.
The second scenario is with a dentist who owns an established practice, but is looking to scale back. The dentist will sell a majority interest to the DSO. Then, the DSO will take over the administrative duties.
The benefit of partnering with a DSO is that you can focus on dentistry. You no longer have to worry about things like staffing issues, equipment issues, or negotiating a new lease. However, the drawbacks include the fact that you will no longer have control of the practice. For example, the DSO will make all of the purchasing and hiring decisions. Additionally, the DSO will take a management fee off the top, before any profit is distributed to the owners.
For example, suppose a practice collects $100,000 in revenue a month, with overhead of $60,000 per month. If the dentist owns 100% of the practice, he or she would take home $40,000 per month, or $480,000 per year.
If the dentist partnered with a DSO and only owned 40% of the practice, though, the numbers could look much different. Typically, a dentist working with a DSO will get paid as if he were an associate for the revenue generated by his dentistry.
Using the above example, assume the dentist gets paid $15,000 per month as a salary. That would increase the overhead to $75,000 per month. If the DSO takes an additional $15,000 per month as a management fee, that leaves only $10,000 at the end of the month to distribute.
If the dentist gets 40% of that amount, he or she would get total profit distributions of $48,000 per year. Combined with the dentist’s salary, this would be a total take-home amount of $228,000 per year.
Additionally, DSO agreements can be difficult to get out of. Since the dentist is an owner, he or she cannot simply quit and work in another practice. A dentist who wishes to leave may have to find another dentist willing to buy in.
If the DSO Agreement allows the dentist to sell back to the DSO, the value may be set at a less than market value formula and paid out over several years at low interest. Also, the DSO Agreement almost certainly will contain a broad non-compete, limiting future employment options.
If you are considering partnering with a DSO, you should have an attorney review the DSO Agreement beforehand so that you can know what to expect and make an educated decision as to whether it is the right choice for you.
20. One of my dental patients posted a bad Yelp/Google/online review. What do I do?
Getting a bad review on Yelp, Google, or other online platforms can cause serious harm to a practice. However, not all negative online reviews can serve as the basis for legal action, such as a cease-and-desist letter or a lawsuit.
Under Arizona law, the primary legal remedy for bad reviews is a claim for defamation. In order for a negative review to meet the level of defamation: (1) it must contain a false statement of fact; (2) the statement must be defamatory (meaning it must be something that casts a negative light on the plaintiff or his character); (3) it must be published to a third party; (4) the defendant must be at fault; and (5) the plaintiff must suffer damages as a result.
There are a number of nuances in defamation law that must be evaluated on a case-by-case basis. Generally speaking, though, the most important element in the context of online reviews is usually whether there is a false statement of fact.
A statement of opinion, no matter how incendiary, typically won’t be enough to support a defamation claim. For example, if the online review says that you “smelled bad and were rude” that typically wouldn’t give rise to a defamation claim. Those are subjective impressions, not objective statements of fact.
Even if you can’t file a lawsuit, though, you may have other options. For example, if the review violates the Terms of Service for the review website, such as if it is a fake review from someone you have never treated or was made in an attempt to extort money or free dental work, you may be able to convince the site to remove the review. You can also address the issue raised in the review with the patient to see if it can be resolved, or you can encourage other patients to leave positive reviews.
These are some other important things to keep in mind when dealing with online reviews. First, you never want to ever, under any circumstances, post anything about the patient or the treatment they received on a public forum. That opens yourself up to a potential HIPAA violation that could be much more severe than the review itself.
Second, you are probably best served to avoid getting into a back-and-forth war with the patient on the review site, even if you don’t violate HIPAA. It can be perceived as petty and vindictive, and may undermine your credibility in a future legal dispute or turn off prospective patients who are reading the back-and-forth online.
Finally, you want to avoid suing the review site. It almost certainly has immunity and will likely result in you spending tens of thousands of dollars in legal fees without achieving anything in return.
If you have received a negative online review, you should consult with an attorney to see if it is actionable defamation. If not, you and your counsel can explore other alternatives to removing the review or, at a minimum, reducing its impact on your practice.
Selling A Practice
21. When should I start planning to sell my dental practice? When do I need to contact an attorney?
In order to maximize the value of your practice, it is best to start planning months, if not years, before you actually plan to sell. The price of a practice is typically based on the most recent financial statements of the practice.
Depending on your practice, you may want to bring on an associate, increase marketing efforts, or change your fees in the months or years leading up to your planned practice sale date to increase the office revenue.
You should work with a practice broker to monitor market trends, set your sale price, and determine the best time to sell the practice. Your CPA can ensure that you structure the sale in as tax-favorable a manner as possible, and ensure that your financial records are in good shape for the buyer to review.
You will also want to work with a lawyer to review and clean up any issues with respect to the title to the practice’s assets and ensure that the practice entity is properly set up. If you hire an associate or lease your office space, you should have an experienced attorney review those documents to ensure that neither your existing office lease nor your employment contract with the associate will cause a delay with the sale of your practice.
For example, if you lease your office space, you will almost certainly need the landlord’s consent to transfer the lease to the buyer. The buyer (and the buyer’s lender) will require not only that the lease be assigned, but also that there be a certain amount of time left on the lease.
If you need to get the landlord’s approval to the assignment and you need to extend the lease, you will want to start the process long before you sell your practice. We have seen landlords kill practice sales because the parties did not reach out to the landlord soon enough to transfer the lease, or because the landlord was unwilling to grant the extension.
Selling a practice can be a complex dance that requires coordination from a variety of professionals. The earlier you start the process, the smoother your transition will likely be.
22. Should I sell my dental practice to corporate dentistry? Do I need to have an attorney review the contract documents?
Corporate dental groups, such as Heartland Dental and MB2 Dental, are increasingly buying dental practices at attractive prices. If you are looking to sell your practice, this is certainly an option. However, there can be some drawbacks.
For example, although the bottom-line sales price may be attractive, you may not get all of the money at once. Instead, you may only get a part of the purchase price up front. In order to qualify for the remainder, you may have to stay on as an associate dentist for several years. You may also have to hit certain production or profitability targets in order to qualify for future payments.
Additionally, although the total practice may be valued at or above the prevailing market rate, the corporate dental group may only buy a part of the practice. Under this scenario, you would only get a portion of the full value of the practice, and you would still be required to work in the practice.
The key takeaway is that, if you are interested in selling to a corporate dental group, make sure to review the terms of the agreement with an experienced dental attorney so that you can make a fully informed decision.
23. What should I do with patient credits when I am selling my dental practice?
Typically, as part of the sale, patient credits are transferred over to the buyer. However, that transfer comes at a cost.
The buyer will either get a reduction against the purchase price or a credit against any accounts receivable they are purchasing in connection with the practice. Also, if your patient credits are high or if you have a lot of old credits, a buyer may balk at assuming responsibility for them because of the potential liability they create. If patient credits have not been paid back to the patient within a certain amount of time, they must be paid back to the State of Arizona through the Unclaimed Property Act.
Many buyers do not want to assume responsibility for patient credits that are more than three years old, so they may require that you satisfy the practice’s obligations with respect to those credits before the sale can close. If you have any questions regarding your obligations with respect to patient credits and how they may affect your practice, be sure to contact an attorney to discuss before marketing your practice.
Personal Legal Questions
24. I am a dentist setting up my estate planning. Do I need a will?
Although not required, having a will is almost always a good idea. If you die without a will (i.e., you are “intestate”), Arizona’s laws of intestate succession will apply. These are found at A.R.S. § 14-2101 et seq. and are default rules that the government has created. However, these rules are based on what the government thinks most people would want, not what you might want.
For example, if you die without a will and you are married, there are two possibilities. If you and your spouse either have no kids or all of your kids are both yours and your spouse’s, your spouse gets everything. If you are married and you have kids from a prior relationship, your spouse will get half of your separate property and his or her half of the community property, while your kids will equally split the remainder.
If you are not married but have children, your children will inherit everything equally. If you are not married and don’t have children, your parents will inherit everything equally. If you are unmarried, have no kids, and your parents are deceased, your siblings will inherit everything equally.
From there the laws of intestate succession provide that even more distant relatives will inherit. Finally, if you are not survived by any family members who are close enough blood-relatives, your estate will be taken by the State of Arizona.
For some, these default rules might line up with how they want their estate passed. However, for many other people, they might want to leave money to charity, or include smaller bequests to other family members, or cut out other family members altogether.
If you do want to prepare a will, please note that there are formal requirements that must be met in order to ensure that the will is enforceable. If they are not, the probate court may throw the will out and instead follow the laws of intestate succession.
If you have any questions about how to prepare and execute a will, or how Arizona’s laws on intestate succession work, make sure to contact an attorney to go through the process.
25. I am a dentist with a will. Do I need a trust? Can your law firm help with this?
A trust can be a critical estate planning tool to avoid the delays associated with probate and to ensure that your last wishes are honored. For some individuals, specialized trusts can also be used for asset protection, to care for disabled children, to minimize estate taxes, or for a number of other purposes. However, Arizona does not have a state tax on estates, and the federal exemption is currently high enough (more than $25 million in 2023) that, for most dentists, a simple revocable trust can adequately provide for your needs.
Simply put, a trust is an agreement made by the creator (known as the trustor or settlor) that certain property will be held in trust for certain individuals. A revocable trust is one in which the settlor reserves the right to remove property from the trust or to change or revoke the trust as well. Since it is revocable up until the settlor’s death, it does not provide much in the way of asset protection. If the settlor is successfully sued, the court can simply order the settlor to remove assets from the trust in order to satisfy a judgment.
However, the revocable trust can serve several important purposes. Most importantly, property that is put in the trust does not have to go through probate after you die. Probate is a long, and sometimes expensive, process by which assets are transferred from your estate to your heirs. A court will often oversee the probate process, requiring numerous hearings.
A trust also allows you to have more flexibility over how your assets are distributed. The most common example of this is with married couples who have young children. They will often set it up so that if they pass away while their children are young, a guardian will be appointed and the trust assets will be used for their children’s upbringing.
Often, the trust will also provide that, instead of getting everything at 18, the children will get a portion of the funds upon hitting certain ages. That way, the children are not simply given a large sum of money at 18, when they may not have the maturity or education to use the money wisely.
The trust also works in combination with the will through a pour-over provision in the will. Essentially, this acts as a catch-all, allowing the will to transfer everything that is not in your trust at the time you die. This still requires the assets to be probated, but once they are probated and transferred into the trust, they will be handled according to the terms of the trust.
26. I am a dentist. Do I need disability insurance? If I need to file a disability claim can your firm help with that?
Yes. Every dentist should have disability insurance. Given the amount you have invested into your career, as well as the prevalence of musculoskeletal injuries in dentistry, disability insurance is a key component of asset preservation.
Our firm is unique, as attorney Ed Comitz has focused his practice on private, “own occupation” claims filed by professionals (primarily dentists) for the past three decades. If you are a dentist with questions about the disability process and importance of disability insurance, please see our firm’s disability-specific website, disabilitycounsel.net, and our Dentist Claims & Resources page specifically dedicated to disability-insurance-related questions and claim tips for dentists.
27. I am a dentist in Arizona. What happens to my dental practice if I get a divorce? How do I protect my dental practice?
Arizona is a community property state. This means that, regardless of which spouse earned what during a marriage, each spouse is generally entitled to an equitable distribution of all of the assets acquired during a marriage. If you started or bought a practice after you got married, this means that your spouse likely has a claim to part of the practice.
This doesn’t necessarily mean that your spouse will become a co-owner of the practice, though. Instead, the court will typically value the practice as part of valuing all of the marital assets, and then reach an equitable division (usually, but not always, 50/50) of those assets.
This could mean that you may have to forego other marital assets, such as your house, as part of the property division. It could also mean that you could have to make an equalization payment to your spouse as part of the property settlement. In this scenario, your spouse could essentially become a creditor of the practice.
Since the marital assets will be distributed equitably, based on their value, the valuation of a practice often becomes a hot button issue during divorce proceedings. This is a complicated process, looking at factors like marketability, return on investment, and historical performance. There can be a significant gray area in the valuation process, and there are different methodologies that can be used in determining the valuation. Therefore, expert witnesses and the way your expert witness opinion is presented to the court can be crucial to the outcome.
For example, goodwill typically makes up the largest portion of a practice’s value. However, this is an intangible asset that is based on a variety of factors. The manner in which those factors are emphasized and evaluated can be critical in determining an accurate valuation that does not overstate the value of the practice.
Often, expert opinions based on the same data can differ by tens, if not hundreds, of thousands of dollars. Finding the right attorney and expert is therefore critical to achieving a more equitable distribution of the marital assets.
The information provided above is offered purely for informational purposes. It is not intended to create or promote an attorney-client relationship, and does not constitute and should not be relied upon as legal advice.
Every situation is unique and the discussion above is only a limited summary of information that may be relevant to your claim. If you are a dentist concerned about a legal problem or issue discussed above, an experienced dental attorney can help you assess the situation and determine what options are available to you.
