In the dental field, dental support organizations (DSOs) provide non-clinical administrative support to practices. Many dentists partner with DSOs to handle the business side of their practices so they can focus on patient care.
In recent years, there has been an increasing trend of DSOs acquiring dental practices. Dentists who consider selling their practices to DSOs should seek experienced legal counsel to set up a lawful transaction and protect their financial interests.
What Are DSOs, and What Is Their Appeal?
DSOs perform a variety of administrative and business functions for dental practices, such as:
- Marketing and advertising
- Human resources, including recruitment, onboarding, work scheduling, and handling employee issues
- Billing and filing insurance claims
- Payroll
- IT infrastructure development and maintenance
- Bookkeeping
DSOs have significant appeal to many dentists who own and operate practices. Some dentists may not consider themselves to have an aptitude for the administrative side of running a dental practice. Other dentists may have little or no interest in handling tasks such as marketing, bookkeeping, scheduling, or payroll. Finally, some dentists may feel that having the ability to focus exclusively on patient care allows them to deliver better care. DSOs can also help practices access advanced technology or software through economies of scale, as DSOs can support a large number of dental practices.
Preparing Your Practice for Sale
Take the following steps when preparing to sell your dental practice to a DSO:
- Gather financial records to ensure the accuracy of the data and performance metrics
- Review the practice’s contracts and leases and identify regulatory compliance requirements
- Work to optimize operations and grow your patient base to increase your practice’s value
- Retain a professional appraiser to determine the practice’s fair market value
Negotiating the Sale and Key Deal Terms
A sale of a dental practice may occur as an asset sale or equity sale. In an asset sale, the practice sells all its assets – real estate, equipment, supplies, accounts receivable, and goodwill – with the legal entity that operates the practice remaining under the seller’s ownership. In an equity sale, the practice’s owners sell their ownership of the legal entity that controls the practice (i.e., an LLC or corporation).
Selling a practice also requires negotiating key terms, such as payment. In many sales, parties will structure the purchase price to include a large upfront payment that provides for most of the purchase price, followed by post-closing earnout payments based on the practice’s financial performance after the sale. Other deal terms may consist of employment agreements for the seller to stay on with the practice for a limited period to help with the transition, or restrictive covenants that preclude sellers from immediately opening competing practices.
Legal and Regulatory Considerations
Dentists selling their practices to DSOs must also take legal and regulatory considerations into account, such as:
- Compliance with state dental licensing requirements
- State restrictions on the corporate practice of dentistry, which may bar a DSO from directly owning a dental practice
- State and federal laws on ethical practices, such as the Stark Law and the Anti-Kickback Law
- Other regulatory concerns, such as HIPAA compliance
Post-Sale Transition and Integration
Selling a practice will also involve a post-sale transition process, which may include managing staff, coaching them on the new ownership’s practices and expectations, and advising patients of the ownership transition. A practice’s current staff may need time to adjust to new operational structures or corporate cultures. Finally, dentists who sell their practices may have an ongoing role to help facilitate the transition, including providing a degree of continuity for patients so they can get used to the practice under new ownership.
Contact a Dental Attorney Today
If you decide to exit your dental practice or plan to retire from dentistry, you might consider selling your practice to a dental support organization. Contact Mahan Dental Law today for an initial consultation to learn more about the process and get the legal advice and support you need, all for a flat, transparent fee.
