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Matters to Consider Before Forming a Dental Group Practice

Mar 2, 2020
WSDA News reached out to Emily R. Studebaker to discuss the legal considerations of starting a dental group practice in Washington.

Editor’s Note: WSDA News reached out to Emily R. Studebaker to discuss the legal considerations of starting a dental group practice in Washington. Studebaker is a founding member at Studebaker Nault, PLLC, a health law firm that provides legal services to health care providers and companies operating in Washington, Oregon, and Alaska. She serves as outside counsel for WSDA and the Washington Ambulatory Surgery Center Association.

Emily Studebaker

WSDA News:
The practice of dentistry, and the forms that dental practices take, are adapting to a continuously evolving health care environment. Many dentists are interested in joining or forming a dental group practice. What federal and state laws should dentists be aware of when considering which dental practice model is right for them? 

Emily Studebaker: It is important to note that the practice of dentistry is highly regulated at the federal and state levels of government. Federal and state laws alike regulate the ownership and operation of dental practices, the referral of patients for dental and related services, and the financial arrangements among dentists and non-dentists. Among the federal laws influencing whether and how dentists own and operate their practices are the Physician Self-Referral Act (commonly known as the “Stark Law”), the Anti-Kickback Statute, the Civil Monetary Penalties Law, and the Health Insurance Portability and Accountability Act. Similarly, federal antitrust laws, which inhibit dentists’ ability to negotiate effectively with private payers, influence the form dental practices take. In addition to these federal laws, state laws regulate fee-splitting and the corporate practice of dentistry and therefore influence the ownership structures as well as the operation of dental practices.

WSDA News: Can you compare the structural differences between a dental practice owned by one individual and a dental group practice? 

Emily Studebaker: The major difference is simply the number of owners — both individual and group practices can be created as the same type of legal entity. The individual dental practice is owned by a single dentist, and it may be carried on directly in the dentist’s individual capacity or indirectly through a wholly-owned and controlled legal entity, such as a professional corporation or professional limited liability company. The dentist may work alone or with the assistance of auxiliary providers, such as dental hygienists or dental assistants. 

A group practice traditionally has been similar to the individual practice model, except multiple dentists would practice at one location — or office — under one form of legal entity. Recently, however, there has been significant growth in the number and sophistication of dental group practices, many of which have multiple locations and may have a significant geographic presence. 

WSDA News: In order to be considered a group practice under the law, the group must operate as a single entity. Can you explain what operating as a single entity means?

Emily Studebaker:
A group practice must be a single legal entity operating primarily for the purpose of being a dental group practice in an organizational form recognized by the state in which the group practice achieves its legal status. In Washington, this includes, but is not limited to, a professional corporation or limited liability company organized in accordance with Washington’s Professional Corporation Act. The single legal entity may be organized or owned, in whole or in part, by another dental practice. 

A single legal entity does not include informal affiliations of dentists formed substantially to share profits from referrals, or separate group practices under common ownership or control through a practice management company or other entity or organization. The single legal entity operates under one tax identification number.

WSDA News: Are there other common characteristics of group practices that differ from an individual dental practice?

Emily Studebaker: Dentists should be aware of some other notable group practice characteristics: centralized decision-making, consolidated financials and billing, and distribution of expenses and income.

  • Unified Business. The group practice is a unified business with centralized decision-making by a body representative of the group practice that maintains effective control over the group’s assets and liabilities (including, but not limited to, budgets, compensation, and salaries).
  • Consolidated Financials and Billing. The group has consolidated billing, accounting, and financial reporting. Substantially all of the patient care services of the dentists who are members of the group are furnished through the group and billed under a billing number assigned to the group, and the amounts received are treated as receipts of the group.
  • Distribution of Expenses and Income. A group determines how expenses of the group and income generated by the group will be distributed before the receipt of payment for the services giving rise to the overhead expense or producing the income has occurred. In other words, decisions about how expenses are covered and how income is shared are not made after services have been provided.

WSDA News: Can you compare the benefits and drawbacks between an individual dental practice and a group dental practice?

Emily Studebaker: Individual dental practices offer the dentist the highest degree of autonomy to conduct the practice as the dentist desires without answering to an employer or a partner.

Across the health care delivery system, operating individual practices has become more difficult, with the increasing costs of doing business and burdens of complying with mounting regulations and the decreasing reimbursements from third-party payers. The group practice model is a proven means of achieving the efficiencies and economies of scale unavailable to most individual dental practices. When dentists seek to organize a group practice as an alternative to individual dental practices or other practice models, the dentists combine assets and liabilities, personnel, financial and operational systems. Likewise, the dentists also share in decision making. 

While dentists in a group practice relinquish a certain degree of autonomy, becoming answerable to their partners, there are nonetheless many benefits to this form of practice. The group practice can take advantage of centralized administrative resources and can also increase purchasing power and better negotiate reimbursement contracts with dental benefit carriers. Practices with multiple locations may offer a high level of convenience to their patients.  

WSDA News: What is your advice for WSDA members who want to form their own dental group practice?

Emily Studebaker: Establishing a dental group practice requires careful planning. Federal and state laws that regulate the ownership and operation of dental practices should be considered. In addition to regulatory considerations, legal agreements should be put in place from the outset to protect the interests of all group practice members. 

In contrast to the individual dental practice, dental group practice members should have written agreements that govern not only the ownership and operation of the practice itself, but also address the business and professional relationships that exist among the members. Disagreements among dentists within a group practice commonly arise from the lack of clearly defined and organized decision-making processes and rights and responsibilities. It is important to clearly define the dentists’ rights and responsibilities and to allocate decision-making authority in an equitable manner. In the absence of clear written agreements, disputes may arise related to such issues as the admission of additional members into the practice, the departure of dentists from the practice and the associated buy-in and buy-out provisions relating to these transactions. Similarly, disputes may arise related to such issues as the methods of compensating and providing benefits to dentists.

If a group practice is formed properly, it can have significant rewards. Dentists interested in forming a group should obtain advisors knowledgeable about the tax and legal issues surrounding group practice formation.

The specific objectives of organizing a group practice may include the following:

  • Increasing purchasing power
  • Aligning dentists and auxiliary providers to better coordinate and manage the care of a patient
  • Sharing ideas collaboratively
  • Providing higher quality care at better cost
  • Coordinating the development of approved clinical processes
  • Combining marketing and branding to increase market share and penetration
  • Broadening geographic presence
  • Increasing leverage to better negotiate reimbursement contracts
  • Assisting with recruiting and hiring dental hygienists, dental assistants and/or other auxiliary providers
  • Increasing total revenues
  • Reducing overhead costs
  • Assisting with strategic planning and succession planning
  • Centralizing professional management and billing
  • Increasing access to capital

This article was originally published in the Winter 2020 issue of the WSDA News. Want to learn more? Read the related cover story "The Future of Independent Practice? WSDA, ODA Join Forces to Explore Group Practice Formation."