August 15, 2022

Top Legal Mistakes Dentists Make
Part I

In our practice, we often see the consequences of dentists failing to consult proactively with professionals.  We have created a summary of some of the common legal mistakes our attorneys see at every phase in a dentist’s career.  This first post looks at the top issues we often see at the start of a dentist’s career.

Legal Mistake No. 1.: Not Reviewing The Associate Contract

Many new doctors begin as an associate in a practice. Although this can be a great way to build experience, many dentists are not prepared to spot potential issues in their associate employment contracts. For example, will the new contract limit your future employment? If you are paid on production or collections, how is that calculated? Who is responsible for buying malpractice insurance?

Restrictive Covenants

In Arizona, many employers include restrictive covenants (non-compete and non-solicitation clauses) in their associate agreements. Non-competes prevent you from working in another practice within a certain radius of the practice for a certain amount of time after you leave.  Non-solicitation agreements prevent you from poaching staff and patients from the practice. Restrictive covenants are generally enforceable in Arizona as long as they are reasonably limited in geographic scope and duration.

Compensation

In addition to restrictive covenants, there are other terms in an employment agreement you should review.  If you are offered a position based on a percentage of production or collections, you will want to make sure that there is enough work to keep you busy and maximize your earnings.  You will also want to know what adjustments will be made to your production numbers for insurance and patient discounts.  Finally, you will want to have a means to verify that your compensation is being accurately paid.

Insurance

An employment agreement should also cover some less obvious terms like insurance. Many malpractice policies are “claims made,” meaning that the insurance must be in effect at the time a claim is made for there to be coverage.  If you leave and the policy expires, you could be exposed to potential liability.  In such a case, “tail insurance” can provide coverage, but it can be quite expensive.  You want to make sure the associate contract specifies who will be responsible for buying the tail coverage when you leave.

Takeaway

These are three legal mistakes where dentists can get into trouble if they are not careful.  Failing to carefully review an associate contract can have long-lasting implications on a dentist’s career.  Consider having an experienced healthcare attorney review your contract with an an attorney before you sign it.

Legal Mistake No. 2.: Buying Into A DSO Without Understanding The Ramifications

In addition to associate employment agreements, many dentists increasingly partner with Dental Service Organizations (DSOs) early in their career.  This can be a great way for a new doctor to obtain an ownership interest in a practice.  Typically, these work by allowing the dentist to buy a minority interest in a partnership.  The DSO will handle all of the administrative tasks, like hiring staff.  In exchange, the DSO will charge a fee, in addition to receiving the majority of the profit from the practice.

Pros of DSOs

These can be a good fit in the right circumstance.  The newer dentist can experience ownership without a lot of the cost and risks of opening or buying a practice.  The cost of partnering with a DSO is often much lower than opening your own practice.  Additionally, the DSO handles many of the administrative details, such as hiring and firing staff and marketing to potential new patients.  The dentist is free to focus on dentistry and patient care.

Cons of DSOs

Despite the attractive nature of DSOs, there are some drawbacks.  First, you will not have control over the practice.  All of the decisions other than patient care decisions typically are made by the DSO.  Second, although the initial start-up costs may be less than owning your own practice, the ongoing costs can be significant, as the DSO will take much of the profit, either in management fees or through its majority interest in the practice.  Third, if you decide you do not like the DSO, you may be locked into a long-term commitment.

Usually, your interest in a DSO is non-transferrable.  This means you may not be able to get out of the ownership contract by selling your interest to another doctor.  Also, there may not be much security in ownership.  The ownership of the DSO interest is often tied to an employment contract, whereby you are employed by an affiliate of the practice, rather than by the practice itself.

If you quit or are fired, the DSO can force you to sell your interest in the DSO.  The “redemption price” you will be paid is often less than you paid to buy the interest.  It can also be paid over an extended period, sometimes as long as seven years.  So, you could buy into a DSO and, if the relationship doesn’t work out, the DSO can kick you out, and pay you a fraction of your buy-in cost, over a period of several years.

Takeaway

DSOs can be a good fit, in the right circumstances.  However, they are not a good fit for everyone, and you should consult with legal counsel before you enter into any DSO relationship to ensure you are aware of the risks and that your interests are protected.

Disclaimer

This post is for informative purposes only and should not be used as a substitute for consultation with a licensed attorney. It provides general information and a general understanding of the law, but does not provide specific legal advice. No attorney-client relationship is created by the posting of this information.  If you have specific legal questions after reading this post, you should contact a licensed attorney.