Specialty dental practices can be attractive targets for private equity investors. Conversely, the sale of a dental practice to a private equity (or PE-backed) organization can be an effective way to maximize the value of a specialty dental practice. However, there are a number of legal and regulatory issues unique to investing in professional health care entities that need to be carefully considered when engaging in transactions with non-professional entities, write attorneys with Frier Levitt.
A threshold issue is the extent to which the state in which the practice is located restricts non-professionals from having an ownership or other controlling interest in a professional practice, commonly referred to as the “corporate practice of dentistry” or “CPOD.”
To address CPOD issues, private equity transactions with dental practices often involve Dental Support Organizations, also sometimes referred to as Dental Service Organizations (“DSOs”). A DSO is a non-professional entity that acquires a practice’s non-clinical assets and provides critical administrative and business functions to multiple dental practices. Through the DSO, the practice can become affiliated with a regionally or nationally recognized dental network, which, through economies of scale, can streamline the practice’s administrative, business and marketing functions and improve gross revenue and profitability. Following a transaction with a DSO, the selling dentist typically continues furnishing professional services through a clinical entity for several years, often as part of a wind-down/retirement strategy. DSOs seek to align with general dentists and specialists, including periodontists, endodontists, and oral-maxillofacial surgeons. Read more.
