Business Service Agreements: A Tool for Deception within the Corporate Dental Support Industry
By Michael W. Davis, DDS
Business Service Agreements (BSAs), also called Business Service Contracts or Management Service Agreements (MSAs), are a tool created by the dental support industry (a/k/a dental support organizations) to mask their true business operational models. These contracts are generated between the unlicensed ownership (corporate beneficial owner) and the sham figurehead owner (nominee owner dentist(s)).
These agreements contain a variety of misrepresentations specifically designed to circumvent the rule of law. These BSAs serve as a lynchpin supporting the unlawful house of cards, of largely unlicensed and unregulated healthcare entities. Please note: the term “dental support organization” is also an intentional misrepresentation, to mask beneficial ownership.
Case precedent was established in federal Fifth Circuit ruling 07-30430)1., in which the court determined a Dental Support (Service) Organization (DSO), Orthodontic Centers of America (beneficial owner of dental clinics), was engaged in the unlicensed and unlawful practice of dentistry. The court also ruled the business agreements with so-called “owner” dentists were unenforceable and non-severable (denying one part could be enforced while another could not), because elements in these contracts were unlawful, the entire contract was rendered unenforceable.
Nationally, every DSO has created different BSAs. And, within different states, different DSOs will produce different agreements. However, there exist common features worth examination in the vast majority of these contracts.
Dental Clinic Ownership
The DSO generally will deny ownership of the dental practice. Yet, the DSO usually owns the facility or is the landlord on the lease agreement. The DSO owns the dental equipment, supplies, and any possible leasehold improvements.
The DSO enjoys contract rights to control what dentists or entity may be artificially designated as “owners”. An owner dentist(s) may not freely sell “their” asset of a dental practice, and thus are merely façade nominee owners. The DSO controls the bank accounts of the “owners’” clinic bank accounts, which are swept out several times per week, or daily. These are central points in the lawsuit against Dental One Partners, DentalWorks, et al, by 14 duly licensed North Carolina dentists enjoined by the North Carolina Board of Dental Examiners, in 2013.2.
Auxiliary dental staff is paid by the DSO, and like the army of ancient Rome is loyal and compliant to who pays them, and not the doctor (This dangerous situation commonly creates staff which may generate additional profit for the DSO, while ignoring and disrespecting supervision of a doctor and rules of a state dental practice act.).
Finally, what true dental practice owner would agree to retain the services of any hired vendor in perpetuity, or 40-50 years? Yet, that’s exactly the mandated stipulation in most BSAs. What true clinic owner would relinquish control of their bank account to a subordinate vendor? What valid dental clinic owner would allow some outside entity to control who they may, or may not sell their asset to? Obviously, the DSO truly beneficially owns and controls the dental practice, and not the doctor.
Misrepresentations of Clinic Ownership by the DSO
The now defunct dental chain, Small Smiles Dental (a/k/a Wild Smiles, Smile High Dental, etc.) primarily served a vulnerable pediatric Medicaid population. The DSO (Small Smiles Dental) designated the owner of three of their New York State clinics as Drs. Kenneth Knott and Robert Andrus. Neither doctor practiced in New York or managed the clinics. Dr. Knott actually practiced dentistry hundreds of miles away in New Mexico. These doctors agreed to assume the title of clinic “owner”, for the purchase price of five dollars per clinic. In reality, the doctors assumed no real ownership or management role. Dental clinic profits were remitted to the DSO (beneficial owner), and not Drs. Knott or Andrus (nominee co-owners). The doctors (sometimes called “stooges”) simply masked as designated nominee owners, in order for Small Smiles Dental to circumvent New York statutes on dental clinic ownership and management, and to provide a protective barrier for liabilities created by the DSO. Unfortunately for Drs. Knott and Andrus, when these clinics were found in breach of corporate integrity agreements (CIAs) with the federal Health and Human Services Office of Inspector General (HHS-OIG) and New York attorney general’s office, they played the role of patsies and took the disciplinary action, which the true beneficial corporate owners should have assumed.3.
New York State then forced Small Smiles Dental to divest their assets of these three dental clinics, which according to business service agreements, they didn’t actually own. Obviously the New York attorney general saw through the BSA misrepresentations, in ordering the clinic divestitures as part of a settlement agreement. In fact several years earlier, in a similar case of dental clinic Medicaid abuses and failure to meet terms of a CIA, the federal HHS-OIG ordered CSHM (operating Small Smiles Dental) to divest their dental clinic in Manassas, VA.4. Again, this was a dental clinic asset, which they deceptively didn’t own on paper, but controlled and beneficially owned.
In the legal deposition of Dr. Randall Ellis (October 23, 2014), we learned he formerly owned five (5) Colorado and one Nebraska Small Smiles Dental practices.5. Yet, he knew nothing of how clinic production monies were allocated or profits dispersed. He was initially proffered ownership via a phone call, from some unnamed mysterious individual, whom he didn’t recall. The alleged “owners” of these Small Smiles Dental clinics were the aforementioned Drs. Knott and Andrus. For a “purchase” price of one hundred dollars ($100.00) per clinic, Dr. Ellis received a “bump in salary” of five thousand dollars ($5000.00) per month, from the true beneficial corporate ownership. For monthly monetary remuneration, Dr. Ellis was fully complicit in the fictitious sham ownership, although he was seemingly kept in the dark as to actual business operations of the corporate entity.
In 2011, the North Carolina Board of Dental Examiners legally challenged the acquisition of the dental practice of Dr. Gary Cameron by Heartland Dental Care. In the final settlement, Dr. Cameron was left with a stiff formal disciplinary action against him, while Heartland Dental pretty much walked away without another dental practice added to their chain.6. A state’s dental board and state’s attorney general saw through the thinly veiled efforts at dental clinic ownership and control by an unlicensed corporate entity. The convoluted wording of the Heartland BSA couldn’t mask reality, for ethical regulators willing to serve the public interest.
The Big Lie
Nearly every (or every) BSA states in very clear wording, that the DSO only controls non-clinical matters of their dental clinics. Only licensed doctors make clinical decisions. That generally goes beyond misrepresentation, into the realm of a bald faced lie.
As indicated earlier, staff supposedly subordinate to the doctor and operating under a doctor’s supervision and licensure, are generally hired and paid for by the DSO. These staff members are primarily answerable only to the DSO, not the doctor. Too often, patients are upsold on needless periodontal treatment, sulcular antibiotic therapy, steel crowns, excessive x-rays, etc., all to meet quota and bonus production levels set by an unlicensed entity. A doctor who may challenge these forms of unlawful activities and actions of unlicensed staff is usually warned, and later terminated by the DSO.
Federal Fifth Circuit ruling 07-30430 specifically cites creating clinic production bonuses and quotas, as an activity within the scope of the practice of dentistry. Only a duly licensed doctor, and not an unlicensed DSO, may lawfully engage in such actions. Most BSAs establish a bogus nominee dentist owner(s) to obfuscate relevant statutes. In reality, the unlicensed party is making these determinations.
The selection of a dental laboratory and specific clinic patient supplies all relate to the doctor/patient relationship, and working in the patient’s best interest. Yet, most DSOs deny doctors these options. Yes, the DSO usually retains a shell entity acting as a nominee dentist owner or a dentist collective (professional corporation- PC), which theoretically makes these decisions. In reality, patient care decisions are made in the best interest of the DSO’s financial bottom line, and not for the patient’s ultimate welfare. The doctor of record treating the patient has become a low-level corporate pawn. The patient is simply a naive and ignorant retail customer, and too often a mark to be scammed. 7-14.
Scheduling of patients is usually outside the control of treating dentists. Patient appointments are provided in the best interest of the DSO’s investors (or first lien creditors), and enforced by employees outside the control of licensed dentists. Some large-chain DSOs run their patient scheduling from out-of-state centralized boiler-room operations. The left hand doesn’t know what the right hand is doing. Patients are double and triple booked for maximal production. More profitable production takes priority, while other patients’ times are bumped and are rescheduled over and over. Patients may not be afforded their informed consent rights and be upsold unnecessary dental care. Standard of care takes a backseat to investor profits. Ethical doctors become frustrated and patients are too often shortchanged.
Forms of Dentist “Ownership” in a BSA
The initial form of dentist “ownership” of DSO clinics usually takes the design earlier highlighted by Drs. Kenneth Knott and Robert Andrus with Small Smiles Dental. The doctor usually is totally clueless about “their" assets, which they only serve as nominee owners for. However, these doctors are in the vulnerable frontline for any potential regulatory investigations or sanctions. These “stooges” serve as a layer of accountability and liability protection, for the true beneficial and generally unlicensed corporate owners. This layered business structure design, similar to protective layers within interstate organized crime families, should not be lost upon the reader.15.
Another form of dentist nominee ownership is through a so-called “partnership” arrangement, in which the “owner” doctor never owns or controls over 50% of the enterprise. Naturally as a minority owner, the doctor is still under control of generally unlicensed corporate entities. In reality, the doctor may theoretically own, but not control patient records, and definitely no other tangible assets.
A recent development is the so-called “hybrid” dental practice. Again, this is a variation on a theme of unlicensed corporate ownership and control of dental practices. An “owner” dentist may have limited management responsibilities, in return for a larger share of profits under the DSO’s business models. However, primary control and true beneficial ownership is always retained by the DSO through generally unlawful and unregulated BSAs.
The public welfare demands accountability for unlicensed and unregulated healthcare practice. Regulatory authority is no different for an unlicensed individual, or an unlicensed corporate entity involved in the practice of dentistry.1. Business service agreements are a primary instrument by which unlawful healthcare practices are masked and the rule of law circumvented.
A study in contract law may seem tedious and often highly arduous. However, dental industry BSAs must be thoroughly examined, to peel back layer upon layer of misrepresentations. The October 6, 2014, letter from the Federal Trade Commission (FTC) to Assistant General Counsel for the Texas State Board of Dental Examiners is a prime example of federal authorities obfuscating their responsibilities to serve the public interest. 16. FTC representatives were irresponsible to the extent of accepting DSO industry “talking points” and corporate media spin, at face value. The public deserves better from government. The public welfare merits government attorneys willing and able to dissect the gross misrepresentations and outright lies of healthcare business service contracts.
Government authorities and regulators who act in the interest of big business, in which they select winners and losers in the marketplace via selective investigation and enforcement of statutes, work to the disadvantage of small business and average citizens. These public authorities undermine credibility in government and generate deep cynicism within our citizenry. Crony capitalism, with collusion of big business with big government, has no place in a viably functioning free market system. The American people deserve much better.
1. Federal Fifth Circuit Court Ruling 07-30430. http://www.ca5.uscourts.gov/opinions%5Cpub%5C07/07-30430-CV0.wpd.pdf
2. ADA News. “N.C. Dental Board and Dentists File Suits Against DentalCare Partners Inc”. March 21, 2013. http://www.ada.org/en/publications/ada-news/2013-archive/march/nc-dental-board-and-dentists-file-suits-against-dentalcare-partners-inc
3. Summaries on Regents Actions on Professional Misconduct and Discipline. New York State. October 2012. http://www.op.nysed.gov/opd/oct12.htm
4. Termination Agreement between Small Smiles of Manassas LLC and Church Street Health Management LLC. Apr 30, 2012. http://www.scribd.com/doc/103060556/307-1-CSHM-Manassas-Termination-Agreement-05012012
5. Deposition Randall Ellis, DDS in Nevaeh Simons, et al vs. DeRose Management et al. Oct 23, 2014. District Court, County of Denver, State of Colorado. Case No. 2012CV3650.
6. North Carolina Board of Dental Examiners. Consent Order with Gary L. Cameron, DDS. Aug 30, 2011. http://www.ncdentalboard.org/pdf/Cameron%20Gary%20-%20CO%20Aug%2011.pdf
7. Settlement Agreement- Commonwealth of Pennsylvania versus Aspen Dental Management Inc. Oct 13, 2010. https://www.documentcloud.org/documents/372853-aspen-dental-settlement-with-pennsylvania.htm
8. Media release- Attorney General for Commonwealth of Massachusetts for Settlement of Commonwealth of Massachusetts versus Aspen Dental Management Inc et al. Dec 22, 2014. http://www.mass.gov/ago/news-and-updates/press-releases/2014/2014-12-22-aspen-dental-aod.html
9. Media release- Attorney General for New York State- “A.G. Schneiderman Announces Settlement with Aspen Dental Management That Bars Company from Making Decisions about Patient Care in New York Clinics”. Jun 18, 2015. http://www.ag.ny.gov/press-release/ag-schneiderman-announces-settlement-aspen-dental-management-bars-company-making
10. ADA News. Indiana Attorney General Takes Action Against Aspen Dental”. (highlights of settlement agreement) Oct 23, 2015. http://www.ada.org/en/publications/ada-news/2015-archive/october/indiana-attorney-general-takes-action-against-aspen-dental ) .
11. Media release- USDOJ- “Oklahoma Dental Clinics Pay Over $5 Million to Settle Allegations of False Medicaid Claims for Dental Restoration Procedure”. (USDOJ versus Ocean Dental P.C.) Oct 30, 2014. http://www.justice.gov/usao-wdok/pr/oklahoma-dental-clinics-pay-over-5-million-settle-allegations-false-medicaid-claims
12. Media release- USDOJ- “National Dental Management Company Pays $24 Million to Resolve Fraud Allegations” (USDOJ versus FORBA Holdings LLC d/b/a Small Smiles Dental) Jan 20, 2010. http://www.justice.gov/opa/pr/national-dental-management-company-pays-24-million-resolve-fraud-allegations
13. Media release- US Senate Committee on Finance- “Baucus, Grassley Look to Stop Medicaid Payments to Medicaid Clinics that Skirt Oversight Regulations”. July 23, 2013. “The problem is tied to a business model that contradicts state laws requiring dental practices to be dentist-owned as a measure of accountability both to patients and taxpayers.” http://www.finance.senate.gov/newsroom/chairman/release/?id=8ffac70f-1b92-48d9-a396-7fc1477de484
14. Joint Staff Report on the Corporate Practice of Dentistry in the Medicaid Program. Joint US Senate Finance and Judiciary Committees. July 2013. http://www.scribd.com/doc/157218706/Senate-Report-on-Corporate-Dentistry
15. American Mafia. Wikipedia. Nov 2015. https://en.wikipedia.org/wiki/American_Mafia
16. Letter Federal Trade Commission by Gavil AI, Vita MG, Feinstein D to Salloum, Asst Gen Counsel TSBDE. Oct 6, 2014. https://www.ftc.gov/news-events/press-releases/2014/10/ftc-staff-comment-proposed-dental-services-rules-texas-would