By: Chase Howard
Those in the practice of dentistry today have many options when it comes to building a practice. Should you work for an employer? Build your own? What about buy a practice? More and more, we see young dentists wishing to avoid private equity and buying out a retiring dentist’s practice. The amount of regulation imposed upon those entering into the dental practice arena can be staggering. Further, buying a dental practice requires many considerations that are unique to other areas of business. Understanding the purchase process will help protect your investment and could keep you from experiencing any unnecessary liability.
First, organize a team of specialized dental experts, such as a dental CPA, Professional Practice Lender, dental law attorney, and a practice consultant. Having a team of professionals guide you through all aspects of the deal will keep you on track, avoid potential issues, accomplish specific task items, and properly comply with any legal considerations.
Second, appropriate licensing and regulating bodies might have to be notified and/or approve any such purchase or sale. When a dental practice does not report a change in ownership to the appropriate licensing body, regulators might look upon that practice as operating without a license. This can lead to fines, or worse. Some considerations might include: insurance programs, nitrous registrations, and business licenses, among others.
Third, relationships among the buyer, seller, and any of their businesses must be scrutinized in order to satisfy all parties that the buyer’s ownership is permissible under the law. For instance, in the State of Florida: dentists cannot own a separate clinical laboratory and also refer specimens for analysis to that laboratory. Additionally, State and Federal Kickback Laws proscribe that, if one health care entity sells to another health care entity, the sale must be scrutinized to determine whether the sale price might actually be considered a kickback under the Federal Anti-Kickback Statute in exchange for future business referrals.
Fourth, meet with your professional team to analyze and review practice statistics, financing options, do due diligence, location, practice potential, legal documents needed to effectuate the transaction, and other items needed before, during and after the transaction.
Fifth, set up the appropriate professional corporation prior to signing any purchase documents. You’ll need a business bank account set up to receive funding; a business name for all legal documents; and a business for the appropriate state and federal licenses.
Sixth, if you’re taking on a partner, investor, or family member to help with the purchase, you must be cautious of Florida laws prohibiting non-dentists from owning dental practice. If you have any other partner’s, such as a parent, investor, or spouse, who isn’t a licensed dentist, you will violate Florida law. Florida law states that no person other than a Florida licensed dentist (or any entity owned solely by licensed dentists) may: 1) employ a dentist in the operation of a dental practice; 2) control the use of any dental equipment or material; 3) direct, control, or interfere with a dentist’s clinical judgment; or 4) have a relationship with a dentist which grants the non-dentist power and control over patient treatment or records or practice management. This law can also be implicated through certain types of lease or rental agreements.
Dentists must be extra cautious in the purchase of another dental practice. Performing extensive due diligence on the practice you’re considering purchasing, as well as having experts confirm legal compliance, will ensure that any purchase is conducted smoothly and without exposing you to significant liability. Keep in mind that most deals can take up to one year and require significant financial and legal work in order to properly and safely accomplish a purchase. Take the time to put together the right team to help accomplish your goals.