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Friday, September 4, 2015

AG Settlement with Aspen Dental, Inc.

AG Settlement with Aspen Dental May Have a Significant Impact on Other Management Services Arrangements

On June 15, 2015, the New York Attorney General’s Office (“AG”) entered into a settlement agreement with Aspen Dental Management, Inc. (“ADMI”), a management services organization (“MSO”) that provides services to dental practices in New York. After receiving over 300 complaints during the past ten years, the AG launched an investigation and ultimately alleged that ADMI was improperly engaged in the corporate practice of dentistry, and that the compensation arrangements between ADMI and its dental practice clients (the “Practices”) constituted improper fee-splitting between professionals and non-professionals. 

Examples of ADMI’s alleged misconduct included:

  • Incentivizing the staff of the Practices to increase sales and push products
  • Retaining decision-making authority with respect to increasing productivity and revenue
  • Unilaterally establishing clinical practices and protocols for the Practices without sufficient input and authorization from the Practices
  • Creating a bonus structure for office managers employed by ADMI that was funded through increased management fees paid by the Practices
  • Basing ADMI’s compensation upon percentages of the gross profits of the Practices
  • Marketing all of the Practices together as “Aspen Dental,” thereby creating a false perception that the Practices were all under common ownership and that there was a central entity responsible for patient care
  • Having one consolidated bank account for most of the Practices and retaining sole control over that account

As part of the AG’s settlement agreement, in addition to paying a $450,000 fine, ADMI agreed to make significant changes to its business practices, examples of which include:

  • Restructuring the agreements between ADMI and the Practices to:
    • transfer decision making power to the professionals who own the Practices;
    • modify the compensation structure so that ADMI will no longer be paid on a percentage basis; and
    • separate the bank accounts of the Practices so that each Practice has its own bank account over which the Practice owners exercise control
  • Modifying websites and marketing materials to clarify that each Practice is a separate entity that is neither owned nor operated by ADMI
  • Refraining from communicating with the professional staff of the Practices regarding treatment plans, provision of dental care, the sale of products and services, or revenue generation, without authorization from the owners of the Practices
  • Ceasing the funding of awards and incentives for the Practices’ staff for selling certain products and services
  • Refraining from interviewing applicants seeking employment at the Practices without participation of the Practices’ owners, beyond an initial screening
  • Abstaining from signing any contracts or employment agreements on behalf of the Practices, or making any decisions on their behalf that directly or indirectly impact clinical care.

It is notable that the AG took an interest in ADMI’s MSO arrangements since it is the New York State Department of Health (“DOH”) and/or the New York Department of Education (“DOE”) that typically invoke jurisdiction over professional practices. Whether DOE or DOH concur with, or will act on, the AG’s interpretations of the applicable laws and regulations remains to be seen. Nevertheless, the allegations made by the AG, and the terms of its settlement with ADMI, could have far-reaching impacts not only on dental practices, but on medical and other professional practices as well, since the corporate practice and fee splitting prohibitions applicable to the practice of dentistry are similar to those applicable to physicians and other professionals. MSOs servicing professional practices, and the practices and licensed professionals who contract with those MSOs, may want to take this opportunity to review their management and administrative services agreements in light of the ADMI settlement, and the AG’s stated interpretations of New York’s laws and regulations regarding corporate practice and professional fee-splitting issues.


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