After nearly 2 years at McGuireWoods, I spent 9 years at Ropes & Gray. There, I was able to work for some of the largest DSOs in the industry while also still helping new DSO platforms grow across the country. So, I have been involved with both ends of the industry and pretty much everything in between. Over the past decade, I saw the plethora of legal issues that DSO platforms face, whether they were operational issues or related to acquisitions, engaging with doctors, litigation, regulatory questions, expanding into other states, etc.

When I began looking for a long-term home for my practice, Holland & Knight was the perfect solution for me. Holland & Knight merged with Waller [Waller Lansden Dortch & Davis, LLP] in 2023 making the combined firm the largest healthcare practice in the United States with a dedicated DSO team led by Eric Scalzo and others who worked with retired partner, Don Moody. That team has been a central player in helping the DSO industry grow over the past few decades. Having previously worked with attorneys from both Holland & Knight and Waller over the years, it was a natural home for me to join.

DSOPro: What kinds of legal issues impact the DSO industry the most?

Dental practices and DSOs are just like any other businesses. As they expand, it tends to raise their profile, so they must start thinking about things like augmented compliance programs. As they begin to integrate larger information technology platforms and increase connectivity, they need to invest in data privacy and security standards and help mitigate the risks of cyber breaches and learn how to tackle those issues. Like any other business, they face increased costs for labor, recruiting, and whatnot. And, sometimes, it’s difficult to replace providers when there is turnover, whether at the dentist, hygienist, or assistant level. We also have integration challenges where differences between dental practice or providers complicate the delivery of a consistent set of services by the DSO.

Regulatory issues come up every now and again. Every state has its own take on requirements for dental practices and, potentially, how they can interact with DSOs, which is constantly changing. Over the years, there have been waves of regulatory scrutiny. One monumental decision was a 2015 settlement in New York that guided the industry in how to shape their operations and engage with dental practices. Some of the more recent enforcement actions, in New Jersey in particular, have actually validated the model and arrangements with doctors.

One of the big trends we’re seeing right now is a push for federal and state oversight of healthcare consolidation. There are basically two aspects to that. One is federal and state agencies want to review and have a better understanding of the effects of consolidation on particular sectors within the healthcare industry. And so certain transactions, whether it be a DSO affiliating with a practice or an investor acquiring an interest in a DSO, could all be reviewed by a federal or state agency.

There hasn’t been a regulator that has stopped those types of transactions to date, but there is a greater interest by regulators in the effects those transactions have on the marketplace. I think one big difference for the dental industry is that market concentrations and the effects of those concentrations on commercial payer rates, and cost of patients, are not quite the same as physician practices and health systems.

There’s generally been more of a regulatory focus on the medical side, on hospitals and health systems, but not dentistry. But dental transactions are being reported. Oregon has a transaction reporting and approval statute, and DSO transactions have been reported in that state. They did clear approval. Indiana has a reporting statute, and transactions have been reported there. To my knowledge, there hasn’t been any significant roadblock there, but it’s something that folks need to think about and keep in mind, especially as more states have been thinking of enacting these types of laws.

The second part of that overarching trend of health consolidation oversight, let’s call it, is there’s been a resurgence of focus on the corporate practice of medicine. You can replace “medicine” with “dentistry” and it’s the same thing. That came about last year in California with the proposed AB3129 that was vetoed by Governor Newsom. That bill would have added additional restrictions on arrangements between DSOs and dental practices.

These restrictions would have required every DSO in California to think about their current structure and ensure that their operations were consistent with those restrictions.

Other states have started to propose similar laws this year. Legislation was recently proposed in Connecticut that indicated there would be a focus on the corporate practice of medicine. It’s unclear now if this is limited only to physicians or if it would include dentists as well, but it’s something to keep in mind.

Accordingly, DSOs should always be thinking, “Are my business service agreements with our practices up to date? When was the last time we looked at them? Do they reflect current operations? Do we need to make any changes to the service fees? Do we need to think about a long-term, proactive strategy to be ready to defend those arrangements to the FTC and/or state government?”

DSOPro: Would it be helpful to describe some of these restrictions and the kinds of benefits that might result from this kind of oversight?

When I saw the proposed set of restrictions in AB3129, my general reaction was that they already reflected the clear line that DSOs have established between nonclinical and clinical operations. I felt it was redundant and not necessary to put it in place. It was in line with most, if not all, of what businesses already respect.

DSOs know and understand that their role is to provide the nonclinical services and oversee the nonclinical operations of businesses, and that they need to honor the professional judgment and independence of the clinicians. So, there’s no reason to restate something that is already the line drawn in the sand and, by the way, has been enforced by courts in that state.

When Governor Gavin Newsom vetoed AB3129, he said it was redundant, but he was only focused on the transaction oversight part of it and didn’t mention the corporate practice part of it. But regardless, if you carry forward his reasoning for the veto, it could apply to the corporate practice restrictions because the DSOs that I’ve worked with already follow that line and they understand that they are support organizations and that they don’t tell the doctors what to do.

DSOPro: Does it make any difference or cause other concerns if the dental group or DSO is private equity backed?

All DSOs know about this corporate practice doctrine and understand how to operate. I don’t think there is a difference whether you’re PE-backed or not. I think the practical difference is that as you get larger and attract investment, which could come from private equity, other large companies, or other types of investors, that is where interest in your organization might increase. And as you get larger, the more laws apply to you, and the expectations for your level of compliance and standards of operation increase.

Regarding PE specifically, there have been a lot of narratives on both sides about the positives and negatives of PE investment in businesses, including dental businesses. But from what I’ve seen in the platforms I’ve worked with, PE-backed DSOs generally have more access to capital for investment in things like compliance, IT infrastructure, investing in new technologies, investing in new care models, and having the funds to weather any market issues that come up. We talked about some of the labor pressures and the impact that has. DSOs are able to focus on growth and finding ways to improve quality of care while raising the level of provider education and provider standards. Someone who doesn’t have access to those capital sources wouldn’t have the ability to do that, or frankly, the network of advisors and management teams that could steer them and take them to that next level.

DSOPro: What impact or concerns would an increased regulatory focus have on traveling dental specialists or temporary staff needed to fill specialty positions and staffing shortages?

If you plan to use arrangements like that, I would say work with counsel to make sure you have the appropriate contracts in place, that there’s appropriate licensure, credentialing is up to date, etc. If you have your temp specialist come in and start billing under the payer contracts of the practice, but that specialist is not enrolled, that needs to be addressed. In situations like that, you want to make sure licensure, credentialing, and contracts are in place, and the funds flow correctly. There are things that are worth running past counsel just to ensure the i’s are dotted and the t’s are crossed.

DSOPro: What do you see in terms of the future for these potential restrictions?

I think there will be a few different trends. I still see a lot of growth in the DSO industry. I see a lot of players looking for strategic partners. I see the larger DSOs looking for the next step of their journey, whether that’s further investment or public offering or other creative models for growth.

I think more states will look to put laws in place and there is a potential for federal scrutiny as well on some of the larger platforms and players. The best thing to do is stay on top of these developments and join the discussion. Organizations like the ADSO and others are engaged in these discussions. And the best thing for legislators in these states would be to have all the facts about the industry so that they can make an informed decision.

For example, if a state plans to produce a law that regulates DSO arrangements with dental practices, I think dental practices and DSOs should join the discussion to ensure that all parties understand the impact on them. It’s not necessarily that those laws should not be considered or implemented. But when legislators are planning what to do in their state, they should understand the impact of it so it doesn’t disproportionately affect or cut off access to investment that could help bring these businesses to the next level and ultimately improve patient quality of care, lower costs, better access to care, etc. For example, a lot of DSOs can support practices in rural areas that don’t have access to dental services. The level of impact needs to be discussed during the process, because it’s a lot easier to do that while it’s being proposed and considered than after it is implemented.

I think the overarching takeaway is that there are always paths forward. These regulatory trends ebb and flow. We’ve seen these before and we’ve navigated them before and we’re here today. So, it’s not all doom and gloom, there are paths forward and deals will get done. DSOs and dental practices will continue to provide great care. I don’t want to give the impression that “The sky is falling!” It’s not.

If you operate in healthcare, you know there are always things to consider and you want to make sure you have the right counsel to help improve your experience, not just within the law but in operations. We can help you navigate that.

DSOPro: Want to share a fun fact about yourself?

I’ve been a volunteer for the Coast Guard for the last 6 years. The Coast Guard has a uniformed civilian component called the Coast Guard Auxiliary, and we can support many missions as long as we don’t engage in any sort of military or law enforcement activities. What that means for me in the Chicago area is that I can be on small boats on Lake Michigan on the weekends, helping with search and rescue cases. I’m also able to serve as a public affairs officer, so I can step in and help the Coast Guard engage with media, promote boating safety messages, do interviews, and write articles. I spent two days aboard an icebreaker in upper Michigan during the ice breaking season and published an article to highlight the hard work of crews on the Great Lakes. I also assisted the Coast Guard with public affairs support during the Republican National Convention and Democratic National Convention last year.

Unfortunately, I am winding down those roles because I was selected to join the Coast Guard Reserve as a member of their lawyer program, and I will be headed to officer training at the Coast Guard Academy in July. It will be part-time, though, so I am not leaving my day job!

I think it’s important to share that the experiences I have had with the Coast Guard have helped me grow as a person, as a lawyer, and as a father. And I encourage everyone to give back and try to serve their community in any way they can.

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