Can a dental practice pay a management company a percentage of practice revenues, or must the fee be tied to specific services? And what contract terms cross the line into the unlicensed practice of dentistry?
Plain-English summary
The NC State Board of Dental Examiners asked whether a dental practice could contract with a management company on a revenue-sharing basis. The underlying statute, G.S. 90-29(b)(11), makes it unlawful for a non-dentist to "own, manage, supervise, control or conduct an enterprise which is engaged in the practice of dentistry."
The AG distinguished between two fee structures.
Fee-for-service is permissible. A 1996 letter opinion to Senator C.R. Edwards (1996 WL 925123) had already established that a dentist may contract with a business entity for "an array of business services" so long as compensation is tied to the amount and nature of services utilized. That keeps the management company as a service provider, not a participant in the practice.
Revenue-sharing crosses the line. When the management company's payment depends on the dentist's revenues, the company "becomes a participant in the practice rather than a provider of services to the practice and runs afoul of the prohibition against non-dentists engaging in the practice of dentistry." The dentist loses control of decisions about service amount and quality because the company now has a direct financial stake in those decisions.
The opinion went further. The Board also asked what specific contract terms indicate improper control. Senior Deputy AG Ann Reed and Special Deputy AG Gayl Manthei identified six categories of red-flag provisions:
- Management company ownership of patient records.
- Restrictive covenants limiting dentists' ability to compete with the management company.
- Clinical-practice control or input by the management company.
- Direct or indirect control over hiring and firing of clinical personnel.
- Veto authority over contracts between the dental practice and individual dentists.
- Stock-transfer restrictions giving the management company control over ownership changes.
The AG warned that the list is not exhaustive. Any clause, alone or in combination, that affects professional decision-making is problematic. A "reservation" clause stating that the dentist retains all patient-care decisions does not save a contract whose other provisions hand effective control to the management company. The Board must examine the entire relationship, including potential impact on patient care, on a case-by-case basis.
Currency note
This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
The corporate-practice-of-dentistry doctrine has been actively litigated in many states since 1999, and NC has had additional Board enforcement actions and AG opinions on this exact subject. The 1999 framework (no revenue-sharing; structural control by non-dentists is unlawful) is largely intact, but specific Board rules and case law have refined what particular contract clauses pass scrutiny. Any dental management company contracting in NC today should pull current Board guidance and rules in Title 21, Chapter 16 of the NC Administrative Code.
Common questions
Q: What is the "corporate practice of dentistry" prohibition?
A: G.S. 90-29(b)(11) bars a non-dentist from owning, managing, supervising, controlling, or conducting an enterprise engaged in the practice of dentistry. The rule preserves clinical control in the hands of licensed dentists.
Q: Why is revenue-based compensation illegal?
A: Because it converts the management company from a service vendor into a participant in the practice. The company's economic incentive aligns with the dentist's clinical decisions (more services = more revenue = more management fee). That alignment compromises the dentist's independent professional judgment.
Q: What is "fee-for-service" in this context?
A: Compensation pegged to the volume and type of services the management company actually provides. A flat monthly fee, a per-employee charge, a per-transaction billing-service fee, or a fee per square foot of facility space, would all be permissible structures. The fee cannot fluctuate with the dental practice's gross or net revenue.
Q: Are restrictive covenants for dentists allowed?
A: Not in a management-company contract that binds the dentists to the management company. A dentist-to-dentist or dentist-to-practice covenant under standard NC noncompete law is a different question. The red flag is when the management company is the beneficiary, because that gives the company a leverage hook over the clinical providers.
Q: What's wrong with the management company owning patient records?
A: It compromises the dentist's ability to maintain the dentist-patient relationship independent of the management company. Records ownership gives the management company de facto control over continuity of care. Patient records in NC should be owned by the dental practice (or the individual dentist) with the management company providing record-keeping services.
Q: Can a contract include a savings clause?
A: The AG was explicit that a savings clause is not sufficient. "A clause in a contract which purports to reserve to the dentist all decisions regarding patient care may not redeem the contract if the remainder of the contract assigns to the business entity improper control."
Background and statutory framework
NC, like most states, applies a "corporate practice of medicine" (and dentistry) doctrine: only licensed individuals (or entities composed of licensed individuals, such as professional corporations) can practice the licensed profession. The doctrine protects patient welfare by keeping clinical decisions in the hands of licensed providers.
G.S. 90-29(b)(11) is NC's statutory expression of the doctrine for dentistry. The statute bars non-dentists from "owning, managing, supervising, controlling, or conducting" dental enterprises. The list of prohibited verbs is broad and overlapping; any one of them is enough.
In the late 1990s, large dental service organizations (DSOs) began consolidating dental practices in many states under management-services arrangements. The model: a private-equity-funded DSO buys the nonclinical assets, provides administrative services, and contracts back with the licensed dentists who run the clinical side. The dentists own the professional entity; the DSO owns everything else.
That model can be structured legally. But the fee structure determines a lot. Fee-for-service compensation keeps the DSO as a vendor. Revenue or profit sharing converts it into a participant. The Board's question was driven by the DSO consolidation wave: how to distinguish lawful management arrangements from illegal corporate practice.
The AG's six-factor checklist is useful guidance. Courts and licensing boards across the country have converged on similar lists. Patient-record ownership, hiring/firing control, restrictive covenants, contract-veto authority, stock-transfer control: each shifts effective practice control from licensed dentists to non-licensee owners.
The lasting message: a dental management contract is a complex document, and individual clauses interact. The dentist must retain real, not nominal, control. Where the contract's structure makes the dentist a tenant in a business someone else actually runs, the unlicensed-practice prohibition is triggered.
Citations
- N.C. Gen. Stat. § 90-29(b)(11) (unlicensed practice of dentistry; non-dentist control prohibition)
- Op. Att'y Gen. to Sen. C.R. Edwards, Aug. 23, 1996 (1996 WL 925123) (fee-for-service compensation permissible)
Source
Original opinion text
- N.C. State Board of Dental Examiners
- 3716 National Drive, Suite 221
- P.O. Box 32270
- Raleigh, NC 27622-2270
RE: Advisory Opinion: Dental Care and Business Services; N.C.G.S. § 90-29(b)(11)
Dear Dr. Fleming, Dr. Kinlaw and Ms. Lockwood:
This letter responds to your request for an Attorney General's opinion dated July 19, 1999. You ask whether an arrangement whereby a business entity provides services to a dental practice constitutes the unlawful practice of dentistry if payment to the business entity under such arrangement is based in whole or in part on the revenues of the dental practice or one or more individual dentists.
It is unlawful for a non-dentist to own, manage, supervise, control or conduct an enterprise which is engaged in the practice of dentistry. N.C. Gen. Stat. 90-29(b)(11). As we have opined in the past, a dentist may contract with a business entity to provide the dentist with an array of business services. See letter opinion to Senator C.R. Edwards, dated August 23, 1996 (1996 WL 925123). That opinion, however, was predicated on the fact that compensation for the services would be based on the amount and nature of the services utilized by the dentist and not upon revenues of the dentist.
Where a business entity is compensated based upon the value of the services rendered by the business entity, the dentist retains control of the practice and the amount and quality of service rendered. That control is compromised, however, when the business entity shares in the dentist's profits. At that point, the business entity becomes a participant in the practice rather than a provider of services to the practice and runs afoul of the prohibition against non-dentists engaging in the practice of dentistry.
You also ask whether a dental practice can give complete control over its operations to a business entity in light of the prohibition against the unlicensed practice of dentistry. If not, you ask that we advise you regarding how the Dental Board should analyze management arrangements between a business entity and a dental practice to determine whether the business entity has improper control over the dental practice or its dentists.
A contract between a dental practice and a business entity may not assign to the business entity control of the dental practice. Some clauses which we believe would evince improper control are:
- Ownership of patient records by the business entity;
- Restrictive covenants limiting the ability of dentists who own or are employed by the dental practice to practice in competition with the business entity;
- An agreement that gives the business entity control over or input into the clinical practice of the dental practice or its dentists;
- An agreement that gives the business entity direct or indirect control over the hiring and firing of clinical personnel;
- An agreement that gives the business entity authority to approve any contract between the dental practice and dentists for professional services, or requires the business entity's approval of such contracts or arrangements; or
- An agreement that gives the business entity control over the transfer of ownership interests in the dental practice, e.g., a stock transfer agreement limiting the ability of the dentists to sell or otherwise transfer shares of the dental practice or permitting the business entity to require the dentists to sell such shares to other individuals to be named by the business entity.
The foregoing is not an exhaustive list. Any clauses which alone, or in combination, affect the professional decision-making of a dental practice are problematic. A clause in a contract which purports to reserve to the dentist all decisions regarding patient care may not redeem the contract if the remainder of the contract assigns to the business entity improper control. In determining whether the business entity has improper control over the dental practice or its dentists, the Dental Board should look at the entire relationship and should consider the potential impact of the relationship on patient care. These decisions must be made on a case by case basis.
Very truly yours,
Ann Reed
Senior Deputy Attorney General
Gayl M. Manthei
Special Deputy Attorney General