California’s Definition of Corporate Dentistry Inhibits Franchise Opportunities

Dr. Rick Kushner
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Dental service organizations (DSOs) have become ubiquitous in the United States. Recent statistics from the ADA indicate that greater than 7% of all practicing dentists in the nation are affiliated with DSOs, and the percentage continues to rise. California is no exception.

Pacific Dental has more than 70 locations in the Golden State. Western Dental has three times that many offices in California, roughly 230, spread from Redding to Chula Vista. They are the big players, but there are countless smaller outfits. Aspen Dental has five centers, the Schulman Group has 20 or so orthodontic offices, and SoCal Dental Partners has six locations in Orange County.

I am not familiar with all of these DSOs. But based on my 40 years of experience in dentistry, I have a pretty decent understanding of how they operate. DSOs enter into management agreements with dentists. These agreements separate the clinical portion of the dental office from the business half of the practice.

The DSOs take over patient and insurance billing and collections, staffing and other human resources duties, patient scheduling, accounting, contracting with vendors, ordering of equipment and supplies, and any other arguably non-clinical aspects of the dental practice. In exchange for being allowed to focus solely on dentistry, the DSO-affiliated dentists give up a significant portion of their collections to the DSO. I’ve seen numbers exceeding 40%.

There are probably some less reputable DSOs that try to manage more than just the front office by creating treatment plans, setting quotas for certain procedures, or billing requirements for their dentists, but I think those groups are exceptions.

The Comfort Dental Story

I’ve learned a lot about DSOs over the years, mostly because I am constantly trying to differentiate my company from them. I am the founder, president, and CEO of Comfort Dental Group (CDG), the largest dental franchisor in the United States.

We have just under 140 franchised and subfranchised locations in 11 states. For the last 14 months, we have been working hard to enter our twelfth state, but we have been stymied by the California Department of Business Oversight (DBO).

Unlike California DSOs, dental franchisors hoping to offer franchise opportunities in California must register their franchise offering with the DBO. The DBO reviews all franchise offerings to protect potential franchise purchasers from unscrupulous franchise sellers.

What we have learned over the last year-plus is that the DBO not only reviews franchise offerings to ensure they comply with consumer protection requirements, but, in the case of dental franchise offerings, they also comply with all other laws and regulations governing dental practices.

At present, we have received and responded to six DBO comment letters that set out the DBO’s concerns with our offering. Each of these letters and our responses has the same theme. The DBO believes our franchise agreement is tantamount to the corporate practice of dentistry.

We disagree. Our franchisees are completely dentist-owned, and the franchisee-dentists make almost every decision for their practices, not just the clinical decisions. CDG’s “interference” is limited to choice of office colors, signage, office name, and quality oversight—those things that are required for the protection of the Comfort Dental trademarks.

The fact that Comfort Dental dental offices are 100% dentist-owned and those owner-dentists are responsible for all clinical decisions and for most non-clinical decisions should be less offensive to California law than the DSO model. There are no non-dentist management companies making any decisions for Comfort Dental practices.

Comfort Dental dentists create their own treatment plans, file insurance claims and bill patients, hire and fire employees, make their own schedules, and choose, order, and pay for all of their own equipment and supplies.

CDG does have approved vendors from which franchisees are required to order, but there are no restrictions on what they order. Additionally, if franchisee-dentists are unable to find what they need from Henry Schein, 3M, or Dentsply Sirona, just to name three of our surfeit of approved vendors, they are welcome to purchase from another vendor. For the record, this almost never happens.

In addition, in order to maintain quality control, Comfort Dental requires that franchisees route all lab work through our affiliated dental lab, Budget Dental Lab.

The Battle Continues

It seems the DBO is staking out the position that having approved vendors and labs, whether dentists are required to use them or not, is enough to violate the California prohibition against the corporate practice of dentistry. We are running out of ways to say it is not. But if the DBO is correct that simply approving vendors is practicing dentistry, I’m either incorrect in my understanding of how DSOs operate or many, if not all, DSOs are practicing dentistry in violation of California law.

Recently, we reached out to the California Dental Board and asked it to review our franchise agreement and give us its take. The Board understandably declined. The Board licenses and oversees dentists, not dental franchisors.

This has left us in a difficult spot. We can give up on our franchise registration and continue to expand operations in states that understand our system, or we continue to repeat the same arguments to the DBO and hope the DBO finally “gets it.” Neither is a very good option.

The thing is, we know that California needs us. California needs more affordable dentistry options. Our franchisees thrive in that space. Comfort Dental practices focus on bread and butter dentistry, charge moderate fees, and generally accept most insurance plans and Medicaid (Denti-Cal in California).

We know that California has a shortage of Denti-Cal providers. This is due mostly to Denti-Cal’s awful fee schedule, which has to be one of the lowest in the United States. While increasing its reimbursement rates would help all around, Comfort Dental franchisees are uniquely situated to be profitable taking Denti-Cal, even with its current fee schedule. Comfort Dental’s economies of scale and group practices allow our franchisees to thrive taking plans that other practices cannot.

So, for now, we are going to keep making our same argument to the DBO. We are sure that our system, like the countless DSOs already operating in California, would not violate California’s prohibition against the corporate practice of dentistry. We also know that California needs more moderate fee providers who accept Denti-Cal. Hopefully, the DBO will see it our way soon.

Reference

1. California Business & Professional Code §1625 and §1625.1 defines the practice of dentistry and prohibits business corporations from the practice of dentistry.

Dr. Kushner is founder, president, and CEO of Comfort Dental, the largest and most successful dental franchisor in the world. He founded Comfort Dental outside of Denver, Colorado, in 1993. Presently, there are nearly 140 Comfort Dental franchises and 350 franchisee-dentists throughout the United States. Dr. Kushner has always advocated, taught, and pioneered the concept of accessible, fair-priced dentistry. He graduated from Marquette University School of Dentistry in 1977.

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