California Attorney General Settlement with Aspen Dental Scrutinizes MSO Structures in Healthcare Industry

Firm Publication

Key Takeaways

  • The California Attorney General’s settlement with Aspen Dental establishes detailed boundaries between permissible management services and impermissible MSO control, targeting common structural features such as revenue-based management fees, MSO ownership of practice property, and clinician non-compete provisions — creating de facto compliance guideposts for every MSO operating in California.
  • Organizations using MSO structures — particularly those backed by private equity — should conduct immediate structural and operational compliance reviews of their management agreements, branding practices, and governance documents to ensure alignment with the settlement’s injunctive terms and California’s corporate practice of medicine (and dentistry) doctrine.
  • The settlement is part of a broader enforcement trend across multiple states, including recent legislation in Oregon and Washington, signaling that regulators are prepared to act under existing unfair competition, false advertising, and professional practice laws, even absent new corporate practice legislation.

On May 7, the California Attorney General announced it reached a settlement with Aspen Dental Management, Inc. (Aspen Dental), a private equity-owned dental support organization, for allegedly violating California’s prohibition of the corporate practice of dentistry and engaging in false and misleading advertising. This comes on the heels of the Attorney General filing an amicus brief on March 30 in the case of Art Center Holdings, Inc., et al. v. WCE CA Art, et al., a case involving a physician medical practice owner and private equity-backed management services organization (MSO) that is currently on appeal before the California Second District Court of Appeal. The brief, together with the Aspen Dental settlement, are indicia of growing scrutiny of MSO structures and signal renewed enforcement focus on violations of California’s prohibition of the corporate practice of medicine, dentistry, and related health professions. Further, the Aspen Dental settlement effectively serves to strengthen California’s existing corporate practice doctrine, which had been bolstered recently through the enactment of SB 351 last October, as discussed in our prior alert. Healthcare companies using MSO structures in California should pay careful attention and assess their current operating structures for compliance with the terms outlined in the Aspen Dental settlement.

What Are the Key Injunctive Terms in the Aspen Dental MSO Settlement?

In addition to paying $2 million in civil penalties and $300,000 in patient restitution, the settlement imposes a series of injunctive terms on Aspen Dental along with a 36-month compliance monitor. The injunctive terms target specific aspects of Aspen Dental’s MSO structure that are commonly used in MSO models across the healthcare industry to secure long-term relationships with practice owners and achieve operational efficiencies across platforms. Importantly, these terms establish boundaries between what the Attorney General views as permissible management services and impermissible MSO control, with practical implications not just for Aspen Dental, but for any organization operating MSO structures in California.

Specifically, the settlement permanently enjoins Aspen Dental from engaging in the following conduct, which the Attorney General treated as indicia of impermissible MSO control:

  • Owning the property of a dental practice.
  • Setting management service fees based on practice revenue, sales, or profits.
  • Hiring clinicians to work at the practice (though MSOs may still assist with screening, background checks, licensure checks, and salary negotiations based on parameters set by the practice owner).
  • Requiring practice owners to surrender offices or equipment upon termination of the MSO relationship.
  • Distributing marketing materials that are not approved by the practice owner and do not clearly identify the practice owner.
  • Advertising the practice without clearly identifying that Aspen Dental only provides non-clinical support and “is a brand name used by independent practitioners who own and control the dental care at their offices and pay for their advertisements.”
  • Using Aspen Dental signage, uniforms, or trademarks for the practice that do not clearly identify the practice owner as the owner of the practice.
  • Compensating Aspen Dental employees based on practice sales or revenue.
  • Paying licensed clinicians incentives tied to practice sales, revenue, or profit, including per-product or per-service sales bonuses.
  • Suggesting, directing, or encouraging any licensed clinician (other than a practice owner) to sell or increase revenue for any service or product.
  • Conducting, soliciting, or receiving performance reviews of licensed clinicians.
  • Communicating with practice employees about treatment planning, products sold to, or procedures performed on specific patients (except in response to complaints, injuries, or for scheduling).
  • Determining the salary or compensation of any practice employee.
  • Imposing or enforcing non-compete provisions that restrict where licensed clinicians may practice or be employed.
  • Providing loans or advances to practice owners, including capital for new locations, except where monthly revenue is insufficient to cover expenses.
  • Setting office hours and scheduling appointments without input from the practice owner or a licensed designee.
  • Charging fees to the practice in excess of the fee schedule set by Aspen Dental for products and services without providing practice owners with a revised fee schedule.
  • Providing automated treatment planning and billing systems without itemizing products and services, including whether products and services are covered or not covered by a patient’s insurer.

The settlement also requires Aspen Dental to register with the Dental Board of California as a group advertising and referral service pursuant to Cal. Bus. & Prof. Code § 650.2, which makes it unlawful to operate without meeting specified conditions, including filing a standard form contract with the Dental Board.

How Does the California Attorney General’s Aspen Dental Settlement Affect MSO Compliance?

Although not expressly addressed in the proposed settlement’s injunctive terms, the Attorney General’s underlying complaint identified additional MSO features that were viewed as indicators of non-compliance with California’s prohibition on the corporate practice. Beyond the injunctive terms summarized above, the following features may also remain subject to enforcement scrutiny:

  • Absentee but MSO-connected physician owner. Contracting with a California-licensed provider to serve as the practice owner, despite that individual having never lived or practiced in California, though they may own other practices managed by the MSO or have other personal ties to the MSO.
  • Build-First, find-an-owner-later expansion model. Rather than contracting or attempting to contract with an existing practice, conducting market research to identify and build out practice locations prior to identifying a practice owner.
  • Branding that obscured independent ownership. Branding every California office exclusively under the MSO’s brand, including interior and exterior signage, and advertising the practices as if operated by the MSO without disclosing the independent owners or that the advertisements were paid for by participating clinicians.
  • Operational and clinical control resembling a franchise. Creating systems, clinical policies, and training specific to the MSO brand, as well as establishing a career development pipeline ranging from entry-level clinician to MSO executive.
  • Unilateral patient payment collection and service fee authority. Collecting all patient payments under the management agreement and withdrawing a service fee that could be increased at the MSO’s sole discretion, without requiring the practice owner’s authorization or oversight.

For organizations operating MSO structures in California, these factors, as well as the injunctive terms, function as de facto compliance guideposts for structuring arrangements and operational practices in a manner that does not cross the line between permissible non-clinical support and corporate practice prohibitions. Any California MSO – especially if backed by private equity – that maintains revenue-based fees, controls practice property, uses stock transfer restriction agreements, imposes restrictive covenants on clinicians, exercises heightened operational control over clinical workflows, or engages in any other conduct prohibited by the settlement’s injunctive terms or scrutinized in the Attorney General’s complaint should treat this as a signal to reassess its operating structure.

MSO operators should consider the following:

  • Structural review of MSO arrangements. Evaluate whether existing management agreements contain revenue-based fee structures, property ownership, or lease control by the MSO, or provisions requiring practice owners to surrender offices and equipment upon termination, each of which the Attorney General identified as indicia of impermissible MSO control.
  • Compliance audit of operational practices. Assess whether the MSO exercises control over clinical staffing decisions, scheduling, compensation, or treatment planning, and ensure documented evidence of practice-owner independence in clinical decision-making.
  • Governance and documentation. Structure governance documents (including stock transfer restriction agreements) and management agreements to expressly prohibit interference with clinical judgment and to include contractual mechanisms that demonstrate genuine practice-owner involvement and oversight (e.g., mutual agreement, approval rights, independent fair-market-value benchmarking, etc.).
  • Restrictive covenant review. Refrain from enforcing existing restrictive covenants or including them in new practice management agreements. Note that SB 351 prohibits noncompete and non-disparagement provisions in management services agreements and certain real estate agreements, with such provisions being flagged by the Attorney General in the settlement as indicia of improper MSO control.
  • Advertising and branding compliance. Ensure that advertising is truthful, accurate, complies with state law requirements, includes appropriate disclaimers, and clearly identifies the independent licensed practice owner. Practice owners should review and approve all marketing materials and branding should not obscure the independent ownership structure.

What Corporate Practice of Medicine Enforcement Trends Should MSO Operators Expect?

Renewed focus on the corporate practice of medicine, dentistry, and related health professions is not surprising and is part of a growing trend of increased scrutiny toward MSO arrangements in the healthcare industry. In recent years, states have either proposed or enacted legislation to strengthen existing corporate practice prohibitions, such as Oregon (having enacted SB 951 and HB 3410) and Washington (having proposed SB 5387).

We are likely to see additional enforcement activity in the future in California and potentially beyond. The California settlement signals that regulators may take action even without comprehensive new corporate practice legislation, and highlights mechanisms under existing laws that can be used to target MSO structures (e.g., unfair trade and competition laws, false advertising laws, professional practice laws, and corporate practice prohibitions). The regulatory landscape is quickly evolving, and MSO operators should keep apprised of these developments. If you have questions about how this settlement impacts your portfolio companies or MSO arrangements, please contact the authors.

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Key Takeaways

  • The California Attorney General’s settlement with Aspen Dental establishes detailed boundaries between permissible management services and impermissible MSO control, targeting common structural features such as revenue-based management fees, MSO ownership of practice property, and clinician non-compete provisions — creating de facto compliance guideposts for every MSO operating in California.
  • Organizations using MSO structures — particularly those backed by private equity — should conduct immediate structural and operational compliance reviews of their management agreements, branding practices, and governance documents to ensure alignment with the settlement’s injunctive terms and California’s corporate practice of medicine (and dentistry) doctrine.
  • The settlement is part of a broader enforcement trend across multiple states, including recent legislation in Oregon and Washington, signaling that regulators are prepared to act under existing unfair competition, false advertising, and professional practice laws, even absent new corporate practice legislation.

On May 7, the California Attorney General announced it reached a settlement with Aspen Dental Management, Inc. (Aspen Dental), a private equity-owned dental support organization, for allegedly violating California’s prohibition of the corporate practice of dentistry and engaging in false and misleading advertising. This comes on the heels of the Attorney General filing an amicus brief on March 30 in the case of Art Center Holdings, Inc., et al. v. WCE CA Art, et al., a case involving a physician medical practice owner and private equity-backed management services organization (MSO) that is currently on appeal before the California Second District Court of Appeal. The brief, together with the Aspen Dental settlement, are indicia of growing scrutiny of MSO structures and signal renewed enforcement focus on violations of California’s prohibition of the corporate practice of medicine, dentistry, and related health professions. Further, the Aspen Dental settlement effectively serves to strengthen California’s existing corporate practice doctrine, which had been bolstered recently through the enactment of SB 351 last October, as discussed in our prior alert. Healthcare companies using MSO structures in California should pay careful attention and assess their current operating structures for compliance with the terms outlined in the Aspen Dental settlement.

What Are the Key Injunctive Terms in the Aspen Dental MSO Settlement?

In addition to paying $2 million in civil penalties and $300,000 in patient restitution, the settlement imposes a series of injunctive terms on Aspen Dental along with a 36-month compliance monitor. The injunctive terms target specific aspects of Aspen Dental’s MSO structure that are commonly used in MSO models across the healthcare industry to secure long-term relationships with practice owners and achieve operational efficiencies across platforms. Importantly, these terms establish boundaries between what the Attorney General views as permissible management services and impermissible MSO control, with practical implications not just for Aspen Dental, but for any organization operating MSO structures in California.

Specifically, the settlement permanently enjoins Aspen Dental from engaging in the following conduct, which the Attorney General treated as indicia of impermissible MSO control:

  • Owning the property of a dental practice.
  • Setting management service fees based on practice revenue, sales, or profits.
  • Hiring clinicians to work at the practice (though MSOs may still assist with screening, background checks, licensure checks, and salary negotiations based on parameters set by the practice owner).
  • Requiring practice owners to surrender offices or equipment upon termination of the MSO relationship.
  • Distributing marketing materials that are not approved by the practice owner and do not clearly identify the practice owner.
  • Advertising the practice without clearly identifying that Aspen Dental only provides non-clinical support and “is a brand name used by independent practitioners who own and control the dental care at their offices and pay for their advertisements.”
  • Using Aspen Dental signage, uniforms, or trademarks for the practice that do not clearly identify the practice owner as the owner of the practice.
  • Compensating Aspen Dental employees based on practice sales or revenue.
  • Paying licensed clinicians incentives tied to practice sales, revenue, or profit, including per-product or per-service sales bonuses.
  • Suggesting, directing, or encouraging any licensed clinician (other than a practice owner) to sell or increase revenue for any service or product.
  • Conducting, soliciting, or receiving performance reviews of licensed clinicians.
  • Communicating with practice employees about treatment planning, products sold to, or procedures performed on specific patients (except in response to complaints, injuries, or for scheduling).
  • Determining the salary or compensation of any practice employee.
  • Imposing or enforcing non-compete provisions that restrict where licensed clinicians may practice or be employed.
  • Providing loans or advances to practice owners, including capital for new locations, except where monthly revenue is insufficient to cover expenses.
  • Setting office hours and scheduling appointments without input from the practice owner or a licensed designee.
  • Charging fees to the practice in excess of the fee schedule set by Aspen Dental for products and services without providing practice owners with a revised fee schedule.
  • Providing automated treatment planning and billing systems without itemizing products and services, including whether products and services are covered or not covered by a patient’s insurer.

The settlement also requires Aspen Dental to register with the Dental Board of California as a group advertising and referral service pursuant to Cal. Bus. & Prof. Code § 650.2, which makes it unlawful to operate without meeting specified conditions, including filing a standard form contract with the Dental Board.

How Does the California Attorney General’s Aspen Dental Settlement Affect MSO Compliance?

Although not expressly addressed in the proposed settlement’s injunctive terms, the Attorney General’s underlying complaint identified additional MSO features that were viewed as indicators of non-compliance with California’s prohibition on the corporate practice. Beyond the injunctive terms summarized above, the following features may also remain subject to enforcement scrutiny:

  • Absentee but MSO-connected physician owner. Contracting with a California-licensed provider to serve as the practice owner, despite that individual having never lived or practiced in California, though they may own other practices managed by the MSO or have other personal ties to the MSO.
  • Build-First, find-an-owner-later expansion model. Rather than contracting or attempting to contract with an existing practice, conducting market research to identify and build out practice locations prior to identifying a practice owner.
  • Branding that obscured independent ownership. Branding every California office exclusively under the MSO’s brand, including interior and exterior signage, and advertising the practices as if operated by the MSO without disclosing the independent owners or that the advertisements were paid for by participating clinicians.
  • Operational and clinical control resembling a franchise. Creating systems, clinical policies, and training specific to the MSO brand, as well as establishing a career development pipeline ranging from entry-level clinician to MSO executive.
  • Unilateral patient payment collection and service fee authority. Collecting all patient payments under the management agreement and withdrawing a service fee that could be increased at the MSO’s sole discretion, without requiring the practice owner’s authorization or oversight.

For organizations operating MSO structures in California, these factors, as well as the injunctive terms, function as de facto compliance guideposts for structuring arrangements and operational practices in a manner that does not cross the line between permissible non-clinical support and corporate practice prohibitions. Any California MSO – especially if backed by private equity – that maintains revenue-based fees, controls practice property, uses stock transfer restriction agreements, imposes restrictive covenants on clinicians, exercises heightened operational control over clinical workflows, or engages in any other conduct prohibited by the settlement’s injunctive terms or scrutinized in the Attorney General’s complaint should treat this as a signal to reassess its operating structure.

MSO operators should consider the following:

  • Structural review of MSO arrangements. Evaluate whether existing management agreements contain revenue-based fee structures, property ownership, or lease control by the MSO, or provisions requiring practice owners to surrender offices and equipment upon termination, each of which the Attorney General identified as indicia of impermissible MSO control.
  • Compliance audit of operational practices. Assess whether the MSO exercises control over clinical staffing decisions, scheduling, compensation, or treatment planning, and ensure documented evidence of practice-owner independence in clinical decision-making.
  • Governance and documentation. Structure governance documents (including stock transfer restriction agreements) and management agreements to expressly prohibit interference with clinical judgment and to include contractual mechanisms that demonstrate genuine practice-owner involvement and oversight (e.g., mutual agreement, approval rights, independent fair-market-value benchmarking, etc.).
  • Restrictive covenant review. Refrain from enforcing existing restrictive covenants or including them in new practice management agreements. Note that SB 351 prohibits noncompete and non-disparagement provisions in management services agreements and certain real estate agreements, with such provisions being flagged by the Attorney General in the settlement as indicia of improper MSO control.
  • Advertising and branding compliance. Ensure that advertising is truthful, accurate, complies with state law requirements, includes appropriate disclaimers, and clearly identifies the independent licensed practice owner. Practice owners should review and approve all marketing materials and branding should not obscure the independent ownership structure.

What Corporate Practice of Medicine Enforcement Trends Should MSO Operators Expect?

Renewed focus on the corporate practice of medicine, dentistry, and related health professions is not surprising and is part of a growing trend of increased scrutiny toward MSO arrangements in the healthcare industry. In recent years, states have either proposed or enacted legislation to strengthen existing corporate practice prohibitions, such as Oregon (having enacted SB 951 and HB 3410) and Washington (having proposed SB 5387).

We are likely to see additional enforcement activity in the future in California and potentially beyond. The California settlement signals that regulators may take action even without comprehensive new corporate practice legislation, and highlights mechanisms under existing laws that can be used to target MSO structures (e.g., unfair trade and competition laws, false advertising laws, professional practice laws, and corporate practice prohibitions). The regulatory landscape is quickly evolving, and MSO operators should keep apprised of these developments. If you have questions about how this settlement impacts your portfolio companies or MSO arrangements, please contact the authors.

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