Texas Bill Would Regulate Dental Service Organizations

Senate Bill 151 (introduced on Dec. 21, 2012, to the Texas state senate) would amend Texas state law to require dental service organizations (DSO) to register with the Texas State Board of Dental Examiners (Board). For purposes of the bill, a DSO means an entity that is not wholly owned by dentists and that provides services to a dentist under a dental service agreement. If passed into law, DSOs would also be required to include in their services agreements explicit provisions that would prohibit them from interfering with dentists’ treatment decisions as well as several other provisions. Finally, new rules regarding treatment of minors would be implemented that would require dentists to allow a parent or guardian to be present during treatment of a minor.

Currently, the Texas Dental Practice Act does not specifically regulate DSOs. However, it does generally prohibit the practice of dentistry without a license. Tex. Occ. Code Ann. §258.

The introduction of Bill 151 comes on the heels of multiple government investigations in Texas into claims of Medicaid fraud, largely with respect to orthodontic spending on children who may not have needed or may not have qualified to receive braces under the state’s Medicaid program. (Byron Harris, “Bracing Ourselves: How Texas spent $705 million on Medicaid braces,” WFAA (February 4, 2013, 6:35 pm))

Specifically, Senate Bill 151 would require the following:

• All DSOs operating in Texas would be required to apply for and obtain a certificate of registration from the Board. As part of the application, a DSO would have to submit a copy of each of its service agreements and information regarding its finances, ownership and governance. The certificate would have to be renewed annually and the DSO would be responsible for informing the Board of any changes to its locations, ownership and management.
• DSO service agreements would be required to include certain restrictions that would require certain aspects of patient care to be in the exclusive control of the dentist.
• The Board would have the authority under the new law to refuse to issue certificates of registration, to impose penalties or to suspend or revoke a certificate of registration.
• Dentists would be required to advise parents and guardians that they have the right to be present during treatment of minors and to allow parents and guardians to be present during treatment if requested by the parent or guardian and their presence would not have an adverse effect on the treatment of the minor.

The dental practice management model has become an increasingly popular investment vehicle with management companies and private equity firms. While the DPM model grows in popularity, so does regulation and scrutiny around the industry, which is evidenced by the previously mentioned investigations and the introduction of legislative measures like Senate Bill 151 in Texas. For more information on the DPM model and industry generally, please see our white paper titled “Investing in Dental Practice Management: Key Issues and Notable Transactions.”

A full copy of Senate Bill 151 is accessible here.