A New Era of Compliance Standards for California DSOs and MSOs After the Aspen Dental Settlement

The California Attorney General’s recent settlement with Aspen Dental Management, Inc. represents one of the most significant corporate practice of dentistry (CPOD) guidance since Painless Parker v. Board of Dental Examiners, 216 Cal. 285, 14 P.2d 67 (1932).

The settlement establishes the most detailed compliance framework to date for Dental Support Organizations (DSOs) and Management Services Organizations (MSOs) operating in California, imposing extensive restrictions across financial, operational, and marketing practices, coupled with a 36‑month independent monitorship.

Although not a binding precedent, and while several provisions exceed statutory authority, the settlement provides a detailed roadmap of how the Attorney General (AG) interprets existing CPOD principles under California’s Unfair Competition Law, False Advertising Law, and the California Dental Practice Act.

Organizations should reassess their California operations now through a privileged, attorney‑directed review—recognizing that the settlement’s specific terms reflect a negotiated enforcement posture rather than codified legal mandates.

Key Takeaways

• • Management Fee Structures: Revenue- and profit-based management fees may receive heightened regulatory scrutiny notwithstanding Business and Professions Code section 650(b), which expressly authorizes certain percentage-based compensation arrangements.
  • Operational Control: The settlement reinforces the importance of maintaining clear separation between administrative support functions performed by the DSO/MSO and professional judgment exercised exclusively by licensed practitioners. Contracts, policies, board minutes, and operational practices should consistently document that licensed dentists retain ultimate authority over all professional matters.
  • Employee Compensation: Incentive compensation tied to practice revenue, treatment acceptance, or product sales presents increased enforcement risk and should be carefully reviewed.
  • Advertising Oversight: Practice owners should exercise meaningful review and approval authority over marketing materials, pricing disclosures, testimonials, financing promotions, and representations regarding insurance participation. Organizations should maintain written records of owner approvals to demonstrate compliance.
  • Real Estate and Financing: Lease structures, financing arrangements, capitalization practices, and ownership documentation should be reviewed to evaluate whether they could be characterized as evidence of impermissible corporate control.
  • Risk-Based Compliance: Organizations should adopt a risk‑based compliance strategy that distinguishes between:

1. 1. 1. 1. existing statutory requirements;
         2. prudent risk‑mitigation measures; and
         3. settlement‑only provisions that exceed current law and may be subject to challenge.

Background

California’s Corporate Practice of Dentistry Prohibition

California has long prohibited the corporate practice of dentistry through the Dental Practice Act, judicial decisions interpreting the corporate practice doctrine, the prohibition on fee splitting in California Business and Professions Code section 650, and statutory amendments recently enacted by Senate Bill 351.

Together, these authorities seek to preserve the independent professional judgment of licensed dentists by preventing non-licensees from exercising undue influence over clinical decision-making.

Senate Bill 351 significantly expanded California’s statutory regulation of DSO and MSO relationships by expressly addressing management agreements, ownership requirements, contracting authority, employment relationships, advertising, patient records, and clinical autonomy. The Aspen Dental settlement should be viewed as the AG’s attempt to operationalize several SB 351 themes—while, in multiple respects, extending beyond the statute’s express requirements and introducing obligations not grounded in existing law.

The Aspen Dental Case Allegations

• • Aspen Dental, a private equity-owned dental support organization, commenced business in California in 2019 and has since opened numerous offices serving tens of thousands of patients.
  • The AG alleged that Aspen Dental exceeded its administrative support role by unlawfully directing the practice, ownership, and management of dentistry in California. 
  • The complaint asserted causes of action under the UCL (Business and Professions Code section 17200) and the FAL (Business and Professions Code section 17500), premised on alleged violations of the CPOD prohibition. The complaint primarily focused on the issues noted below.

Key Injunctive Terms: A Compliance Blueprint for DSOs and MSOs

The stipulated judgment introduces a comprehensive set of operational compliance provisions specifically applicable to DSOs and MSOs. To provide practical context, the chart below compares traditional industry practices against the specific obligations Aspen Dental accepted.

Importantly, the “Aspen Dental Settlement” column does not codify existing California law; rather, it outlines the tailored operational framework Aspen voluntarily agreed to implement as part of its negotiated resolution with the AG.

Comparison: Traditional DSO/MSO Models vs. Aspen Settlement Expectations

Why This Settlement Matters for All DSOs and MSOs in California

The Attorney General Has Opened a New Enforcement Front

Historically, CPOD enforcement in California has been fragmented across Dental Board licensing actions, the Dental Practice Act, and private litigation. This settlement signals that the AG may now view large-footprint DSO management models as unfair competition issues in and of themselves, opening a separate and potentially more powerful enforcement track.

By leveraging the UCL and FAL, the AG can pursue broad injunctive relief and civil penalties without being constrained by the Dental Board’s narrower, focused jurisdiction under the Dental Practice Act.

The Settlement Provides Unprecedented Guidance on the Boundaries of Permissible Control

Because California’s CPOD doctrine offers scant guidance on when management-fee structures, employment controls, and real estate arrangements cross the line into impermissible control, this settlement provides a useful framework for clarification.

The injunctive terms implicitly articulate the AG’s view of the boundary between lawful non-clinical management support and unlawful interference with clinical practice. For DSOs and MSOs, that specificity offers a concrete, though informal, compliance benchmark.

The Settlement’s Limited Legal Weight

While the settlement provides important directional guidance, dental organizations must recognize several critical limitations regarding its legal weight, statutory foundation, and enforceability against third parties:

The New Frontier of Fee-Splitting Scrutiny: Incentives, Advances, and the Appearance of Control

The settlement’s prohibition on management fees and staff incentives tied to practice revenue or profit may accelerate the dental industry’s shift away from percentage-of-collections models toward flat, cost‑plus, or defined‑service fee arrangements.

Although this provision arguably exceeds the literal scope of California Business and Professions Code § 650(b) (which addresses fee‑splitting), it aligns with the statute’s underlying policy: preventing compensation structures that incentivize over‑treatment or coercive sales pressure.

Additionally, the settlement restricts Aspen Dental’s ability to provide loans or advances to practice owners—a staple of DSO professional corporation financing models. That restriction signals that the Attorney General views routine or below‑market capitalization arrangements as potential evidence of improper control over clinical decision‑making.

The Rising Price of Settlement: Real-Time Monitoring and Expanded Compliance Exposure

The 36‑month independent monitor—with unfettered access to documents and personnel—signals that the Attorney General may now condition settlements on ongoing, real‑time visibility into a DSO’s/MSO’s internal operations, departing from the traditional reliance on injunctive language and after‑the‑fact enforcement.

This structural oversight marks a significant escalation from traditional, complaint‑driven enforcement by the licensing board. As a result, organizations should anticipate that third‑party monitoring may become a standard term in future settlements and consent decrees, substantially raising both compliance costs and operational exposure.

Comprehensive Compliance Roadmap for Dental MSOs, DSOs, Practice Owners, and Healthcare Investors

Organizations should avoid treating the Aspen Dental settlement as requiring immediate restructuring of every aspect of their business model. Instead, the settlement should be viewed as an opportunity to conduct a comprehensive, attorney-directed evaluation of governance, contractual arrangements, operational practices, compensation methodologies, financing structures, and compliance controls.

Organizations should also recognize that regulators frequently evaluate the cumulative effect of multiple operational practices rather than any single contractual provision. The following compliance roadmap prioritizes recommended actions according to both legal risk and operational urgency.

Foundational Compliance Step (Precedes All Compliance Tiers Below)

Privileged Self-Audit

Organizations should retain competent healthcare counsel to conduct an attorney‑directed, privileged self‑audit of all current DSO/MSO agreements, operational practices, and advertising workflows against the settlement’s injunctive terms, with particular emphasis on fee structures, compensation plans, advertising compliance, and operational control as the highest‑risk categories, and should then use the audit findings to guide the tiered compliance implementation steps outlined below.

TIER 1: Immediate Priority (Complete Within 30–60 Days)

These actions address the core allegations in the Aspen complaint and carry the highest risk of UCL/FAL enforcement, civil penalties, and injunctive relief.

TIER 2: High-Impact Structural Changes (Complete Within 90–120 Days)

These actions require contractual renegotiation, lease amendments, or financing restructuring. They present significant enforcement exposure but are less likely to trigger immediate action than Tier 1 items.

TIER 3: Ongoing Compliance and Housekeeping (Complete Within 6 Months)

These actions involve internal policy updates, documentation, and regulatory registrations. While important for holistic compliance, they pose the lowest immediate enforcement risk.

Conclusion

DSOs, MSOs, and dental practice owners should immediately reassess their California operations, as the Aspen Dental settlement provides an important enforcement roadmap identifying the operational characteristics most likely to trigger scrutiny under existing laws, such as the Unfair Competition Law and the Dental Practice Act.

While not binding precedent, the settlement signals that regulators may increasingly evaluate compliance based on the totality of an organization’s operational relationships—including management fees, workflows, and clinical influence—rather than just isolated contract language.

To navigate California’s evolving corporate practice landscape while preserving operational flexibility and transactional value, organizations should proactively evaluate these issues, document the independent exercise of professional judgment by licensed owners, and implement appropriate compliance enhancements’.

We Are Here to Help

If you have questions regarding the Aspen Dental settlement, California’s CPOD doctrine, DSO or MSO structuring, healthcare transactions, or the potential implications of these developments for your organization, please contact Michael Dowell or your regular Hinshaw legal counsel.