A recent case against a dental management company (and related Accusations by the California Dental Board against at least two of the dentists that worked there) reveal that if the State wants to be aggressive with these arrangements, companies should be careful with the structure, the written agreements, the "unwritten" arrangements, and ensure that practice and financial arrangements comply with the law.
In this case, the Board asked United Dental for responses and received detailed written responses from it's in-house attorney and United Dental entered into a new management contract with the dentist that was not fully compliant with the law. United Dental managed 5 practices in California. Two years later, United Dental got hit with civil lawsuit and at least one dentist got an Accusation in March 2015 for aiding and abetting the unicensed practice of medicine.
Brief Summary of Settlement of Civil Lawsuit Filed by Orange County
On December 11, 2015, the Orange County District Attorney’s Office (OCDA) obtained a settlement in a civil suit it had filed against United Dental Corporation and its California affiliates (dba “United Dental Group”), as well as its owner Jeong Hoon Kim, for engaging in the unlicensed practice of dentistry and false and misleading advertising. The Dental Board has at least one Accusation pending against a dentist who worked at United which has not settled.
The settlement requires the shut-down of United Dental Group in California on or before March 3, 2016, and an $867,000 payment in civil penalties and costs ($8,791.20 to reimburse the Dental Board for its costs of investigation and $858,208.80 in civil penalties). During the shut-down period, all operations will be solely managed and controlled by a licensed California dentist. The final judgment was entered Dec. 9, 2015, in the Orange County Superior Court presided by Judge Geoffrey T. Glass.
A Complaint to Dental Board Triggered The Civil Lawsuit by Orange County
Most investigations in our experience are from anonymous complaints from competitors. This case seems to be no different.
In September 2011, a complaint was made to the Dental Board that an unlicensed person owned a dental group that was sending out advertisements. The complaint attached the advertisements which promoted its dental clinics under the name United Dental and claimed there were 35 branches in Korea and 2 in the U.S.
The Dental Board saw that United Dental was originally incorporated in District of Columbia and was owned by Mr. Kim who is not a dentist. In 2009, United Dental filed Articles of Incorporation in California but it was not a professional services corporation and "United Dental" was not issued a fictitious name permit by the Dental Board. This was a red flag and prompted further investigation. Thus, when the "trade name" used by a management company is used for the dental or medical practice and is not tied to a particular dentist or dental corporation, it is a violation of law.
The view from the Dental Board is that when a patient walks out of a practice, the patient should be able to know that United Dental or any name is registered with the Board so that if there is an issue later, the owner can be found and the Board will have jurisdiction over the entity. We often see this mistake of not having the fictitious name permit issued by the Board (even with licensed practitioners). It's more problematic when entity owner is a non-professional since the Board does not have jurisdiction over a non-dentist.
Dental Board Contacted United Dental and Its "New" Management Agreement, In-House Attorney's Responses and Dentist Interviews Created More Evidence of Unlicensed Practice
The investigation took some time. It took the Board over a year to send out a cease and desist letter. In January 2013, the Dental Board of California contacted the United Dental parties and demanded that the unlawful business cease and desist “from providing, offering and advertising dental services of any kind in the State of California.”
United Dental's in-house counsel sent written responses indicating that United Dental was a consulting company which supports each dentist with aspects of dental office corporation. So far, so good. The issue is why the dentist is practicing under the United Dental name instead of his or her own entity. The legal issue is whether United Dental is the "true" owner of the practice.
They then provided a Management Contract dated February 1, 2013 [after the investigation was started] which revealed that United Dental got 35% of all net collections and was aggressively drafted in a way that gave United Dental control of the business. For example, if United Dental terminated the Management Agreement which it could do for "no cause," then the dentist had to "cease practice." The dentist, on the other hand, would have great difficulty terminating the Management Agreement.
The Agreement also showed the business control in that if there were no profits (expenses exceeded collections), then United Dental would waive the right to be paid. United Dental provided all supplies, funding, controlled most aspects of the business and marketing under the Agreement.
This 2013 Agreement was drafted after United Dental, Mr. Kim and the dentists working there knew of the investigation but the Agreement as drafted did not cure the corporate practice allegations. Instead, it showed that United Dental essentially owned the practices. Things got worse once an interview of the dentist who "bought" United Dental's practices occurred and confirmed that he did not invest in his own practices.
Interview of Dentist Who "Bought" the Practices in Decemer 2012 Was Not Helpful
The dentist, Dr. Ukjae Jung, was interviewed in 2013. He told the Board investigators that he began working at United Dental as an independent contractor for a base pay per day with a percentage of daily production over his base pay.
Dr. Jung told the Board that he became the "owner" of all United Dental practices in December 2012 but that he did pay any money, did not sign any note and "no money changed hands." The bank account for the practices still had Mr. Kim (owner of United Dental) as a signer on them. Finally, Dr. Jung stated that he did not receive any money from the practice as an owner or operator. This combined with the terms of the Management Agreement was not enough to persuade the Board that the dentist was in charge of the practice.
The Board's view was that despite the directive from the Dental Board, United Dental opened additional dental offices and openly continued to persist in operating a dental business in violation of California law. The Board filed an Accusation against Dentist Jung in 2014 which is not resolved.
Board Investigators Made Suprise Onsite Visits in 2013 and 2014 to Interview Dentists Which Became Grounds for Disciplinary Action Against Another Dentist
While the investigation was pending, it seems that United Dental and its lawyers did not keep the dentists well informed about the arrangement and make sure compliance was in effect. It also appears that the dentists agreed to interviews without having counsel present.
The Board investigators went to an office and interviewed a dentist Dr. Christian Lee who is now facing an Accusation for aiding and abetting unlicensed practice. In the interview in October 2013, Dr. Lee stated that he was hired by United Dental the management company (and not a dentist), that United Dental was owned by Mr. Kim who did not live in California, and stated that he was paid by 1099 from United Dental based on production. Investigators came back on July 2, 2014, and saw that Dr. Lee was still working there. This showed defiance of the Board's position and was not taken well. An Accusation was filed against Dr. Lee in March 2015.
Board Investigators Made Suprise Onsite Visits in 2013 and 2014 to Interview Dentists Which Became Grounds for Disciplinary Action Against Another Dentist
While the investigation was pending, it seems that United Dental and its lawyers did not keep the dentists well informed about the arrangement and make sure compliance was in effect. It also appears that the dentists agreed to interviews without having counsel present.
The Board investigators went to an office and interviewed a dentist Dr. Christian Lee who is now facing an Accusation for aiding and abetting unlicensed practice. In the interview in October 2013, Dr. Lee stated that he was hired by United Dental the management company (and not a dentist), that United Dental was owned by Mr. Kim who did not live in California, and stated that he was paid by 1099 from United Dental based on production. Investigators came back on July 2, 2014, and saw that Dr. Lee was still working there. This showed defiance of the Board's position and was not taken well. An Accusation was filed against Dr. Lee in March 2015.
Board Referred Case to Orange County DA Consumer Protection Unit
The Board referred the case to OCDA which alleged that beginning in 2009, the United Dental parties unlawfully owned, managed and controlled several dental offices in Southern California without a dental license or the necessary permits and registrations.
The civil lawsuit alleged unfair competition. The theory was that by evading the legal requirements, the United Dental parties unfairly competed with and harmed law-abiding dental businesses by expediting the formation of several unlicensed dental practices without paying the fees and complying with the applicable regulatory requirements that law-abiding dental practices must comply with.
The Board referred the case to OCDA which alleged that beginning in 2009, the United Dental parties unlawfully owned, managed and controlled several dental offices in Southern California without a dental license or the necessary permits and registrations.
The civil lawsuit alleged unfair competition. The theory was that by evading the legal requirements, the United Dental parties unfairly competed with and harmed law-abiding dental businesses by expediting the formation of several unlicensed dental practices without paying the fees and complying with the applicable regulatory requirements that law-abiding dental practices must comply with.
Under
California law, “[i]t is unlawful for any person [or entity] to engage in the
practice of dentistry in the state … unless that person has a valid, unexpired
license or special permit” to practice dentistry from the California Dental
Board.
The Board and OCDA contend that any person or entity that “manages or conducts as manager, proprietor, conductor, lessor, or otherwise, a place where dental operations are performed” is engaged in the practice of dentistry. What is reviewed here is "who controls the business?"
Licensed dentists are required to obtain permits for the use of fictitious business names and permission from the Dental Board prior to opening more than one dental office. The purpose of these laws is to “keep the practice of dentistry as a profession distinguished from a trade or business, and likewise to protect the public health in assuring that the relationship of a physician and patient is maintained and that a responsible licensee is in charge of the practice of dentistry.” (39 Ops. Cal. Atty. Gen. 232 [quoting 5 Ops. Cal. Atty. Gen. 13, 14].)
Final Attorney Commentary
In essence, the professional must be in control of the practice and if the professional is treated like an employee or independent contractor who does not invest in the business or share in the profits or losses, there will be issues. Different companies will take different risks but this is a case where the microscope landed on dental practices and their management company.
This case shows what happens when the response to a professional Board's inquiry does not act immediately to cure any corporate practice issues and fails to recognize the importance of reorganizing properly if there are issues. It is critical to be proactive and fix the issues before there are Board responses and interviews. While the past cannot be changed, being compliant in the present is key. In this case, changes were made but they were "superficial" and easily discovered to be transparent.
We have had inquiries from Boards and when our office sees non-compliance, we get our client to become compliant immediately, make corporate changes and do everything else to fix the matter. Results are almost always positive with the investigation closed. Digging one's heels in does not work and making real substantive changes (without admitting wrongdoing) is almost always the right way to proceed.
The unfortunate result here was that two of the dentists ended up with disciplinary records -- which will make it difficult for them to participate in insurance plans or be preferred providers. The management company lost its business and had to pay enormous fines. Non-compliance proved to be very expensive at every level.
Posted by Tracy Green, Esq.
