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Many DSO-PC groups revisit the management fee as their operations mature. A group may move from a fixed fee to cost-plus as its services and cost base become easier to document. A percentage fee is available only where state law and the specific arrangement permit it. This guide explains how to evaluate and carry out a change.

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The arc

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Stage 1, launch with a fixed monthly fee

Why groups use it: a fixed fee can be easier to administer and benchmark when the DSO provides a limited service scope, and it gives the PC predictable costs before revenue stabilizes. Its limit: the fee does not adjust automatically as the service scope and cost base change. The parties should revisit the amount and supporting fair-market-value analysis rather than assuming the launch price remains appropriate.

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Stage 2, move to cost-plus once the DSO absorbs real services

Why groups consider it: once the DSO’s services and costs are measurable, a documented cost base and supportable markup can provide a clearer pricing method. The parties still need current fair-market-value support and a formula permitted in the applicable state. Investor view: a defined formula can make management-company revenue easier to model than a fee reset through periodic negotiation. Investors will still test the cost allocation, markup, state-law constraints, and whether the invoices match services actually provided. Compliance view: a cost-plus formula can tie the fee to documented services and costs, but the formula is not a national safe harbor. Confirm state fee-splitting and management-fee rules, benchmark the markup, and document the services and invoices.1

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Stage 3: percentage of collections, with limited availability in dentistry

Why groups want it: maximum alignment with practice performance. Why stage 3 needs a state map: Nevada, New Jersey, New York, and North Carolina expressly restrict specified revenue-dependent dental support formulas; Maryland’s permitted-support pathway requires predetermined fixed compensation subject to its prior-period rule; and other states may apply broader fee-splitting, referral, control, or reasonableness provisions.1 Treat a percentage formula as a state-specific design choice, not a maturity milestone. See Fee-splitting and Set the management fee.

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Prerequisites for a transition

  • Current MSA reviewed
  • The DSO’s actual cost base calculated and allocated per PC
  • A refreshed FMV study, completed before the new fee takes effect
  • Per-state fee-splitting re-check for every PC moving to the new structure
  • Counsel engaged in each affected state

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Steps

1

Re-check state law for every affected PC

Test the new structure in each state. Cost-plus often reduces direct revenue-dependency risk but is not an automatic safe harbor; percentage formulas trigger express rules in several jurisdictions. Keep any practice on a state-specific lawful formula rather than forcing a national change. See DSO laws by state.
2

Commission the FMV study before the change, not after

An FMV opinion obtained after a fee increase took effect is worth far less than one obtained before. The sequence is part of the evidence: it shows the fee was set by reference to FMV rather than justified afterward.
3

Choose: amendment or amended and restated MSA

If your MSA predates 2025, test whether a restatement is cleaner than another amendment. The review should account for California’s SB 351, Colorado’s Rule 1.7 provisions scheduled to become operative January 1, 2027, Kentucky’s KRS 313.075, and North Carolina’s 2026 procedure change.2 See Draft the MSA.
4

Define the new fee precisely

For cost-plus, specify:
  • The cost base, which DSO costs are included, and which are excluded
  • The allocation methodology across PCs
  • The markup percentage
  • The calculation period and true-up mechanism
  • Documentation the DSO must provide with each invoice
5

Adopt board and member consents on both sides

Both entities must independently approve. For the PC, this is the dentist-owner considering whether the new fee is one the practice should agree to, and the minutes should reflect that consideration, not a rubber stamp. The California Aspen settlement’s requirement of annual written fee negotiations with PC owners shows where regulators expect this to land.1
6

Set a clean effective date and handle the mid-year transition

Prefer a period boundary, month, quarter, or fiscal year. If mid-period:
  • Prorate cleanly
  • State in the amendment which periods use which method
  • Handle the true-up explicitly
7

Update the invoice template and any automation

A cost-plus invoice needs to show the cost base and the markup. Update the accounting system’s recurring entries, the invoice format, and any payment automation.
8

Update the financial model and reforecast

The DSO’s earnings profile may change materially. If you are raising capital, model both structures so you understand how the change affects the numbers investors will review. See How investors read DSO financials.

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The true-up

Cost-plus requires reconciling estimated costs to actual. Specify:
  • Frequency, quarterly or annually
  • Direction, both, or only in the PC’s favor
  • Mechanism, a credit or additional invoice
  • Dispute process
An unreconciled cost-plus fee is functionally a flat fee with extra steps, and it will be treated as one.

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The thing not to do

Never reprice past periods retroactively to increase DSO earnings before a raise or a sale.A mismatch between the written fee and actual payments will draw diligence questions about both the calculation and the reliability of the financial records.If your fee has been below FMV, raise it prospectively, document why, and be prepared to explain the history. That is a defensible conversation. Restating prior periods is not.

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Verify it worked

  • State law re-checked for every PC on the new structure
  • FMV study completed before the effective date
  • Amendment or restated MSA executed
  • New fee defined precisely, including cost base, allocation, markup, and true-up
  • Board and member consents adopted on both sides, with real consideration reflected
  • Clean effective date; mid-period proration handled
  • Invoice template and automation updated
  • Financial model reforecast
  • No retroactive repricing of prior periods

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Common failure modes

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Sources

  1. NRS 631.215(2)(i); N.J.A.C. 13:30-8.13; 8 NYCRR 29.1(b)(4); 21 NCAC 16X .0101; Md. Code, Health Occ. § 4-103(E)(14). Pinpoints and official links appear in Set the management fee and DSO laws by state. N.Y. AG, Aspen Dental Assurance of Discontinuance (2015); Cal. AG, Aspen Dental settlement (May 2026).
  2. Cal. S.B. 351 (2025), effective January 1, 2026; Colo. Board Rule 1.7 under S.B. 25-194; Ky. KRS 313.075 (effective April 13, 2026); N.C. S.B. 257 (signed July 7, 2026). Details and links: DSO laws by state and the legislation tracker.
Last modified on August 21, 2026