Prerequisites
- The MSA’s services scope defined, in detail
- Your state’s fee-splitting rule confirmed, see Fee-splitting
- The DSO’s actual cost of providing the services, calculated
- Market benchmarks available
The three methodologies
Additional variants used in practice: per-dentist per-month, per-location per-month, and hybrids combining a base fee with a variable component. Any variable component that moves with practice revenue inherits the percentage analysis.
Express dental formula restrictions
These provisions do different legal work. Nevada conditions its support-services exclusion, New Jersey and New York define prohibited fee splitting, North Carolina regulates management-arrangement compensation, and Maryland defines compensation within its permitted-support framework. Read the complete provision and exceptions before converting the table into contract language.
Enforcement materials add fact-specific guidance. The New York AG’s 2015 Aspen Dental settlement made findings concerning a pre-set percentage of monthly gross profit and imposed restrictions on sharing in professional fees; the California AG’s 2026 settlement requires the settling company to end specified revenue-based service fees and negotiate fees annually in writing with practice owners.1 Those are important enforcement records, not statutes of nationwide application.
Flat and cost-plus formulas often reduce direct revenue-dependency risk, but neither is an automatic safe harbor. The amount, markup, services, allocation, referral nexus, control rights, and state text still matter. See DSO laws by state.
Steps
1
Calculate the DSO's actual cost of providing the services
Even if you’ll charge a flat fee, you need this number. It is the floor, the FMV anchor, and the basis for any future cost-plus transition.Include: non-clinical salaries and benefits, occupancy allocated to the practice, technology and PMS licensing, insurance, professional services, marketing, and an allocation of DSO overhead.For a multi-PC group, allocate per PC using a defensible driver, headcount, square footage, visit volume, or direct attribution. Document the methodology. Arbitrary allocation undermines FMV for every entity in the group.
2
Confirm what your state permits
Identify each state’s applicable percentage, dependency, fee-sharing, referral, control, fixed-compensation, and excess-profit rules. If the answers differ, use state-specific riders or formulas rather than forcing one national number.
3
Choose the methodology
4
Set the amount and document FMV
Support it with:
- The DSO’s documented cost of service
- Market benchmarks for comparable management arrangements where available
- Published data on DSO fee ranges
- A formal FMV study for larger arrangements or before a raise
5
Specify the mechanics in the MSA
- Calculation method, stated precisely enough to reproduce
- Invoicing, monthly, from the DSO
- Payment terms, within N days, from the PC’s operating account
- Priority, after clinical payroll and the PC’s direct obligations
- Deferral, what happens if the PC cannot pay in full
- Annual FMV review
6
Run the fee-coverage test before finalizing
Model whether the PC can pay the fee from its own collections after clinical compensation and direct expenses at expected volume. Use realistic dental collections. PPO write-offs can reduce gross production by 30–45%, and annual maximums limit what insurance contributes per patient. See DSO economics.If the PC cannot cover the fee after its credentialing ramp, either the fee is too high or the practice’s economics do not support it. The first possibility also raises an FMV question. See Where the profit lives.
7
Adopt board and member consents on both sides
The invoice-and-payment mechanics
Not optional detail. This is the difference between a fee and a sweep.1
The DSO issues an actual invoice
Numbered, dated, stating the period, the calculation, and the services. Not a journal entry.
2
The practice entity authorizes and pays it
Use the payer-authorized and entity-authorized account, approval rights, and priority required by the documents and state law.
3
Both entities book it at identical amounts
Expense in the PC, revenue in the DSO.
4
The invoice is filed in both entities' records
When the PC can’t pay in full
Common during the credentialing ramp. Two legitimate options: Defer part of the fee in writing and state when payment is expected. An amount that accrues indefinitely may suggest that the PC could never support the fee. The DSO lends the PC money, on a written promissory note at a rate no lower than the applicable federal rate, with a repayment schedule and board consents. See Intercompany loans between DSO and PC. Keep the terms commercially reasonable: the California AG’s Carbon Health settlement attacked management-company financing that locked the practice into exclusive, above-market credit.3 What not to do: skip it silently, or have the DSO pay PC expenses directly with no intercompany entry.Verify it worked
- DSO’s cost of service calculated and allocated per PC on a documented basis
- State fee-splitting and percentage-fee rules confirmed for every PC
- Express formula restrictions applied for NV, NJ, NY, NC, Maryland, and every other operating state
- Methodology chosen and stated precisely in the MSA
- FMV analysis documented and dated
- Fee-coverage test run and passed at expected volume, net of write-offs
- Invoice-and-payment mechanics specified
- Board and member consents adopted
- Annual FMV review calendared
Common failure modes
Sources
- NRS 631.215(2)(i), official chapter; N.J.A.C. 13:30-8.13, official Board rules; 8 NYCRR 29.1(b)(4), via NYSED Part 29; 21 NCAC 16X .0101, Board rule PDF; Md. Code, Health Occ. § 4-103(E)(14), official statute; N.Y. AG, Aspen Dental Assurance of Discontinuance; Cal. AG, Aspen Dental settlement (May 7, 2026).
- 21 NCAC 16X .0101 (written arrangement must state aggregate compensation or a precise methodology).
- Cal. AG, Carbon Health settlement (June 2026).