On October 18, 2012, a class action lawsuit was filed in the Northern District of New York against Aspen Dental Management, Inc. Robert A. Fontana, Aspen’s chief executive officer, and Leonard Green & Partners, L.P., a private equity firm with a majority ownership stake in Aspen. Aspen operates a dental practice management company, which provides management services to dental practices in several states. The lawsuit alleges that Aspen engages in the unlawful corporate practice of dentistry in violation of New York law as a result of its corporate structure and business model and engages in fraudulent and unfair and deceptive trade practices.

Among the practices that plaintiffs allege are fraudulent and violate the corporate practice of dentistry are the use of a production based bonus program for dentists and office managers and the use of a scheduling system that favors more lucrative procedures (i.e., extractions, crowns, bridges and dentures) over more routine and less lucrative procedures such as fillings, cleanings and follow-up appointments. In addition, the complaint alleges that Aspen uses “high pressure” sales tactics to develop a treatment plan that the dentist is obliged to follow even if the dentist did not perform the original examination or the patient requests an alternative plan due to cost or necessity. The plaintiffs also claim that Aspen’s clinics are owned, operated and controlled by Aspen’s corporate office, rather than the individual dentists who actually own the local practices and they assert that this violates the corporate practice of dentistry in several states.

The Aspen lawsuit highlights several of the legal issues that dental practice management companies face and that investors should be aware of when investing in dental practice management companies.

The full complaint can be read here.

Our white paper “Investing in Dental Practice Management: Key Issues and Notable Transactions” can be read here.