Management & Dental Service Organizations: A Primer

By Candace Groth

“We’ve already got the practices lined up. Can’t we just draft the agreements and get started?”

We hear this often. The Management Services Organization (MSO) and Dental Service Organization (DSO) space is one of the most active and opportunity-rich areas in healthcare today — but skipping the structural groundwork is one of the most costly mistakes a founder, clinician, or investor can make. The decisions you make at formation will shape your compliance structure, your ability to attract capital, and your eventual exit for years to come.

DSOs and MSOs — Not the Same Thing

A DSO provides administrative and business support to affiliated dental practices, holds non-clinical assets, and operates under a long-term Administrative Services Agreement with a dentist-owned Professional Corporation (PC).

A MSO is the broader structure used across medical and other licensed healthcare disciplines — physician groups, dental practices, behavioral health, dermatology, physical therapy, and more. The MSO holds no equity in the clinical practice and provides administrative, operational, billing, and compliance services under a Management Services Agreement (MSA), in exchange for a management fee. The physician- or dentist-owned PC retains full clinical ownership and control.

Wherever a state prohibits non-clinician entities from owning or controlling a licensed practice — which describes most states, and certainly Texas — the MSO/DSO structure is typically the path for outside capital, though not the only one. 

The Texas Corporate Practice Doctrines

Texas enforces both the Corporate Practice of Medicine (CPOM) and Corporate Practice of Dentistry (CPOD) doctrines, and it does so fairly aggressively.

The Texas Medical Practice Act prohibits non-physician entities from employing physicians or exercising control over clinical decision-making. The Texas Dental Practices Act similarly bars non-dentist entities from controlling dental treatment, and Texas courts have gone further, prohibiting trilateral contract structures designed to work around the employment prohibition. Texas also requires DSOs to register annually with the Secretary of State, and that information is shared directly with the State Board of Dental Examiners.

If your structure inadvertently crosses either line, the consequences are severe: management agreements can be voided, payers can pursue recoupment, and clinician licenses can be suspended or revoked. Getting the structure right from the start is not optional.

The Two-Entity Structure

In Texas, the standard structure pairs two entities:

• The Management Entity (MSO/DSO): The investor- or founder-owned LLC or corporation that holds non-clinical assets (equipment, leases, vendor contracts, non-clinical employees, IP) and provides business services to affiliated practices.
• The Professional Entity (PC/PLLC): The clinician-owned entity that holds the license, employs clinical staff, maintains malpractice coverage, and retains all clinical decision-making authority.

The Management Services Agreement ties them together and is the most important document in the structure. A well-drafted Texas Management Services Agreement must clearly separate clinical from non-clinical functions, set the management fee, establish operational governance without crossing into clinical control, and comply with HIPAA. It must also be reviewed for Anti-Kickback Statute and Stark Law exposure. These laws apply to arrangements involving referrals for Medicare, Medicaid, and other federal program services.

The Management Fee

The management fee is one of the most scrutinized elements of any MSO structure — by regulators, auditors, and opposing counsel. Texas has broad fee-splitting prohibitions for both medical and dental practices. A fee that isn’t defensible at fair market value, or that resembles a percentage split of professional revenue, creates serious exposure.

There is no universal formula. The right structure depends on the scope of services, the practice’s payor mix, whether federal programs are involved, and the overall deal structure.

Private Equity Considerations

Private Equity (PE) investors or funds typically deploy capital through the MSO or DSO entity — not the professional entity — acquiring non-clinical assets and scaling through add-on affiliations. Key considerations for Texas platforms include entity selection and tax structure, rollover equity mechanics for clinician founders, non-compete enforceability (Texas has specific statutory requirements for physician non-competes, including mandatory buy-out rights), and early assessment of any applicable healthcare transaction review obligations.

Specialty-specific dynamics matter too. A behavioral health platform carries different compliance considerations than a dental specialty group or a physician practice in a federally reimbursed specialty. Build with the exit in mind. The structure you form today will either facilitate or complicate a future PE investment or sale.

This post provides general information only and does not constitute legal advice. Consult an attorney familiar with Texas healthcare law for guidance specific to your situation.

About the Author(s)

Candace Groth

Candace Groth is a senior attorney at Vela Wood. She focuses on mergers & acquisitions and complex LLC matters.

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