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Failure to Collect Co-Pay

By June 6, 2013October 4th, 2019Buying a Practice

Dentists Shareholders Agreements

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact us at any time.

So here’s the issue: a dentist is looking to buy a dental practice but, upon doing their due diligence, discovers that the dentist who is selling their practice has significant discounts each year.  These could be in the tens of thousands of dollars.  They are sometimes called “professional courtesies” or “discounts” or “write-offs”.  Some or perhaps all of this stems from the dental practice’s failure to collect the co-pay from the patient.  And there are some practices where, if they were to try to enforce the collection of co-pay, they would lose that patient.  So the dentists don’t even bother.

But let me be blunt here: dentists who do not enforce co-pay while still submitting claims to insurance companies asking for 80% of the bill to be paid by the insurance company could be committing fraud!  That’s right: insurance fraud!  So each dentist has a legal obligation vis-a-vis the insurance company to collect the 20% co-pay from the patient.  Failure to do so could send the insurance company in and demand immediate repayment.  And this happens folks.  I’ve heard of dentists paying big bucks  to insurance companies who investigated and then demanded payment.  And dentists don’t want to fight because the insurance companies are their bloodline.

So getting back to our prospective purchaser, the question becomes: what is their liability for a selling dentist’s failure to collect co-pay?  Well, liability for failing to collect co-pay falls on the individual dentist (who enters into the agreement with the insurance company and whose name is on the cheque) and NOT on the dental practice.  As such, the dentist purchaser would NOT be held liable for the PAST failure of a vendor dentist to collect co-pay.

The issue therefore becomes: how many patients will / could you lose AFTER the closing when you start to enforce the co-pay?  This will be factored into a discount on the purchase price.

Finally, what about the situation where a dentist is an associate at a practice and the principal / dental practice do not collect the co-pay? Well, my gut says that the associate (whose name is on the check) is still on the hook, but may look to the principal / dental practice for indemnification (i.e. repayment) if the insurance company goes after him or her.  The insurance company is concerned with individual dentists, not practices.   The relationship between the associate and the principal would be governed by the associate agreement, which hopefully covers this situation.

DMC