California AG’s Aspen Dental Settlement Is a Warning Shot on the Urgency of Operationalizing CPOM Compliance

By: Harry J. Nelson, Esq., David H. Chao, Esq., T. Nancy Lam, Esq., and Adella Katz, Esq.

This alert continues our series examining the evolving regulatory and enforcement landscape surrounding CPOM compliance, friendly-PC structures, and MSO operations. Related articles in this series:

The California Attorney General’s recent lawsuit and settlement with Aspen Dental deserves attention well beyond the dental industry. For any organization operating through a professional corporation (“PC”) management services organization (“MSO” or “management company”) structure in California, the case is a serious reminder that corporate practice of medicine (“CPOM”) compliance cannot be treated as a paper exercise. The core issue is not simply whether the documents say the licensed owner controls the practice, but rather ensuring that control is real, exercised, and operationalized in day-to-day decisions. It is also worth noting that this settlement comes shortly after the Attorney General’s amicus filing addressing succession provisions commonly used in PC-MSO structures.

The Complaint and the Settlement

According to the Attorney General’s complaint, Aspen entered California by identifying locations, entering into leases, designing and building out offices, selecting and installing equipment, and operating denture laboratories inside the offices. The complaint also alleges that Aspen-branded offices did not clearly identify the independent licensed dentist owners of the practices. Those facts matter because they framed the case from the outset as one in which the management company, not the licensed owner, appeared to be the real operator.

The complaint then moved beyond classic ownership questions and into the much more important issue for most MSO models: whether the management company had built an operating environment in which the clinician-owner’s supposed authority was too attenuated to be meaningful. The Attorney General challenged not only traditional management services and change-of-control provisions, but also alleged clinical systems, trainings, fee schedules, billing-code guidance, default office hours, patient-flow protocols, consumer notices, vendor selections, charting guidance, procedure-time expectations, and recommendations regarding when and how often certain procedures should be performed. The complaint further alleged that this “guidance” was paired with metrics and scorecards focused on sales and revenue.

That point warrants the attention of every MSO operating in California. The Attorney General’s theory was not limited to whether Aspen directly told a clinician what diagnosis to make or what treatment to render. The complaint instead focused on whether the surrounding business architecture, both technical and operational, including training, dashboards, scorecards, scheduling tools, billing tools, vendor selection, price setting, sales incentives, and marketing controls, created enough practical pressure and centralized direction to undermine the independence of the licensed practice. In other words, California is looking not only at formal control, but at whether the platform has created a system in which the clinician is expected to ratify decisions that have effectively already been made.

The stipulated judgment provides an unusually concrete enforcement roadmap, including $2 million in civil penalties, $300,000 in restitution, and a 36-month compliance monitor. More importantly, it imposes detailed injunctive terms aimed at the operational levers identified in the complaint. Aspen is prohibited from owning the property of new practices, using revenue-based service fees, requiring the surrender of offices or equipment on termination, restricting where clinicians may practice, replacing owners with dentists of its choosing, directing clinicians to sell or increase revenue, paying practice employees incentives tied to sales or profits, being involved in hiring licensed clinicians beyond limited screening functions, communicating with clinical personnel beyond limited purposes, conducting clinical performance reviews, determining compensation of practice employees, defaulting office hours without owner input, or requiring acceptance of particular insurance. The judgment also requires annual negotiations with each practice owner over services and fees, written fee schedules, owner choice of laboratories, owner control over appointment-length estimates, and clear disclosure that any clinical training materials are optional.

Just as important, the advertising provisions reinforce the same theme. The judgment requires clear disclosure that Aspen Dental is a brand used by independently owned practices, express owner identification, owner review and veto rights over advertising, and written preapproval of marketing initiatives. Again, the point is not merely that marketing must be legally compliant. It is that key business choices affecting the practice cannot be treated as management-company functions that the clinician nominally “owns” but does not actually review, approve, or control. It also reflects a clear enforcement focus on consumer transparency and informed consent.

The Takeaways

The broader lesson is that, at least in California, casual or cosmetic approaches to CPOM compliance carry real risk. It is not sufficient for an agreement to recite that the licensed owner retains control if, in practice, key decisions – regarding operations, staffing, workflows, scheduling, treatment design, compensation structures, marketing, and growth strategy – are substantively driven by the MSO and only nominally attributed to the clinician. The more a PC–MSO model relies on informal acquiescence rather than demonstrable clinician approval and documented ratification of material decisions, the more difficult it will be to defend.

This does not mean that all California MSO structures are suddenly suspect, nor should Aspen be read to prohibit centralized infrastructure, standardized workflows, or appropriate administrative controls. Well-structured MSOs may still implement systemwide guardrails to protect operational continuity and compliance – for example, requiring advance notice of proposed ownership transfers or similar coordination measures designed to avoid disruption and protect legitimate business expectations – along with defined administrative oversight necessary to support the services the PC has elected to outsource. But the case presents a meaningful inflection point. California regulators appear focused on a more practical inquiry: whether licensed owners possess – and actually exercise – real, documented authority, or whether they function as placeholders while control resides elsewhere. Going forward, that determination will depend less on formal allocations of authority in governing documents and more on what the organization can substantiate in its day-to-day operations.

But the risk analysis does not end there. The heightened scrutiny applied by the Attorney General to Aspen Dental may also embolden qui tam relators to bring whistleblower claims under the False Claims Act or its state analog, the California Insurance Frauds Prevention Act. Relators may be expected to proceed on a theory that claims submitted by a non-CPOM-compliant provider are fraudulent because they contain a false implied certification of compliance with state law. While this precise theory has yet to be fully tested, courts and commentators have already seen relators argue that a provider’s CPOM non-compliance tainted its claims to Medicare or Medicaid. Although the Aspen Dental settlement is not binding in this context, relators might nevertheless seize upon the structural features that the Attorney General flagged to assert that other organizations using PC-MSO models have committed similar violations.

For such organizations operating in California, this is a good time to revisit not just the governing documents, but the operational mechanics that make clinician control real. That includes who approves marketing, who sets or approves office hours, who signs off on treatment-planning tools and billing logic, who approves clinician compensation structures, who controls clinical staffing decisions, who selects labs and equipment, who negotiates service scope and fees, and whether those approvals are documented in a way that shows actual clinician judgment rather than passive signoff. If those processes are not real, regular, and well documented, the model is more exposed than it may appear on paper.

The Aspen settlement does not rewrite California law and is not an adjudicated precedent. It is, nonetheless, a meaningful enforcement signal. California is not only scrutinizing formal ownership and contractual rights, but whether the licensed professional owner is truly functioning as the decision-maker the law requires. That message should resound throughout the healthcare industry.

Leech Tishman has extensive experience advising healthcare organizations, MSOs, and investors on regulatory compliance and enforcement risk. Our team is prepared to help clients evaluate how the Aspen Dental settlement may affect their California PC-MSO structure, operational approval processes, or CPOM compliance strategy. For assistance or additional information, please contact Harry J. Nelson at hnelson@leechtishman.com, David H. Chao at dchao@leechtishman.com, T. Nancy Lam at nlam@leechtishman.com, or Adella Katz at akatz@leechtishman.com, attorneys in Leech Tishman’s Healthcare Practice Group.