Corporate Dentistry’s Scam on US Taxpayers Though the PPP Loan & Forgiveness Program By: Michael W. Davis, DDS
Corporate Dentistry’s Scam on US Taxpayers Though the PPP Loan & Forgiveness Program
By: Michael W. Davis, DDS???????????????????????????????????????????????????12-29-2023
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Much of the media exposed various frauds perpetrated upon US taxpayers by huge corporate interests, which unlawfully secured federal Paycheck Protection Program (PPP) loans and forgiveness. On March 28, 2022, NBC News ran a story detailing on how the COVID relief was to a large extent deceptively misappropriated by Big Business, when legislators specifically designed the program to assist small business.1
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Earlier, the New York Times published a report on October 11, 2021, demonstrating as much as 15% of all PPP loan and forgiveness money was likely fraudulently obtained.2 Those numbers seem incredibly low in relation to what we now know.
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One of the better overviews of this massive scandal was provided by National Public Radio (NPR), on January 9, 2023.3 ?NPR reported that 92% of companies applying for PPP loans received complete or partial loan forgiveness. Many of these companies failed to qualify under the Small Business Administration’s (SBA’s) Rules. However, that fact did not seem to place a governor on greed. Mega companies crowded to feed first at the hog trough.
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U.S. Small Business Administration Rules
The U.S. SBA established numbers of requirements on PPP loans attempting to ensure money would be allocated to small businesses, such as small business dental practices. The objective was to favor small businesses versus larger corporate entities which had easier, and a wider variety of access to emergency funding during the COVID crisis (subprime bond markets, financial access through large banks and institutional lenders, institutional investors, etc.).
1.?????? Under the North American Industry Classification System Code (NAICSC)4 number 621210, the SBA recognizes qualifying small business dental practices which generate under $8 Mil annually.
2.?????? A small business must generally retain under 500 employees to qualify.5 ???
3.?????? The maximum amount borrowed could be 250% of average monthly payroll expenses -- up to a maximum of $10?million.
4.?????? The money was intended to cover up to?eight weeks of payroll, as well as debt payments, mortgage interest payments, rent, and utilities.
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Bloomberg Law and Bloomberg Business Specifically Reported on Dental Support Organizations’ Cheating
Private equity firms were largely excluded from receiving PPP loans and forgiveness. 6,7,8 ??When exposed, large private equity firms like KKR (traded on NY Stock Exchange and holder of Heartland Dental in its portfolio) usually opted to return the money. However, many or most in corporate dentistry decided to find a “work-around.”
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Dental Support Organizations (DSOs) frequently filed for PPP loans and forgiveness though their affiliated dental practices. These dental practices are nominally “owned” through various dentists or professional corporations, which function as shell companies for the beneficial ownership of the DSO and parent private equity company.9 ??
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Business service agreements (a/k/a management service agreements and/or administrative service agreements) between a dental practice provider and its parent company DSO, invariably are highly one-sided favoring the parent company. Litigation long-ago publicly exposed the realities of these duplicitous contracts. These included the Ruling in the US Fifth Circuit 07-30430 involving Orthodontic Centers of America10 ?as well as Allstate Insurance vs. Northfield Medical.11 ?
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What DSO management and their private equity senior partners counted on was federal investigators and prosecutors ignorance and lack of motivation to enforce the SBA Affiliation Rules. So far, they have been proven correct.
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U.S. SBA Affiliation Rules
PPP loans were placed under the guidance of SBA “Affiliation Rules”12? in an April 3, 2020, directive. One rule specifically examined affiliation based on management structure. A company is considered an “affiliate” if the CEO or president of a parent company also controls the management of a subordinate company.
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The SBA document specifically reads "Affiliation also arises where a single individual, concern or entity controls the management of the applicant concern through a management agreement."??
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Contract wording in agreements between a DSO and the dental practice “ownership” generally will state the entities are independent and the DSO’s relationship to the dental practice is that of “independent contractor.” This is a serious and rampant misrepresentation of material facts.
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In reality, the alleged “independent contractor” DSO may control the dental practice through a variety of contractual means inclusive of capital production (dental equipment), supplies, laboratory selection, specialist selection, personnel staffing, hours of operation, patient billing practices, patient scheduling, determination of insurance participation, bonus and quota programs with clinical providers, terms in facility lease, and especially control with the bank account of the dental practice. The dental practice and DSO may also be engaged in mutual fee-splitting, or a sharing of profits which generates an “affiliate” relationship.
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Numbers of DSOs ?go to the additional extent of terming dentists and dental practices working under their umbrella company as “partners” and “affiliates.” Obvious violation of the SBA Affiliation Rules in procurement of PPP loan and forgiveness cash apparently hits smack in the face.
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Big Hogs Fed First
Anecdotally, numbers of valid small business dentists will relay how challenging it was to secure PPP loan funding. By contrast corporate dentistry, which was usually not entitled to this funding, received prompt government financing.13 ?
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The COVID Oversight Coalition reported, “Corporations and large businesses eligible for the program qualified for loans greater than $150,000 and treated the program as an easy cash line. Other recipients did not use funds to retain workers and had these loans forgiven. These companies must be held accountable by the Small Business Administration and its Inspector General, the Select Subcommittee on the Coronavirus Crisis, the White House Office of Management and Budget (OMB), the White House American Rescue Plan Implementation Team, the Pandemic Response Accountability Committee (PRAC), or Congress. Because of these abusers, several of which we highlight in the case studies, truly small businesses in need were left out of the first, and part of the second round of PPP and workers who should have been supported by the program were not.” 13
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The COVID Oversight Coalition also highlighted how the program’s reliance on big banks was significantly disadvantageous to small business, which generally lacked such banking relationships. Banks including JPMorgan Chase, Citibank, and U.S. Bank prioritized the PPP loan applications of their wealthy clients, according to bank employees and financial industry analysts who spoke to the New York Times.
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An additional point raised by the COVID Oversight Coalition was because the PPP had finite funds, every dollar lent to a fraudster reduced the funds available to legitimate businesses in need, making the high fraud rate in the program a serious problem.
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“PPP funds not only failed to sustain small businesses and workers in need, but they also provided cash windfalls to larger businesses and industries that could have survived the pandemic without taxpayer funds…” reported the COVID Oversight Coalition. “The lack of accountability measures to ensure the retention of employees, the primary objective of the PPP, enabled large businesses to obtain taxpayer financed loans and win forgiveness of the debt, while still laying off workers during the pandemic.“ ?
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“In 2020, in the halls of Congress and at government agencies, private equity firms lobbied to allow their portfolio companies to gain access to public funds through the various relief programs that Congress created in response to the pandemic, including the PPP… The fact that the portfolio companies were backed by private equity firms controlling vast amounts of capital raises the question of whether the portfolio companies should have been given access to emergency relief programs, especially those like the PPP that were intended for struggling small businesses.“
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Yet, under SBA Affiliation Rules most big businesses, inclusive of corporate dentistry entities, should have never received funding.
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Mega-business private equity firms routinely utilized their smaller portfolio companies or even smaller subordinate affiliated companies, such as dental practices to secure PPP funds. All the while, they laid off employees, in direct conflict with the goals of the PPP loan funding to retain workers during the economic crisis.
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Layoffs in the dental industry included uniquely skilled clinical personnel such as registered dental hygienists and certified dental assistants. Subsequent to the COVID pandemic and their layoffs, many of these highly trained individuals failed to return to the dental workforce. Today, we face the “Great Dental Resignation”14 ?thanks in part to the avarice of corporate dentistry, which took PPP money (leaving less for small business dentistry) and furloughed workers disregarding the statute’s purpose.
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Feds Go After Small Fish
Federal investigators and prosecutors almost entirely ignored violations in securing PPP money by corporate dentistry and their parent companies in private equity. Apparently, they only targeted the “low hanging fruit” of lone doctors running PPP loan scams. Individual dentists defrauding the program ranged from Oregon, Texas, to Massachusetts.15,16,17
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Solutions
One might assume the American Dental Association (ADA) would provide answers, as the largest membership organization of US dentists. The ADA represents a membership of active dentists at 57% (and in decline).18 ??
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A March 30, 2022, article in ADA News interviewed the current executive director of the Association of Dental Support Organizations (ADSO).19 ?The puff piece accepted the spin of corporate dentistry at face value.
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The ADA News reporter’s introduction prefaced several gross misrepresentations based on corporate generated myth.
1.?????? “(D)ental support organizations are entities that dental practice owners contract with to manage the administrative, marketing and/or business sides of that dental practice.”?
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In truth, it is almost always the DSO which recruits dentists to sign contracts to serve the DSO’s interests, as nominal practice owners and/or associate dentists.
2.?????? “DSOs do not provide patient clinical services.“
Again, another twisted fact was given. By setting the conditions under which their doctors practice, the DSO is engaged in the practice of dentistry and unlicensed to do so.
3.?????? “All patient clinical services are provided by, and under the direct supervision of, licensed dentists.“
Yet another misrepresentation was generated. Associate doctors are often directed by office managers with no clinical training and unlicensed, who answer directly to corporate management (unlicensed). Doctors who fail to make production quotas face penalties and possible termination. Dentists who may attempt to exert clinical authority over subordinate auxiliaries are initially admonished by DSO management, then if persistent, they are terminated.
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One is left to speculate on the ADA’s motivation to publish such outrageous nonsense. Will the ADA trade veracity for future revenue (dues or ad revenue) from the ADSO? Why would the ADA align their organization with the ADSO, which requires a plethora of sham-owner dentists to satisfy state qualifiers disallowing the corporate practice of medicine/dentistry?
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Unfortunately, the current leadership at the ADA is not apparently fully motivated to acknowledge abuses to the public interest by the DSO industry. Such abuse not only reduced financial resources with PPP money for small business dentistry, but negatively impacted the entire dental workforce via massive personnel furloughs contributing to the “Great Resignation.”
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The recent bankruptcy dissolution of a DSO, SmileDirectClub (SDC)20 ?provides multiple lessons. ?Patients often had no idea who their treating dentist was, or even if their doctor was licensed. The American Academy of Orthodontics earlier filed multiple complaints against SDC to approximately 36 different state dental regulatory boards. Eighteen dental boards subsequently filed actions against SDC, but almost all failed and the dental boards faced countersuits from SDC. In similar fashion, the ADA filed a formal complaint to the Federal Trade Commission.
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Practices of SDC allegedly damaging to the public welfare were exposed in journalistic exposés on NBC News21 and Canadian Broadcasting’s Marketplace.22 ?SDC fired back with retaliatory legal actions.23,24
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SDC was also embroiled in a lawsuit for alleged patent violations from a competitor, Align Technology, which SDC lost. Several shareholder class action suits materialized as SDC failed to turn a profit since its initial public offering (IPO) in 2019. Shareholders alleged SDC management fell far short on company transparency and disclosures. The NASDAQ exchange delisted SDC in October 2023.25 ??
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The final straw for this DSO bullying was the intervention of federal prosecutors. Accumulated actions by organized dentistry, state dental regulatory boards, national and international news media, and shareholders were evidently inadequate. It was the Office of the Attorney General for the District of Columbia which slammed the door on this particular DSO.26 ?
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Until or unless the federal government acts against the private equity industry and DSOs for fraud and abuses to the PPP loan and forgiveness program, nothing changes. A 10-year statute of limitations exists for such unlawful activity. Unfortunately, as with the dysfunctional dental Medicaid program, all taxpayers may see is a pathetic effort at “pay and chase.”
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On January 1, 2024, a new federal law goes into effect which requires companies to report their beneficial ownership, or the entities which ultimately own and control them.27 ?Beneficial owners include those who own at least 25% of the company’s shares, have a major influence on a company’s decisions or operations, or have control over the company’s equity.28 ?The Financial Crimes Enforcement Network (FinCEN) under the Department of the US Treasury will enforce the Corporate Transparency Act.29 ?
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The New York State Dental Association provided an outstanding overview with useful links for the dental industry.30
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Based on a paucity of enforcement effort against fraudsters securing COVID relief money, especially Big Business fraudsters, one might reserve optimism for the program’s success. Currently, thousands of dental practices are essentially shell companies subordinate to the directives of various DSOs, as well as private equity firms further up the ownership chain. As stated earlier, the beneficial ownership of a dental practice managed by a DSO is revealed in their respective business service agreements, which are replete with misrepresentations and obfuscations.
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As our nation goes deeper into debt, the hogs only get fatter. Public welfare succumbs to the interest of corporate greed generally, as well as corporate dentistry avarice specifically.
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Big Government and Big Business are too frequently tied at the hip, to maintain mastery over all their domain. Selective law enforcement generates an uneven playing field favoring those who disregard statutes. The few continue to gain advantages and control over the many.
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References (accessed 12-29-2023)
11.?? https://www.dentistrytoday.com/nj-supreme-court-decision-has-implications-for-the-dso-industry/
13.?? https://ourfinancialsecurity.org/wp-content/uploads/2022/05/Lessons-Learned-from-the-PPP-Final-2.pdf
16.?? https://www.justice.gov/usao-edtx/pr/collin-county-dentist-guilty-covid-19-relief-related-fraud
20.?? https://apnews.com/article/smile-direct-club-shuts-down-bankruptcy-ecff8127b0bf54812a98217dde5a2170
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Michael W. Davis, DDS,?maintains a general dental practice in Santa Fe, New Mexico. He is active with legal expert review for dental malpractice and fraud cases. Contact him at?[email protected]?or?https://www.smilesofsantafe.com/.
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President-elect at Illinois Academy of General Dentistry
1 年Thank you, Dr Davis, for revealing the ever-widening effect of bad actors within The Big Business of Dentistry. In this case, grabbing up PPP monies (leaving less for those small business for which it was intended, including solo and small group dental practices) while not following through with employment of dental team members. The result is a large deficit of dental hygienists and dental assistants and skilled front desk personnel. Having been laid off, they're just not in the mood to return. It isn't just in dentistry, but that is the field for which you have expertise. Thank you for your reporting the facts. I sure hope the bad actors get their due.
-Owner, LaCourt Real Estate Companies- -Owner, The Braces Places- -Owner, T-Station Dental Groups-
1 年Private Equity in Dentistry causes problems on many levels. While not every DSO has private equity ownership, those that do are not allowed to behave as if they are dentist owners - they are not. Thank you Dr. Davis for demonstrating those differences through the example of PPP loans.
Medical Professional
1 年Excellent read..thankyou Dr. Davis for all your hard work referencing nefarious activity within the DSO industry. I'm surprised nobody has taken notice. Small fish get " fried "...big fish seem to swim away...( $$$$$$$ ). .. Something needs to change. ...