> ## Documentation Index > Fetch the complete documentation index at: https://dso.getlemma.com/llms.txt > Use this file to discover all available pages before exploring further. # Set the management fee > Choose and document a dental management-fee methodology after testing state formula restrictions, actual services, payment mechanics, and practice-level affordability. The **management fee** is compensation a dental practice entity pays a dental support organization (DSO) for services under a management services agreement (MSA). The operator needs a reproducible calculation tied to real services, a state-law answer for every practice, and invoices and approvals that match actual cash movement. **Do not choose the fee from a national DSO benchmark.** Nevada, New Jersey, New York, and North Carolina have express dental formula restrictions; Maryland's statutory support-services pathway requires predetermined fixed compensation subject to a defined prior-period calculation rule. Other states use different fee-splitting, referral, control, and reasonableness tests. Resolve the applicable text before modeling the fee. ## Prerequisites * The MSA's services scope defined, in detail * Your state's fee-splitting rule confirmed, see [Fee-splitting](/concepts/model/fee-splitting) * The DSO's actual cost of providing the services, calculated * Market benchmarks available ## The three methodologies | Method | Calculation | Fee-splitting risk | Investor appeal | | ----------------------------- | ---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | | **Flat** | Fixed monthly amount, reset annually | Lowest | Weakest, doesn't scale | | **Cost-plus** | DSO's costs of service + a stated markup | Low | Strong, a defined margin on a growing base | | **Percentage of collections** | A stated % of a defined revenue base | Expressly restricted in several states; elsewhere still test fee splitting, referral linkage, control, services, and reasonableness | Strongest on paper; highest state-law variability | Additional variants used in practice: **per-dentist per-month**, **per-location per-month**, and hybrids combining a base fee with a variable component. Any variable component that moves with practice revenue inherits the percentage analysis. ## Express dental formula restrictions These provisions do different legal work. Nevada conditions its support-services exclusion, New Jersey and New York define prohibited fee splitting, North Carolina regulates management-arrangement compensation, and Maryland defines compensation within its permitted-support framework. Read the complete provision and exceptions before converting the table into contract language. | Jurisdiction | Rule | What it says | | ------------------ | ------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | | **Nevada** | NRS 631.215(2)(i) | The support-services safe harbor is conditioned on payments **not** "based on a percentage or share of revenues or profits of the dental practice" | | **New Jersey** | N.J.A.C. 13:30-8.13 | A dentist may not pay for space, facilities, equipment, personnel, **marketing or management services** on a percentage of, or otherwise dependent upon, practice income or receipts | | **New York** | 8 NYCRR 29.1(b)(4) | Fee splitting includes any arrangement where payment for space, facilities, equipment, or personnel services "constitutes a percentage of or is otherwise dependent upon" the licensee's income or receipts | | **North Carolina** | 21 NCAC 16X .0101(c) | Management arrangements may not use compensation "based on a formula that foreseeably rises or falls with" profitability or gross or net revenues (cost-savings adjustments and pass-through collection arrangements excepted) | | **Maryland** | Md. Code, Health Occ. § 4-103(E)(14) | Compensation for enumerated permitted support services must be a predetermined fixed fee or other predetermined fixed compensation; the amount may be based on revenues or profits from a prior period of at least 12 months | Enforcement materials add fact-specific guidance. The New York AG's 2015 Aspen Dental settlement made findings concerning a pre-set percentage of monthly gross profit and imposed restrictions on sharing in professional fees; the California AG's 2026 settlement requires the settling company to end specified revenue-based service fees and negotiate fees annually in writing with practice owners.1 Those are important enforcement records, not statutes of nationwide application. Flat and cost-plus formulas often reduce direct revenue-dependency risk, but neither is an automatic safe harbor. The amount, markup, services, allocation, referral nexus, control rights, and state text still matter. See [DSO laws by state](/reference/legal/dso-laws-by-state). ## Steps Even if you'll charge a flat fee, you need this number. It is the floor, the FMV anchor, and the basis for any future cost-plus transition. Include: non-clinical salaries and benefits, occupancy allocated to the practice, technology and PMS licensing, insurance, professional services, marketing, and an allocation of DSO overhead. **For a multi-PC group, allocate per PC** using a defensible driver, headcount, square footage, visit volume, or direct attribution. Document the methodology. Arbitrary allocation undermines FMV for every entity in the group. Identify each state's applicable percentage, dependency, fee-sharing, referral, control, fixed-compensation, and excess-profit rules. If the answers differ, use state-specific riders or formulas rather than forcing one national number. | Situation | Usually | | --------------------------------- | ---------------------------------------------------------------------------------- | | Launch, thin service scope | **Flat** | | Scaling, measurable cost base | **Cost-plus with a stated markup** | | NV, NJ, NY, or NC | A formula that satisfies the exact express rule and its exceptions | | Maryland support-services pathway | Predetermined fixed compensation drafted to § 4-103(E)(14) | | Other states | Select only after testing the state's dental, entity, referral, and contract rules | Support it with: * The DSO's documented cost of service * Market benchmarks for comparable management arrangements where available * Published data on DSO fee ranges * A formal **FMV study** for larger arrangements or before a raise Retain a dated copy of the analysis. An undocumented fee is difficult to defend in an examination. North Carolina's rule also requires the written arrangement to state the compensation methodology precisely.2 * **Calculation method**, stated precisely enough to reproduce * **Invoicing**, monthly, from the DSO * **Payment terms**, within N days, from the PC's operating account * **Priority**, after clinical payroll and the PC's direct obligations * **Deferral**, what happens if the PC cannot pay in full * **Annual FMV review** Model whether the PC can pay the fee from its own collections after clinical compensation and direct expenses at expected volume. Use realistic dental collections. PPO write-offs can reduce gross production by 30–45%, and annual maximums limit what insurance contributes per patient. See [DSO economics](/concepts/finance/dso-economics). If the PC cannot cover the fee after its credentialing ramp, either the fee is too high or the practice's economics do not support it. The first possibility also raises an FMV question. See [Where the profit lives](/concepts/finance/where-the-profit-lives). ## The invoice-and-payment mechanics Not optional detail. This is the difference between a fee and a sweep. Numbered, dated, stating the period, the calculation, and the services. Not a journal entry. Use the payer-authorized and entity-authorized account, approval rights, and priority required by the documents and state law. Expense in the PC, revenue in the DSO. **Automation does not replace authority or substantiation.** A sweep without a reproducible invoice, lawful approval, contractual match, and appropriate account control can make the documents diverge from operations. *In re OCA* treated revenue-account control as one fact in the overall control bundle; test the full arrangement rather than assuming automation alone decides the issue. See [Intercompany money movement](/concepts/banking/intercompany-money-movement). ## When the PC can't pay in full Common during the credentialing ramp. Two legitimate options: **Defer part of the fee** in writing and state when payment is expected. An amount that accrues indefinitely may suggest that the PC could never support the fee. **The DSO lends the PC money**, on a written promissory note at a rate no lower than the applicable federal rate, with a repayment schedule and board consents. See [Intercompany loans between DSO and PC](/reference/legal/intercompany-loan-note). Keep the terms commercially reasonable: the California AG's Carbon Health settlement attacked management-company financing that locked the practice into exclusive, above-market credit.3 **What not to do:** skip it silently, or have the DSO pay PC expenses directly with no intercompany entry. ## Verify it worked * [ ] DSO's cost of service calculated and allocated per PC on a documented basis * [ ] State fee-splitting and percentage-fee rules confirmed for every PC * [ ] Express formula restrictions applied for NV, NJ, NY, NC, Maryland, and every other operating state * [ ] Methodology chosen and stated precisely in the MSA * [ ] FMV analysis documented and dated * [ ] Fee-coverage test run and passed at expected volume, net of write-offs * [ ] Invoice-and-payment mechanics specified * [ ] Board and member consents adopted * [ ] Annual FMV review calendared ## Common failure modes | Failure | Consequence | | -------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | | No FMV documentation | Weakest position in an examination | | Formula that violates an express state restriction | Discipline, unlawful-practice, contract, repayment, or enforcement exposure under the applicable authority | | Arbitrary cost allocation across PCs | Undermines FMV for the whole group | | Fee exceeding what the PC can support | FMV problem plus negative PC equity | | Standing sweep instead of invoiced payment | The central documentation failure | | Fee accrued but never paid in cash | A standard diligence adjustment | | Never reviewed | A defensible 2022 fee may not be defensible now | | Retroactive repricing before a raise | The classic red flag | ## Sources 1. NRS 631.215(2)(i), [official chapter](https://www.leg.state.nv.us/NRS/NRS-631.html#NRS631Sec215); N.J.A.C. 13:30-8.13, [official Board rules](https://www.njconsumeraffairs.gov/regulations/Chapter-30-New-Jersey-Board-of-Dentistry.pdf); 8 NYCRR 29.1(b)(4), via NYSED Part 29; 21 NCAC 16X .0101, [Board rule PDF](http://ncdentalboard.org/PDF/21%20ncac%2016x%20.0101.pdf); Md. Code, Health Occ. § 4-103(E)(14), [official statute](https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gho\§ion=4-103); N.Y. AG, [Aspen Dental Assurance of Discontinuance](https://ag.ny.gov/sites/default/files/settlements-agreements/ADMI_AOD.pdf); Cal. AG, [Aspen Dental settlement](https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-settlement-aspen-dental-over-corporate-practice) (May 7, 2026). 2. 21 NCAC 16X .0101 (written arrangement must state aggregate compensation or a precise methodology). 3. Cal. AG, [Carbon Health settlement](https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-first-its-kind-settlement-carbon-health-and-its) (June 2026).