Buying a Dental Practice: Do the Seller’s PPO Rates Transfer?

Spiro Leunes

Aug 29

8 min read

By Spiro Leunes, CPA | CEO, MRL Advisory Group – New Jersey and New York Dental CPAs

A buyer sits down with three years of a seller’s financials, works out what the practice earns, and decides what he can pay for it. That is the right exercise. The trouble is that he almost always runs it on the seller’s numbers, and nobody in the room stops to ask whether those numbers travel.

Some of them do not. The one that catches buyers most often is the rate the practice actually gets paid. A practice may have collected $800,000 last year. That does not mean you will collect $800,000 doing the same dentistry on the same patients, because the rates paid to the seller may not be the rates available to you. I have watched this land on a buyer six months after closing, and by then the price is already paid.

So put reimbursement on the list of things you check before the price is set, right alongside everything else in your due diligence on the purchase. It belongs in the same conversation as how a dental practice actually gets valued, because a rate you cannot get is an earnings number you cannot buy.

It is an item that is most often missing when a buyer brings me a deal that is already half negotiated, which is why the payer review is near the front of our transition advisory work instead of the end. If you want the wider context first, the whole of our Dental Insurance and PPO Strategy library sits behind that link, and the buying and selling material is in Buying, Selling and Transitions.

You Are Buying the Practice, Not the Seller’s Contracts

A seller may have been in the same PPO plans for twenty years. Over that time, she may have negotiated her rates up, been grandfathered into a fee schedule the carrier stopped writing years ago, or joined through a network arrangement that is not open to new applicants anymore.

When the practice changes hands, you credential in your own right and sign your own participating provider agreements. The rates you get offered are the rates on the table today. They are not the ones the seller accumulated over two decades, and no part of the purchase agreement changes that. It is worth raising early with whoever is running the deal, including the broker, because it is not a question that tends to come up on its own.

Run the Math on a Practice You Would Actually Buy

Take a general solo practice collecting $800,000 a year, with $550,000 of that coming from PPO patients. That is close to 70 percent insurance dependent, which is where a great many practices in New Jersey and New York sit.

If your rates come in below the seller’s	Revenue lost per year	Effect on price at 3x SDE
5 percent below	$27,500	$82,500
8 percent below	$44,000	$132,000
12 percent below	$66,000	$198,000
15 percent below	$82,500	$247,500

Almost all of that comes straight off the bottom line, because your costs do not move with your reimbursements. Rent does not fall because insurance pays you less. Your staff does not take a pay cut. The software bill, the lab bill and the malpractice premium arrive , and often increase. A $44,000 revenue shortfall is very close to a $44,000 earnings shortfall, which is the same quiet leak I wrote about in where practices lose profit in 2026.

Then Follow It Through to the Purchase Price

This is where it stops being an operating problem and turns into a valuation problem, and this is the part I watch buyers miss.

If the price was built on what the seller earned, and the seller earned it at rates you cannot get, you are buying a stream of income that will not be there after closing. Practices get priced on a multiple of earnings, so the damage does not stay the size it started at. This is also what a proper appraisal is supposed to catch, and what a rushed one misses.

An 8 percent gap on this practice is $44,000 a year of lost earnings. At three times SDE, that is $132,000 of purchase price. On a practice listed around $560,000, you have just paid roughly a quarter of the price for earnings that do not exist.

So, the question to put on the table is this: Are you valuing the practice on what the seller earned, or on what you are reasonably expected to earn? Those are two different numbers, and the difference belongs in the price. It should not turn up as a surprise the following spring.

The Expensive Version Is Not a Rate Haircut

A few points of difference is the ordinary case, and you can price it. The version that actually hurts is structural, and there are three of them.

• A legacy or grandfathered fee schedule. Some long-tenured dentists are sitting on rates the carrier stopped offering years ago. You join at today’s schedule, and today’s schedule can be 10 to 20 percent lower.

• A leased or umbrella network. The seller may be participating through a third-party rental network, an association plan, or a DSO-affiliated arrangement. Those routes are frequently closed to an independent buyer, which means the rate does not transfer because the door does not open.

• A closed panel. Every so often a carrier is simply not taking new providers in that area. You do not get a worse rate. You get no participation at all, and those patients wake up out of network the day you take over.

Any one of these turns a manageable adjustment into a different business than the one you thought you were buying. All three are knowable before you close, and none of them show up anywhere on a profit and loss statement. If the numbers do not work at the rates you are offered, your honest options are to renegotiate, to plan a careful exit from the worst plans, or to pay less for the practice.

Credentialing Is a Cash Flow Event, Not Paperwork

Even when the rates are fine, the calendar can hurt you. Credentialing commonly runs 90 to 180 days. Some carriers backdate the effective date to the day you applied. Plenty of them do not.

On this same practice, insurance collections run about $45,800 a month. A 120-day gap sits across roughly $180,000 of billings. Some of that comes back to you if the effective dates are backdated and the claims are held. Some of it does not, and a share of the patients who get told they are out of network this month quietly go somewhere else and stay there.

Start credentialing when you sign, not when you close. It is the cheapest risk you will ever take off the table in a practice purchase, and it is the one I most often find sitting untouched two weeks before closing. We recommend you build it into your timeline as part of our transition advisory work for exactly that reason.

An Argument For a Stock Purchase

Buyers get told to structure as an asset purchase, and that advice is usually right. You get a clean break from the seller’s liabilities and a better depreciation position. Reimbursement is one of the few places where the advice can cut the other way, so it is worth understanding before you wave it off.

Provider agreements are sometimes held by the practice entity and sometimes by the dentist personally. Where they sit with the entity, and the entity survives the sale, a stock purchase may carry them along. Where they sit with the individual dentist, the structure changes nothing at all. You credential either way.

Most of these agreements also carry change-of-control or anti-assignment language, so this gets read contract by contract. It does not get assumed. I am not telling you stock deals are better. I am telling you that on a heavily PPO-dependent practice with unusually good legacy rates, the reimbursement consequence deserves to sit on the table next to the tax consequence, which also means settling the entity question on purpose rather than by habit. Let our tax team review both sides of that before anyone signs a letter of intent.

Fee for Service Does Not Make You Safe

It would be easy to tell a buyer looking at a fee-for-service practice that none of this applies to him. It applies differently, which is not the same thing.

A fee-for-service practice sets its own fees, and that means those fees may sit well above what the market around them will bear. Patients put up with that from a dentist they have trusted for twenty years. Whether they put up with it from a stranger sitting in the same chair is a real question, and you get the answer in your first year, when it is too late to renegotiate the price. While you are looking, check when the schedule was last touched. A practice that has not raised its fees in years has a different problem, and that one you can actually fix.

What to Ask For Before You Close

Do not just ask which plans the seller takes. Ask what the practice is actually paid, and what you will be paid. This belongs alongside the rest of your due diligence on the purchase, and it is worth measuring what you find against national KPI averages so you know whether you are looking at a normal practice or an outlier.

• Every plan the practice participates in, and whether each contract is held by the entity or by the dentist personally

• Collections by plan for the last two years, so you can see where the concentration really is

• The seller’s current fee schedules for the three or four carriers that matter most

• The schedules you would be offered, obtained from the carriers themselves and not from the seller

• Contractual adjustments and write-offs, kept separate from courtesy and discretionary discounts

• Whether each panel is open, and written confirmation that you are eligible to join it

• Realistic credentialing timelines in writing, and whether effective dates get backdated

• Any rate changes the carriers have already announced for the coming plan year

Five Things to Negotiate Once You Know

Finding the gap only helps if it changes the deal. Once you have the numbers, it should do at least one of these five things.

1. Bring the price down by the capitalized value of the difference, not just the first year of it.

2. Hold back or escrow part of the price, released against the reimbursement you actually achieve over the first twelve months.

3. Keep the seller on as a treating provider under her own credentials through the credentialing window, documented and paid for.

4. Make closing conditional on written confirmation from the largest carriers that you can participate.

5. Re-run the lender’s debt service coverage on your rates instead of the seller’s, before the commitment letter gets signed. If you are still weighing this purchase against opening your own office, the buy or build math for New York and New Jersey moves with it too.

The Seller’s History May Not Be Your Starting Point

Historical collections tell you what happened while the seller owned the practice. They do not tell you what will happen once you do.

If the practice you are looking at leans on PPO patients, do not assume the seller’s rates come with the keys. Find out. A difference that looks small on a fee schedule is tens of thousands of dollars a year, and six figures of purchase price.

Make sure you are buying the economics you are actually getting, not the economics the seller is leaving behind.