Product Sales

Contracts to Sell Products From the Dental Office – March 2011

The sale of merchandise from the location of the dental practice can be an excellent way to increase revenue plus introduce your patients to new products in the industry which help their overall dental care plan. The necessity of weighing the agreements carefully before plunging into a deal with a company eager to promote its goods through you is important, as there can be serious negative legal ramifications of a poorly structured agreement.

Often there are companies willing to lease their advertising equipment to you for a fee while you able to sell various products or services.   Dentists may view this as an opportunity to gain good visibility with their patients while selling a product or promoting the practice’s use of a product.   Dentists around the country have learned recently that if these leasing agreements look too good to be true, they often are.

In the Brican, NCMIC Finance Corporation (Professional Solutions Financial Services) case, dentists agreed to lease advertising equipment from NCMIC with a promise by BRICAN for repayment of the leasing fees. This Ponzi scheme eventually failed when dentists wised up and stopped signing up, and BRICAN filed for bankruptcy, leaving dentists holding the bag and responsible for NCMIC lease payments. NCMIC is now suing dentists for back lease payments.

If an attorney had reviewed the documents he or she would have realized that these contracts offered illusory promises by a seemingly forthright third party investor.   The lesson: beware of multiple party arrangements in which parties try to pass on responsibilities to other parties to a transaction without a good legal basis for doing so.

There are also shady and vague contracts offered as requirements and outputs agreements. In this case the manufacturer buys all rights to income from one specific source. There are two problems here: 1) If there isn’t a very good estimate of the sales of the product, it could be determined to be an illusory contract, and a and dentist could be sued for a false and deceptive trade practice (with possible double or triple damages in Massachusetts). 2) If the estimate is not well defined, also the dentist could be liable according to the terms of the contract for unsold merchandise or breach of a contract for a particular amount of sales.

If you offer any dental products for sale, make sure that they are non-prescription. The regulations for selling prescription products are strict and often civil or criminal violations, and even revocation or suspension of dental licenses can result from infractions.

Advertising of products by using patient pictures is directly regulated by HIPAA requirements as well as state laws. A good rule of thumb is not to use photos of dental work without authorization, especially if there is any way to identify the patient (such as photos involving facial features like noses or eyes).

Leasing arrangements often have prohibitions or restrictions against sale of products on the leased property (like products in competition with other tenants like pharmacies or supermarkets). Additionally, municipalities often have zoning codes which would restrict sales of items in particular areas.

The tax code is also something for the dentist to review, for sales taxes apply to some products (and in some states services are beginning to be taxed more-such as Rhode Island’s recent proposal to tax haircuts). An annual review of changes in such laws is a good idea.

Products liability is a regular problem in cases where products are sold which determined to be defective or is involved in some other kind of legal action. The agreements for the sale of the product should included language covering this situation, and the manufacturers should be checked out for their good standing and history.   Whether the dentist is covered by business insurance or malpractice insurance has become a legal issue in these cases, so sometimes a review of these insurance agreements is a good idea.

The sale of merchandise from the dental office nearly invariably involves contractual arrangements that should be reviewed before completing an agreement.   Your attorney can provide invaluable advice as to what is the appropriate contract language to be included, what agreements are commonly used in the dental industry with benefits to the dental office, and what are schemes that every office should be wary of.   And the old saying holds true for these types of arrangements: when in doubt check it out.