When Regulation Becomes a Moat: The Hidden Risk of Weaponizing Regulations to Wall Off Competition

Dentistry is one of the most heavily regulated clinical professions in the United States, and for good reason. Licensing boards, scope-of-practice statutes, and corporate practice of dentistry (CPOD) laws exist to keep unqualified people from working inside someone's mouth. But there is a difference between regulation that protects patients and regulation that protects incumbents. Increasingly, dental boards, associations, and even DSOs themselves are blurring that line — using the machinery of state regulation to build artificial isolating mechanisms that keep competitors, new provider types, and new ownership models out of the market.

The strategy can work for a while. But it carries risk that most practice owners, DSO executives, and PE sponsors underestimate: antitrust exposure, regulatory whiplash, self-inflicted workforce shortages, and a credibility problem that outlasts any short-term competitive advantage. Below are four real-world cases that show how this plays out — including a teledentistry company that fought state dental boards in court for years and ultimately lost the business anyway — and what a more durable competitive strategy looks like instead.

What "Regulation as a Moat" Actually Means

Economists call it regulatory capture: when an industry shapes the rules meant to govern it in ways that serve incumbents rather than the public interest the regulation was created to protect. In dentistry, the pattern shows up in three recognizable forms:

• Dental boards controlled by practicing dentists using licensing enforcement to exclude non-dentist providers from adjacent, lower-cost services.
• Scope-of-practice restrictions that keep hygienists, dental therapists, or dental assistants from performing procedures they are clinically capable of, protecting referral volume and fee-for-service revenue.
• Corporate practice of dentistry statutes invoked selectively — sometimes to block genuine innovation in ownership models, and now, increasingly, turned back on the DSO and private-equity structures that reshaped the industry over the last fifteen years.

None of this is illegal on its face. States have broad authority to regulate dentistry for public health. The trouble starts when a board or coalition of market participants uses that authority to protect market share rather than patients — and the U.S. Supreme Court has already ruled on exactly this pattern.

Case Study 1: The Teeth-Whitening Case That Redefined Board Liability

The clearest illustration of a dental board crossing from regulation into exclusion is North Carolina State Board of Dental Examiners v. FTC, decided by the Supreme Court in 2015. Beginning in the mid-2000s, non-dentist providers — mall kiosks, salons, product manufacturers — began offering teeth-whitening services well below what dentists charged. North Carolina's dental board, whose members are practicing dentists elected by other dentists, responded by sending cease-and-desist letters to roughly two dozen non-dentist providers, pushing them out of the state, and went further by contacting mall owners directly to discourage leasing space to them.

The FTC argued this wasn't legitimate public-health regulation but a private cartel operating under cover of a state agency, noting that credible evidence pointed to non-dentist teeth whitening being a safe cosmetic procedure. The Supreme Court agreed, 6-3, holding that a licensing board loses antitrust immunity when a controlling number of its decision-makers are active market participants elected by fellow practitioners, unless the state actively supervises its decisions. Justice Kennedy's majority opinion was blunt: boards dominated by market participants pose a genuine threat to competitive markets, and simply calling something a "state agency" doesn't immunize it from federal antitrust law.

The FTC's final order barred the board from ordering non-dentists to stop offering teeth-whitening services, while leaving its legitimate enforcement authority against actual license violations intact. The takeaway for any dental board, or any DSO trade group tempted to push a board toward similar action: the line between "protecting public health" and "protecting incumbent revenue" is now settled federal case law, not just professional judgment.

Case Study 2: SmileDirectClub and the Teledentistry Wars

If North Carolina's teeth-whitening case set the legal standard, SmileDirectClub's decade-long fight with state dental boards shows what it actually costs to test that standard in practice — and how a favorable ruling doesn't guarantee survival.

SmileDirectClub launched in 2014 with a teledentistry model for clear aligner therapy: customers got a mouth scan at a retail "SmileShop" or with an at-home impression kit, skipping the traditional in-person orthodontic exam, and a licensed dentist or orthodontist reviewed the scan remotely to build a treatment plan. The model was dramatically cheaper than traditional orthodontics, and it grew fast enough to become the dominant player in direct-to-consumer clear aligners.

Organized dentistry responded on multiple fronts at once. The American Association of Orthodontists filed complaints against SmileDirectClub with dental boards and attorneys general in 36 states. State dental boards moved to restrict the specific mechanic the business depended on: several, including Georgia's and Alabama's, amended rules to require that dental assistants or hygienists performing mouth scans be under direct, on-site supervision by a licensed dentist — a requirement that made the remote SmileShop model functionally impossible to run as designed. In Alabama, the board sent SmileDirectClub a letter demanding it stop using non-dentist staff to perform scans; the company abandoned plans to open additional Alabama locations as a direct result.

SmileDirectClub sued dental boards in Georgia, Alabama, and California, arguing the board members — bodies dominated by practicing dentists and orthodontists who compete directly with teledentistry providers — were using their regulatory authority to eliminate a competitive threat rather than protect patients, in violation of the Sherman Antitrust Act. The cases became an extension of the North Carolina precedent, testing exactly how far "active market participants" on a licensing board could go before losing antitrust immunity. The Ninth Circuit sided with SmileDirectClub against the California board, rejecting the lower court's view that regulatory board members are automatically immune simply because their actions fall within the board's stated authority. The FTC separately settled its own antitrust case against the Alabama dental board over the same issue, requiring the board to stop impeding clear aligner platforms from operating through remote treatment models. The Department of Justice and FTC each filed amicus briefs backing SmileDirectClub's position that dental board members lose immunity when they act to protect their own market position rather than following a supervised state policy.

SmileDirectClub arguably won the legal argument. It lost the war anyway: the company filed for bankruptcy in 2023 and shut down entirely, undone by a combination of cash burn, litigation costs, product-quality controversies, and years spent fighting regulatory friction in market after market rather than scaling cleanly. Whether or not the board actions were the deciding factor, they were a persistent tax on the business for the better part of a decade, and they demonstrate something important for any DSO or teledentistry platform building a growth model today: even a winning antitrust case takes years and enormous legal spend to resolve, and regulatory drag alone can outlast a company's ability to absorb it, independent of who is ultimately right on the merits.

Case Study 3: Scope of Practice as a Slower Version of the Same Fight

The teeth-whitening case involved outright exclusion. A subtler, ongoing version of the same dynamic plays out in the fight over dental therapists and hygienist scope of practice. Dental therapists are mid-level providers, trained to perform a defined set of routine and preventive procedures under a supervising dentist. Roughly fourteen states currently authorize some form of dental therapy, though practicing therapists remain concentrated almost entirely in Minnesota, Oregon, and Washington. When a national policy group adopted model legislation in 2024 to expand dental therapy authorization to more states, the American Dental Association opposed it, arguing that standing orders from a supervising dentist can't substitute for an actual diagnosis, since only a dentist is qualified to diagnose dental disease.

The ADA's countermove was its own model bill expanding dental assistant scope and regulating teledentistry rather than authorizing a new provider category — which drew opposition from the American Dental Hygienists' Association, whose position is that the ADA's model would let assistants perform scaling procedures that fall within hygienists' scope and require training the model doesn't mandate. Meanwhile, the ADHA has pushed the opposite direction for its own members, adopting a policy in early 2026 supporting full, unsupervised practice authority for licensed hygienists in every U.S. jurisdiction.

Strip away the acronyms and what remains is three associations, each representing practitioners with a direct financial stake in where the scope-of-practice line falls, each lobbying legislatures to draw it where it benefits their own members most. That's ordinary professional advocacy — until the stated rationale is patient safety while the practical effect is protecting a referral base from lower-cost competition. That's the same structure the Supreme Court flagged in North Carolina. Meanwhile, dental workforce shortages and rural access-to-care gaps persist largely unresolved, which is precisely the population the "patient safety" argument is meant to protect.

Case Study 4: The Moat Turns on Its Owners

The most instructive case study for DSOs, PE sponsors, and growth-focused practice groups is what's happening right now with corporate practice of dentistry laws. For over a decade, CPOD statutes were the barrier DSOs engineered around: management services agreements, friendly-dentist arrangements, and professional-corporation ownership were all built specifically to operate inside CPOD restrictions while still delivering centralized scale. That engineering is now the target.

In December 2025, an anti-monopoly advocacy group introduced model legislation — the Independent Dental Practice Act — aimed at restricting DSO ownership structures and the scope of activities DSOs can control. It targets "friendly dentist" arrangements and restrictive management agreements that let insurers, DSOs, and private equity firms exert de facto control, strengthening prohibitions on non-dentist ownership, restricting DSO control over staffing, scheduling, billing, coding, pricing, and payer contracting, and voiding most dentist noncompete clauses. Part of what prompted it was the acquisition of Delta Dental of Wisconsin by Cherry Tree Dental, a private-equity-backed DSO — the first time in Wisconsin that a dental insurer directly acquired a provider organization, intensifying debate over conflicts of interest and market concentration. For a Wisconsin-based advisory practice, that example lands close to home: a consolidation move triggered exactly the kind of regulatory response DSOs should expect once growth outpaces the credibility of the underlying governance structure.

Colorado has gone furthest in actually finishing the job. New rules under its Dental Practice Act took effect June 30, 2026, establishing that a dental support organization may not serve as the "proprietor" of a dental practice, full stop, and that a dentist working at a DSO functioning as proprietor can now face disciplinary action. The rules define a proprietor broadly — any person or entity that employs licensees, owns a dental office, or owns the equipment used to provide services — leaving far less room for the management-service structures many DSOs have relied on.

Colorado isn't isolated. Kentucky recently amended its Dental Practice Act to bar non-licensed individuals or entities that set reimbursement rates from controlling clinical decisions. Illinois has proposed extending merger-and-acquisition reporting requirements to healthcare entities and private equity firms with significant in-state revenue. California expanded its attorney general's authority to act against corporate entities that interfere with clinical decisions, coding, and billing. Pennsylvania advanced legislation giving its attorney general greater power to review and block healthcare mergers. Consolidation has been dramatic enough to invite this response: the share of U.S. dentists who are practice owners fell from 85% in 2005 to 73% in 2023, and dentistry saw more private equity transactions in 2024 than any other healthcare sector.

The pattern is unmistakable. DSOs used CPOD-compliant structuring as a growth mechanism for over a decade. Now the same regulatory apparatus, driven by a coalition of independent dentists, hygienist associations, and anti-monopoly advocates, is closing the loopholes that structuring relied on. The moat didn't disappear — it changed sides.

Why This Strategy Is a Bad Long-Term Bet

Antitrust exposure is not theoretical. The North Carolina case established binding precedent: a board dominated by active market participants loses antitrust immunity absent active state supervision. The SmileDirectClub litigation shows that precedent being tested repeatedly across states, with courts and federal agencies consistently siding against boards that acted to protect incumbent revenue. Any board action or lobbying push that fits that pattern is now litigation risk, not just policy.

Regulatory capture invites regulatory retaliation. The DSO consolidation wave built partly on CPOD-compliant structuring now faces a coordinated multi-state response — model legislation, expanded attorney general authority, and outright bans on DSOs acting as practice "proprietors." Structures built to exploit regulatory gray area are exposed to the risk that the gray area closes abruptly, as Colorado just demonstrated.

Even a winning legal argument can be a losing business strategy. SmileDirectClub largely prevailed on the antitrust merits against the boards it sued, and still didn't survive as a company. Years of state-by-state regulatory friction, litigation cost, and market access delays compound in ways that outlast any single court victory — a lesson that applies just as directly to the incumbents provoking that friction as it does to the disruptors absorbing it.

Blocking scope-of-practice expansion worsens the access problem the industry gets blamed for. Every year mid-level provider expansion is delayed is another year rural and Medicaid-dependent communities go without care — the exact gap that fuels pressure for more aggressive regulation of the whole industry, DSOs included.

Reputational damage compounds. Cease-and-desist campaigns against low-cost competitors, opposition to mid-level providers in underserved markets, and PE-backed insurer acquisitions generate the kind of coverage that erodes trust with regulators, legislators, and patients at once.

What a Durable Competitive Strategy Looks Like Instead

For practice owners, DSO leadership, and PE sponsors, the more resilient path is competing on what regulation can't manufacture: clinical outcomes, operational efficiency, transparent governance, and genuine patient access.

• Build management services agreements that would survive a hostile audit, not just a friendly one — fee structures tied to fair market value, documented clinical autonomy, and governance that holds up under attorney general scrutiny.
• Get ahead of state-by-state CPOD tightening rather than reacting to it. Colorado's proprietor definition, Kentucky's reimbursement-control restriction, and Illinois's reporting thresholds are each distinct; a multi-state platform needs a live regulatory map, not a one-time legal opinion from the acquisition closing.
• Treat scope-of-practice policy as a workforce strategy, not a turf battle. DSOs facing hygienist and assistant shortages have a direct financial interest in expanded scope authority.
• Assume any exclusionary board action will be scrutinized under a post-2015 antitrust standard, and treat "would this survive the North Carolina precedent" as a standing test before pursuing cease-and-desist campaigns or lobbying against new provider categories.
• Stress-test new supervision or scan-authorization rules for competitive intent before supporting them. If a rule change would functionally eliminate a specific competitor's business model — as on-site supervision mandates did to SmileDirectClub's remote-scan process — it is far more likely to draw federal scrutiny, regardless of the public-safety rationale attached to it.

The Bottom Line

Regulation built to protect patients is a public good. Regulation quietly repurposed to protect incumbent revenue is a liability with a documented legal history and a growing coalition of state legislators willing to act on it. The North Carolina teeth-whitening case shows what happens when a board crosses that line outright. SmileDirectClub's decade of litigation shows that even a legally sound challenge to that behavior can be a Pyrrhic victory, for challenger and incumbent alike. The current wave of CPOD tightening in Colorado, Kentucky, Illinois, California, and Pennsylvania shows what happens when an entire ownership model built on regulatory structuring becomes the next target. The organizations that hold up best over the next cycle will be the ones building governance, clinical quality, and access strategies that don't depend on the moat holding — because right now, it isn't.

FAQ

Is it illegal for a state dental board to restrict who can offer certain dental services?
Not automatically. It becomes a legal problem when a board dominated by active market participants — practicing dentists elected by other dentists — takes exclusionary action without active state supervision, the standard the Supreme Court set in North Carolina State Board of Dental Examiners v. FTC (2015).

What happened with SmileDirectClub and state dental boards?
Several state dental boards, including Georgia's and Alabama's, amended supervision rules in ways that made SmileDirectClub's remote mouth-scan model difficult or impossible to operate. SmileDirectClub sued multiple boards for antitrust violations, won key rulings including at the Ninth Circuit, and the FTC separately settled a related case against Alabama's board. SmileDirectClub nonetheless filed for bankruptcy and ceased operating in 2023.

What is the corporate practice of dentistry doctrine and why does it matter for DSOs?
It's the principle, codified in nearly every state, that non-dentists cannot own or control a practice's clinical decisions. DSOs have historically structured around it with management services agreements. Colorado, Kentucky, and Illinois are now tightening enforcement specifically in response to DSO and private-equity consolidation.

Are dental therapists legal in all states?
No. Roughly fourteen states authorize some form of dental therapy, with active practice concentrated in Minnesota, Oregon, and Washington. Expansion continues to face organized opposition from dental associations.

How does regulatory capture apply to dentistry specifically?
It occurs when an industry shapes the rules meant to govern it to protect incumbents rather than the public — visible in board enforcement against lower-cost competitors, scope-of-practice restrictions, and selective use of corporate practice of dentistry statutes.

Viturtal Consulting advises DSOs, private equity sponsors, and growth-focused dental practices on regulatory risk, market positioning, and operational strategy. For a review of how current corporate practice of dentistry and scope-of-practice developments affect your specific market footprint, contact our team.