The difference between a workgroup and domain is manageability and size. Workgroups are for small networks, usually ten or less devices, and normally works as a mesh topology where all computers want to connect and communicate with each other since there is no central server that manages user accounts or share permissions. This can get messy to manage when you start getting more computers and users, as changes to one user account information (password, share permissions, etc.) has to be modified on every computer.
A domain, however, manages all user accounts and share folder access permissions from one central server. By default, any user created in the domain can log in to any workstations in the domain with the same username and password, and you can even set it up so they have access to all the same data no matter what computer they log in from. A domain offers more control over the Windows environment, computers, and access throughout your network. HIPAA requires that every user who will have access to any computers in your network have their own unique username and unique password.
Virtualization isn't quite as effective sometimes in a small business environment, as sometimes you just don't have as many resources that need to be running from a single system. But let's give you an example of how this would work in your specific environment:
Lets say that you purchase one physical server, for now going with a quad-core processor and 16 GB of memory, and install Windows Server 2008R2 Standard or Server 2012 Standard on the physical system. You set up Dentrix and some shared folders for users to access individual data or shared data, along with the necessary application folders that have to be shared out for Dentrix. Now a few things happen. First, you do decide to add in a domain controller. So without virtualization you just have to install that same role on top of everything else that server is doing, which means having to reconfigure all the file sharing permissions, and can possibly wreak havoc on your application shares which are already set up. Then lets say the motherboard on your server goes out. You have a week down time waiting for that part to come in, then since you had to replace to a completely different motherboard, you have to do a whole new installation of your WS2008/2012 environment, all of your roles, all of your dentrix software and shares, all of your user accounts for the domain, etc. Even if you did a full system clone backup, to protect your data and your program settings, it's pretty much worthless if your entire system drivers are different and won't recover properly.
Now, lets say instead that you have set up your physical machine with Hyper-V and are going to do all of your actual services in virtual machines. You can start by creating just one virtual machine, and since you aren't planning on running a domain right now, you just set up and install your Dentrix softwre, all the necessary user accounts and shares, etc. A year from now you do decide to move to a domain environment for whatever reason. Instead of having to completely reconfigure your existing Dentrix virtual machine, you just create a new second virtual machine, running on the same hardware, and set up all your user account information, shares, etc. there. You can then join your Dentrix VM to the domain like any other computer, modify your share permissions, and you are done. Additionally, you can modify, upgrade, or add services like updates to Dentrix or other software to your server without it necessarily affecting anything else running. This is compartmentalizing roles, so that they can be easily modified, moved, or removed without it affecting other critical services.
Lets go one step further again. Lets say you have two virtual machines up and running now, and your server motherboard goes out. Instead of having to wait for replacement parts, reinstalling all of your information and transferring all your data again, you just have to move the latest backup of the virtual machines, stored as a single virtual hard drive file (VHD) to another computer in your network (regardless of hardware) running Server 2008/2012 or even Windows 8 Professional, load up those two virtual machines in Hyper-V on the second computer, and start them back up again. Your downtime just went from one or two weeks to possibly less than an hour. Virtualization also helps facilitate growth or migration of your physical server as needed. If everything is running at the host hardware level, then moving to a new server with completely different processor architecture, RAID controller drivers, etc. requires a LOT more work and most likely a full new installation of everything. However, with virtualization, you can set up your new hardware or add hardware to your server, and for the most part it is completely invisible to the virtual machines. You can even move them to completely different hardware and it will not require you reinstalling or reconfiguring everything to accommodate that new hardware.