Your client's state of compliance is NOT your legal responsibility and you will not be liable for it.
However, your state of compliance IS your responsibility and you will be liable for that. If you are doing work for clients who are bound by HIPAA and that work involves certain functions with regards to Protected Health Information, then you are also bound by HIPAA, subject to audits and liable for certain actions or inactions.
That said, it could be your responsibility for your client's compliance if you are doing work that involves privacy and security of their systems. For example, lets say you fail to properly secure the firewall which results in a breach... you'll likely get hit with fines (as has already happened to others). Even more subtle, lets say the client has a breach that doesn't involve you or they are the winner of a random audit. One of the first things the audit will look at will be the vendors (IT especially). If there is not a Business Associate Agreement between your company and the client, you may be fined. Worse yet, you may be audited.
There are all sorts of scenarios and "what ifs" you can think of. But to answer the basics of your question... no, you are not liable for your client not wanting to follow the law... but you are liable for you. As
@markverhyden stated as well, your insurance company would likely turn and walk away.
I'm more concerned about making sure you are protected if for no other reason than because you give a damn. Its not necessary that you dump him (though it may be best). But if you decide to keep him make sure you're still doing everything by the book and well documented. My experience has been that the dental community as a whole is not all that concerned with HIPAA.
