Drilling Down on Rent Seeking Dentists

Jeff Stier
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Posted: Aug 13, 2016 12:01 AM
Drilling Down on Rent Seeking Dentists

I was huddled in a Connecticut legislative hearing room on a chilly spring morning three years ago, awaiting my chance to testify about a proposal to over-regulate e-cigarettes.

I’m a big fan of innovation, so I’m always eager to speak out against entrenched interests seeking to stifle progress with regulations designed to kill improvements in our health. Proponents of more regulation regularly use scare tactics, shoddy science and false allegations that people like me are against “all regulation.”

The Public Health Committee hearing room in Hartford was packed with people on both sides of the divide, waiting to address a number of different bills under consideration. As a teen, I watched C-SPAN over MTV, so I didn’t mind waiting. It was my equivalent of seeing a live concert.

Before e-cigarettes, the committee took testimony on Raised Bill No. 6484, “AN ACT REQUIRING PAPER TOWELS IN PUBLIC RESTROOMS.” I don’t know much about the issue, but I imagine that companies which supplied paper towels feared the popularity of products like the energy efficient, tree-saving Dyson Airblade Hand Dryer. 

If so, this would be a classic example of “rent-seeking,” an economic term for the act of exploiting the political process to increase one’s profits at the expense of society.

 The next act was a bill to certify advanced dental hygiene practitioners.

Given the high cost of dental care, I thought it made sense to create regulations which would allow trained and certified dental practitioners to do some of the simpler work only dentists are now permitted to provide. The model works well in the medical field, where nurse practitioners and physician assistants provide capable care, freeing up doctors to give higher level care. 

Sure enough, earnest local dentists rose one by one in opposition to the bill, flouting evidence from successful trials in other states, claiming that anyone who didn’t go through dental school would wreak havoc inside the mouths of patients if they were allowed to do anything more than a cleaning. More rent-seeking.

I eventually got to testify on my issue in Connecticut, and moved on. But the dentists left an impression. Every six months or so, when I shell out too much money for a cleaning and sometimes minor dental work, I wonder why dentistry is so expensive. It had to be more than the dentists’ monopoly on lower level care.

It turns out, there’s an innovative way to provide dental care at a lower cost- through a model called Dental Service Organizations, or DSOs. Unfortunately,  however, the entrenched dentists see it as a threat.

Consider the case of Kool Smiles, the largest dental provider for pediatric Medicaid patients with over 100 offices in 15 different states and the District of Columbia.  

Medicaid reimbursement rates for dentists are so low that old-school dentists, with their often inefficiently run offices, just can’t afford to take on these patients, contributing to the dental health crisis among the poor.

But because Kool Smiles dentists’ offices are run externally through a firm called Benevis, a DSO, Kool Smiles dentists are able to focus exclusively on what they are proficient at and trained for, while Benevis takes advantage of the economy of scale, and does what they are proficient at doing: the non-clinical side of dentistry.

The DSO model is a win for patients, especially those who need or want quality dental care at a lower price. It is also a win for dentists who want to practice dentistry, rather than manage billing and collections, negotiate pricing for supplies, and lease office space.

Yet, like with Hartford’s hand dryers and dental hygiene practitioners, rent seekers are trying to protect their turf with rules that keep out the competition. There are or have been efforts to block DSOs in the legislatures including in Wisconsin, Washington State, Maryland, and Texas.  

And unlike arguments against dental hygiene practitioners, it’s hard to make a clinical case against DSOs, because they don’t do clinical dentistry.

But that hasn’t stopped those who fear competition. After all, when you effectively have a monopoly on what has become an outmoded way of doing business, you do everything you can to protect your high prices. Just ask AirBnB and Uber.

So critics allege that Kool Smiles, which, because of its efficiency, is able to compete in the mostly untapped Medicaid market, is doing unnecessary procedures to increase their profits.

But neither the data nor common sense back it up. According to Art Laffer, of Laffer and Associates, who studied government records in Texas, the accusations “proved to be almost entirely false.”  Laffer found that in 2011, DSO-affiliated dentists performed an average of 10.5 procedures per Medicaid patient, while dentists at more traditional practices performed an average of 12.4 procedures. That pattern also showed up in Medicaid costs per patient, with Kool Smiles having an average annual cost of $345.45 per Medicaid patient, while DSOs had $483.89 far below the $711.55 for old-school dental practices.

In a more recent study, Dobson/DaVanzo examined the utilization and Medicaid expenditures of Kool Smiles against those of other dental providers from 2011-2015 in seven states: Georgia, Indiana, Louisiana, Mississippi, South Carolina, Texas, and Virginia.   It found that Kool Smiles did, on average, 17 percent fewer procedures and had 35 percent lower Medicaid expenditures per patient than other providers.   

If anything, one would expect that populations in underserved communities, like those served by Kool Smiles, would have greater dental needs and higher expenses.

This could explain the allegations made by the PBS documentary, Frontline, and The Center for Public Integrity (CPI). CPI alleged that “Kool Smiles does far more crowns than average on children age 8 and under on Medicaid, according to an analysis of 2010 Medicaid data” in Texas and Virginia.

But the suggestions that Kool Smiles does more crowns because they are “more profitable than fillings for dentists, because they can charge more for them” doesn’t pass the laugh test, given the sad state of affairs for underserved children for whom dentists who run their own offices have been unable to care for.

Studies of government data by Laffer, Dobson/DaVanzo found that Kool Smiles actually does fewer crowns per patient than do other dental practices. Even DSO critic Frontline eventually conceded this fact. 

The DSO model is under attack by old guard dentists because it offers a more efficient way of doing business, which passes some of the savings on to patients and medicaid.   Dentists have a lot to offer to society and earn a good living without rent-seeking protectionism.