Corporate Dentistry – The New Oral Cancer

Dentistry was a fairly happy profession when I grew up in the 1960s and most of the 1970s. The invention of the high-speed air rotor turbine in the late 1950s had made practice so much easier and more efficient. Bonding resins were just being introduced that would revolutionize anterior fillings. The new Medicaid program paid dentists virtually their normal fees for treating a whole new population of patients. Life was good for dentists, and getting better for dental patients.

Back then the average practice was owned by a single dentist, employing one hygienist, and having three treatment rooms or at most four. There were a few offices where pairs of dentists worked. Sometimes specialists like oral surgeons would pair up to own two office locations, mostly to trade off emergency call on weekends.

What insurance plans existed were based upon realistic fees of the area. If they were not, most all dentists would shun them and the plans would fail.

Although dental school was the most expensive of all professional educations, it did not demand the king’s ransom that it does now. School loans were much more limited back then. Often students would earn money during studies to pay for their educations. Qualified students took scholarships would pay the whole cost of dental school, plus living expenses, in return for four years of military service. The average student had a minimum of debt at graduation- nothing like the quarter million + dollars that is so common today. Many students, including me, graduated debt-free.

When a student graduated from dental school, he had the following options:

1. Join the dental corps in the military and gain more experience while earning a modest salary.
2. Take salaried government jobs in prisons, the Public Health Service, of the Indian Health Service. These jobs were few in number and often in remote locations.
3. Take out a loan and buy the practice of a retiring or deceased dentist.
4. Apprentice as a hired associate with a more experienced dentist, and buy practice equity in time with the goal of become a full partner or outright owner.
5. Borrow money and start a new practice, like a few of us high-risk takers did!

Those were about all the options for young dentists! It was rare that a dentist failed and bankrupted. Seldom was it caused by lack of patients. Most of the time is was due to poor money management or problems with addiction.

If the young dentist took options 3 or 5 above and worked hard and kept out of trouble, he could earn an adequate income to support a family. After practice debt was paid off, his income would increase to provide the niceties of life.

Going into practice back then was a lot cheaper. The average office was a little over 1000 square feet. There were no computer networks in those decades, so the bulk of the cash outlay went for dental chairs, control units, and x-ray machines in the treatment rooms, and a steam sterilizer for the instruments. The only major expense for the front office was an electric typewriter, as phones were often rented from the telephone company!

Federal Planning Went Wrong Back Then, Also!

Just about the time the benefits of fluoridated water were kicking in and reducing decay, the Federal Boys were convinced there was soon going to be a drastic shortage of dentists. Starting the in mid 1970s, they began blackmailing dental schools to increase dental class sizes every year. They did this by withholding money called “capitation funds” from dental schools unless they increased class sizes by a proscribed amount.

These extra dentists where dumped on the market in the late 1970s just in time for the economic slowdown. I remember in my senior year of 1979 talking to dentists in different areas of Georgia, hoping to find a spot to practice or a job offer. Instead of being encouraging, every one I talked to pleaded with me not to locate close to his practice, claiming there was already a shortage of patients. The two dental schools in Georgia were together pouring out about 170 new dentists a year, and flooding the state with dentists. Thank you, Federal Government, for your inaccurate predictions and subsequent meddling! It created an oversupply of young dentists looking for jobs, and that meant the wages they could command was much lower.

A few enterprising dentists saw the opportunity of hiring labor really cheap and began opening branch offices, principally in shopping centers. A factor making this easier was recent court rulings striking down all restrictions on professional advertising. One owner of a chain of offices told me he spent $30,000 a month in Yellow Pages advertising.  This was in 1985!

I lasted all of six months in one of the Atlanta dental clinic chains that shall remain nameless. Patient care, although never top notch, was passable. There were not many liberties taken with billing. If a claim was sent to an insurance company for a filling, the filling most certainly had been done.

Caution against fraud and outright malpractice was exercised because the owners of the branch clinics were licensed dentists. They wanted to be at least marginally in compliance with state practice laws. The owner dentists would put their names on every office door, even if they only treated one patient there per month. If they were caught with hanky-panky in the offices, their own licenses could be suspended, or even permanently revoked. Yes, the owners encouraged overtreatment of patients to improve the bottom line, but they made sure the overtreatment was  passable in quality. None of them wanted state board investigators on their back.

About this time insurance companies noted the oversupply of dentists, which gave them increased their negotiating power. They demanded 20% fee reductions in some of their plans. An even worse abomination was the Dental Maintenance Organization  (DMO) contract, in which dentists took all the actuarial risk, and it was difficult to make any profit at all treating patients. However, despite their increasing numbers, few dentists would sign up for these jokes of benefit plans.

In 1991 Congress and the President passed a bill which seemed innocent enough, but in reality was one of the most intrusive and costly in US history. This was the Americans with Disability Act. Formerly,  it was common for dentists to have offices as small as 900-1000 square feet. Under the new ADA, with its requirements for huge bathrooms and wide halls, this was impossible. New office space for a single dentist could rarely be smaller than 1200 square feet.

In essence, this increased the cost of opening new offices for dental graduates   Not only that, but increased leased space meant increased monthly rents. A year or so before, the emergence of AIDs had increased practice costs quite a bit by virtue of much more extensive sterilization protocols. Starting and operating a new dental practice just got a great deal more expensive at a time when it was harder than ever to turn a profit.

 Corporate Suits Take Notice of Dentistry

Dental employment was in a bit of a slump when I graduated in 1980, thanks to the Feds meddling with class size of dental schools. However, my friends in medical school had bright prospects and were readily employed for the most part.

Medical advances like organ transplants were being made routine. That plus the high inflation of the time was starting to make politicians leery of the increases in cost of health care. In 1980, most medical practices were still owned by physicians, although groups were beginning to appear, such as those that staffed hospital emergency rooms.

Medical expenses continued to climb in the 1990s, causing the Feds to worry about Medicare and Medicaid costs. The thinking of the time was that large clinical operations like HMOs could drive down the cost of health care. I am not sure of the enabling legislation, but corporations like Kaiser Permanente were allowed to employ physicians. It became more and more common for corporations to own medical treatment facilities, and employ physicians on a salaried or commissioned basis.

Technology continued to march on and increase medical costs, and government and insurers continued to keep medical fees stagnant. The profit potential of corporate medical clinics was limited, while the the liability costs were enormous in potential.

The decade 2000 to 2010 can realistically described as one of the decline of the American middle class. The Federal Reserve loosened monetary policy in preparation for the Y2K crisis that was supposed to appear but never did. This was one of the causes of the tech-telecom boom and bust, which made a lot of personal net worth disappear. The Fed loosened monetary policy again after the 9/11 terrorist attacks, causing the real estate boom and subsequent bust. Even more middle class assets were lost in the housing bust than in the tech bust. Meanwhile, the Chinese we emerging as fierce competitors in manufacturing. Many US jobs were disappearing, and US standard of living was declining as a result.

There was tremendous price pressure on the health professions. Medical had taken it on the chin before; now it was dentistry’s turn.

Corporate America had been watching with interest the chain clinic concept developed by entrepreneurial dentists, using the cheap labor of recent graduates. Now they wanted a piece of the action in a profession they saw as having less liability risk than medicine. The problem was that most states had laws on the books permitting only licensed dentists to own dental practices.

The first corporate target was orthodontic practice, as orthodontists were the dentists most in oversupply. It also seemed that orthodontics would be the easiest dentistry to mass-market. One orthodontic management company even tried to sponsor a residency program obligating graduates to be corporate employees for a time! Orthodontic management companies were the rage in the stock market for a while, until they crashed, and some bankrupted.

Dental practice statutes to protect patients were designed with dentist-owners in mind. The worst penalty possible was permanent revocation of state licensure. Only dentists were at risk. But that was logical, because until that time dentists were the only ones who could own offices.

To skirt around state practice law, corporate owners posed as “dental management companies.” The fiction was that the dentist treating patients in the facility was the actual owner. The dentist, in turn, employed the corporate entity to handle the business functions of the practice. This relationship was codified in long, tedious contracts. Facilities could be added to the corporate roster by:

1. “Affiliating” the practice of an existing dentist with the corporation. Often a combination of money and corporate stock was given as compensation. How the dentist could still be the owner of the practice after accepting a bulk payment from a corporation for rights to “manage” his practice is beyond my comprehension, but that was the official line.
2. Constructing turnkey facilities, then recruiting dentists to be the clinicians and “owners.” Often these dentists were right out of school with little clinical experience.

The fiction of an employee being an owner should be obvious to anyone having a functional cerebral cortex. True ownership can be determined by:

1. Who has the power to sell the practice and pocket the gains?
2. Does the power to replace or eliminate the management company exist?
3. Whose signature is necessary for check-writing?

In no cases that I am aware do the dentist(s) have these powers in corporate clinics.

Having tidy contractual relationships in place, unchallenged by any state except the valiant North Carolina Board of Dentistry, corporate America was ready to run amuck in the dental world.

Dental practice laws were written for good reason with protection of the patients as the goal. States wanted dentists to suffer consequences if patient welfare was not given priority. If a dentist performed fraudulently or incompetently, his license would be taken away. Not only would his income disappear, but the equity in his practice would decline fairly quickly.

Since corporate officers held no dental licenses, no such punishment could be meted out to them The license of the sham-owner dentist could be revoked, but a new sham-owner dentist could be quickly obtained by corporate officers.

As most sham-owner dentists were paid on a complicated commission structure, dental management companies were free to sign up for any dental benefit plans, no matter how low-paying. When they contract with DMOs, almost never do treating dentists receive a commission on the capitation payments. With such plans, the dentists are just told they have to work harder, or do more patient procedures, in order to make a commission. Many young dentists face crushing student debt burdens, and losing employment would be financial disaster for them. Knowing this, they are loathe to refuse revenue dictates (“goals”)  by their corporate masters, whether patients need the treatment or not.

Although always denying it, corporate officers introduce severe distortions in the dentist-patient relationship. When something goes wrong, as a malpractice lawsuit or a patient death, the corporations usually get off free, as they can always point to the licensed dentist who performed the clinical treatment and is posed as the “owner.” It gets lost on juries that the dentists were coerced into unwise treatment by their “management company.”

One young dentist told me his corporate employer had videotape surveillance in all treatment rooms at all times! Talk about a violation of patient privacy! This dentist examined an elderly patient with a clotting disorder that needed an extraction, but refused to treat the patient until a medical consult could be arranged. The next day he was harangued by his non-dental employer for losing revenue by not doing the extraction! No doubt that this sort of pressure is behind many of the child deaths that occur when too much treatment is tried on small children at a single visit!

It is heartbreaking that intelligent young professionals are put in situations that force ethical compromise and substandard treatment. Yet fewer and fewer employment opportunities exist for young dentists outside the corporate world. Why is this?

1. The military services are downsizing their dental officer force, and using corporate contractors to treat troops instead of military dentists.
2. Hurt by low interest rates on their retirement assets, older dentists are practicing longer and not selling their practices. Even dentists who retired are coming back to practice because of need for more income.
3. Experienced dentists in their 50s do not have the excess patients that would provide sufficient income for a young dentist-associate. The older dentists don’t even have enough patients for their own sustenance, much less to spare for another dentist. Not a month passes that I don’t get a call from a recruiting agent trying to find a position for a newly graduated dentist.

Corporate money is a powerful tool with politicians. When North Carolina tried to pull the plug on corporate dental practice takeovers, the big guns were deployed to that state by affected corporate interests. Just as HMOs did in decades passed, dental corporations sing the siren song of cost containment and lower fees to the public. It plays better with politicians than lobbying for shareholder value.

The most unfortunate thing about the advent of corporate dentistry, after lowering the standard of care, is the lowering of public image of our profession. When inexperienced dentists are pressured into taking unwise risks and a fatality results, the public blames it on the dental profession.  Next thing you know, voters want more intrusive government supervision of dentists. Seldom is it realized that the problem is not incompetence in our profession, but perverse incentives inherent in the corporate dental business model.

What can be done? Well, ownership of a dental practice could be codified so the corporate clowns could not masquerade as “management companies.” Corporations could be forced to divest from clinics unless it could be shown that dentists are the actual owners, by virtue of several tests of ownership. Contracts that clearly violate state practice law could be voided by courts. Losing offices one at a time would be devastating to corporate dental chains.

Private equity investors tend to be herd animals. I am old enough to remember the rush to shopping mall dentistry, which was supposed to be the wave of the future. It failed miserably. Then there was the rush to the nirvana of Orthodontic Management Companies, which largely disappeared. It could be that after being slammed with penalties for billing fraud, bait and switch, and other consumer hanky-panky, corporate dental clinics will be seen as places for the public to avoid. Already I have encountered a Facebook page dedicated to complaints against one dental chain, and a whole website dedicated to exposing the hijinx of just one location of another national dental chain!

Word spreads around quickly in the information age. I am hoping the truth will eventually get out about the corporate dental model. This essay, if widely read, may be one more nail in the corporate dentistry’s coffin!

Kim Henry, D.M.D.

January 11, 2014