The Future of Dentistry (Part 2) How Will Changes in Insurance and Managed Care Affect Your Practice

How Will Changes In Insurance And Managed Care Affect Your Practice?

While the percentage of Americans covered by dental insurance has changed little over the last decade, the coverage levels under the different types of plans have changed significantly. Coverage under fee-for-service indemnity policies has dropped dramatically, while PPO coverage has exploded. Below,

Dr. Charles Blair discusses future changes and how they will impact your practice’s profitability and future sale value.

The overall percentage of the U.S. population covered by some form of dental benefits has remained relatively fl at over the last decade. In 2001, over 154 million Americans, or 54 percent of the total population, were covered by some form of dental benefits. Dental coverage peaked in 2008, according to the National Association of Dental Plans 2012 Coverage Summary, with over 177 million Americans covered, or 58 percent of the population. Coverage plummeted by almost 10 million in 2009 as a result of the Great Recession, and then recovered slightly in 2010. Currently, over 175 million Americans have some form of dental coverage, or 57 percent of the population.

John McGill, CPA, MBA, JD

Dr. Charles Blair

Meanwhile, the type of dental plans through which patients have coverage has

John McGill, CPA, MBA, JD

and Dr. Charles Blair

changed dramatically over the last 10 years, as evidenced by the following chart, says Blair. Dental HMO (DHMO) plans have dropped dramatically from 15 percent of the market in 2001 to only 8 percent in 2010. Blair foresees continued decline for this ethically challenging model (DHMO doctors make greater profits by providing less, rather than more, services to their patients) that neither employer, patients, or dentists particularly like. In addition, Blair also sees no future for the Direct Reimbursement Model as advocated by the dental profession, since it lacks any cost containment features or commercial support, and presently holds less than a 1 percent share of the market.

approaching 80%.

Reasons For The Change

Blair says several factors account for the explosive growth of PPOs over the past decade. Employers looking to cut costs in this ultra-competitive global economy are the leading factor. While most doctors rebuffed managed care overtures in the highly profitable 1990s, the economic downturn and related busyness problem have spurred many to begin participating. New dentists locating in urban, not rural, areas have created even greater mal-distribution and competition. Also, the dramatic increase in dental graduates, most heavy-laden with student loan debt, has also sparked an increase in participation as these doctors seek to build a patient base rapidly in the highly competitive marketplace.

The percentage of “Cadillac” indemnity plans has dropped dramatically from 38% in 2001 to only 11% in 2010, and is now close to 9%, says Blair. Their market share decrease has been consumed by PPO plans, which have exploded from a 39% market share in 2001 to 74% in 2010. Blair estimates that PPO market share is now

Growing corporate ownership has also spurred the PPO rise, since most corporate-owned/managed practices accept PPO plans, Blair adds.

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Predicting The Future

The Impact Of Managed Care’s Growing Penetration

Blair predicts continued market share growth for PPOs in the future, at the expense of all other models. The increasing number of new graduates promises greater competition in the future, aiding further PPO penetration. Escalating student loan debt will also motivate more new doctors to join the PPOs for immediate cash flow. Likewise, continued growth of corporate dentistry and enhanced employer cost containment efforts will boost PPO participation. Currently, more than four out of five dentists participate in at least one PPO plan (including Delta Dental Premier), and innetwork participation is increasing, even for established practices, says Blair.

Since PPOs have gobbled up the vast majority of the insurance market, how will they continue to expand in the future? Blair predicts that since the employer-sponsored plan market appears saturated and fairly flat, they will target a direct to the consumer (patient) approach for future growth. Given that 43% of Americans do not have any dental benefit

coverage, Blair expects competition to heat up in the uninsured market. He foresees insurance companies marketing their PPO networks aggressively to consumers without dental insurance, for a small annual fee (i.e. $75-$100 a year). While this discounted dental market share has decreased somewhat the last several years, he expects some marginal growth in this area as insurance companies look to expand outside the historical employerbased coverage model.

Blair notes that some dentists are now marketing their own in-house discount “club” dental plans to uninsured patients,

which typically provide two comprehensive checkups for a flat fee, plus a fixed discount (15-20%) on additional treatment. Some dentists are also marketing a free discount card to small businesses locally that are unable to provide dental insurance to their employees. Thus, inhouse discount plans will increasingly compete with the insurance industry’s discount cards.

or extend hours to boost production by at least 25% and/or cut costs to maintain the traditional levels of profitability. He sees these reimbursement cuts could drive practice sale prices down by as much as 20-25% over the longer term as the sales market adjusts.

The biggest impact of growing managed care penetration has been its negative impact on fees. In order to penetrate a market initially, managed care plans may use a “Trojan horse” approach, offering to match one or more doctors’ current fee schedules to gain their initial participation. Once they gain additional market share, annual fee increases usually become non-existent (frozen fees) or minimal (1-2% a year), far below the

Moreover, Delta Dental of California and Northeast Delta Dental (Vermont, New Hampshire and Maine) are now requiring new enrollees to join their PPO network if they wish to join Delta Premier. This trend, no doubt, will continue.

Managed care’s growth also affects doctors’ coding for reimbursement. When doctors sign on to a managed care plan contract, they are automatically agreeing to abide by the plan’s processing policy manual. Often, participating doctors are surprised to learn that they will not be reimbursed for crown build-ups, that composite restorations are reimbursed at the amalgam rate, and the least expensive alternate service is paid rather that the requested service. Plans often request ALL services rendered to be submitted

Once they dominate

a dental market, managed care plans often seek to manage

the clinical care itself, not just the fees charged, or the

coding protocol.

for scrutiny, even non-covered services. In some states and for self-administered plans, the fee for a non-covered (reimbursed) service may be controlled.

level necessary to keep pace with inflation. Blair says that the typical PPO plan he reviews provides fees that are 35-45% below a fee-for-service schedule positioned at the 85th percentile.

Once they dominate a dental market, managed care plans often seek to manage the clinical care itself, not just the fees charged, or the coding protocol. Insurance companies have submitted provider data to several new database companies who capture and analyze procedures submitted by over 150,000 practicing dentists to determine clinical “norms.” Doctor-providers are then compared to the “norms” to identify over-utilizers (e.g. too many crowns provided relative to restorations placed, excessive

Recent developments have been even more troubling, says Blair. In 2011, a major corporation demanded a 15% decrease in provider network costs to continue their coverage with Delta Dental in Washington state. Delta agreed and promptly notified its provider doctors that it was cutting reimbursements to them by 15%. Delta Dental of Idaho similarly cut reimbursements 5-15% to providers, depending on geographical location. Also, Delta Dental of N.J. and Connecticut have recently announced future fee reductions. Blair expects other Deltas to follow suit within the next 1-2 years.

corebuildups, SRP overtreatment, too many surgical extractions, etc.). These over-utilizers are then targeted for audit (focus) reviews and possibly legal action in extreme cases.

This utilization data may also be used to recruit cost-effective doctors (underutilizers) into lower-cost provider networks. Over-utilizers will not be accepted

These reimbursement cuts will force participating doctors to work harder and/

into these networks, and may be terminated from existing network coverages.

New associates may have to be credentialed prior to hiring as a condition of employment, because they could be rejected due to prior clinical treatment intensity issues. Blair advises doctors to be wary…Big Brother (insurance companies) is watching!

Next month we will review the rise of corporate dentistry in Part 3 of our Future of Dentistry series. ■

“The above article was reprinted with permission from The McGill Advisory, a monthly newsletter with online resources devoted to tax, financial planning, investments, and practice management matters exclusively for the dental profession, available for $227 a year from John K. McGill & Company, Inc. Special subscription offers available for residents/ new doctors; call 888.249.7537 for further information.”

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Dr. Charles Blair offers strategic planning, coaching to new dentists regarding training on proper fee alignment, correct insurance coding, and analyzing practices, existing or recently purchased. His newly updated insurance coding handbook, “Coding with Confidence: The Go-To Guide for CDT 2009/2010” is available on his website at www.drcharlesblair.com. For more details, email him at charles@drcharlesblair.com or call 866.858.7596.