The Traditional Managed Care Rationale

Traditionally, doctors have accepted managed care programs only when they have unused operatory time and their fixed expenses are already being covered by fee-for-service dentistry. They have enrolled in programs with a PPO fee schedule or a capitation/co-payment schedule that have paid them more than the variable costs associated with treatment delivery (about 22%).

The difference between the variable costs and the reimbursement (Example: 50% reimbursement minus 22% variable cost = 27%) goes to the bottom line as additional profit. This is additional profit that would not have been realized if the chair time had gone unused. Further, the additional managed care patient flow generates more referral opportunities for the practice.

The Problems

The problems for the dentist occur in three areas. First is when the doctor signs up for a bad managed care program, i.e., one with a compensation schedule that doesn't adequately compensate them for the types of procedures he or she normally diagnoses and performs on patients. If you are diagnosing four quads of root planning and your cap program doesn't cover it, you have a serious problem unless your hygienist normally has nothing else to do with her time.

The second problem occurs when the doctor or staff are unable to promote and gain patient acceptance for upgraded or optional treatments that would be clinically superior, or better meet the patient's cosmetic needs, than the basic covered benefits.

The third problem occurs when the staff are unable to cope with the daunting amount of paperwork which is often associated with managed care programs.

The Solutions

Number One, don't sign up for a program that, when taken in its totality, will not compensate you adequately for treating the patients in the style of dentistry you feel obligated to provide. To solve this problem, Suzanne and I, along with several top consultants, are developing a computer program that will automatically analyze the fee structure of the proposed managed care program and determine the potential profitability of the program in your practice based on your individual style of diagnosing and treating patients.

Number two, maximizing case acceptance for superior treatment is critical for both the patient's care and your profitability. Without a doubt, I feel that the number one resource for case presentation training for maximizing case acceptance is Walter Hailey's Dental Boot Kamp.

Number three, it is extremely important to train your staff in the systems for dealing with these programs and the associated paperwork. This often is best left to the experts in this area, specialists in systems for the blended managed care/fee-for-service practice and consultants representing dentists in contract negotiations with insurance companies.

The Goal Is To Avoid Managed Care by Keeping Your Chairs Filled!

It has taken us three years to develop the resources and expertise to deal with the managed care wave that is sweeping the country. Let's be clear, Suzanne and I are not pro managed care! We are pro profit. Our goal is to avoid managed care by keeping your operatory chairs filled with full fee-for-service patients. If the demographics of your market can't support that, you must deal with managed care in a rational and business-like manner or move your practice to a market that will better support your style of dentistry.

The "Hang Tough" Strategy

Many doctors have expressed the attitude that "If we hang tough, and no one signs up for any of these managed care programs, we can eat the insurance companies'. This strategy has worked effectively in some areas...until recently.

Basically, the insurance companies have said, OK doctors, if you don't want to play our game, by our rules, we will just bypass you entirely by setting up our own facilities, staffing it with our own doctors, and service our own patients directly." This is called the "Staff Model'. We have seen this approach start to move into high gear in the western states in the last 19 months.

You might say, "Who would go to such a practice? Not my patients." The reality is that the insurance companies have been training patients to go where they tell them to for the last 10 years. If Mr. Average American will pick a coronary bypass surgeon off a list of approved HMO physicians, he won't hesitate to select dentist from list of in-house doctors when he wants his teeth cleaned.

Your Next Door Neighbor May Have Already Sold Out!

In a recent conversation with a nationally known consultant, we learned that one of the major dental insurance companies had just set up a one hundred and twenty five million dollar fund to set up a nationwide network of dental practices by secretly buying out existing practices. These doctors agree to stay with their practices for the next three to five years while the insurance company funnels them patients directly as they train their replacement associates.

All this happens on the sly, until one day a new sign appears on your neighbor's building carrying the old doctor's name and the insurance company's logo. Reports are coming in now, that it's already happening in Southern California.

Why Do Insurance Companies Want to Get Into the Dental Business?

We recently reviewed a situation where an insurance company had moved into a major metropolitan area, purchased eleven existing practices, consolidated them down to seven dispersed offices and lost over million dollars in the first year of operation. I asked how they could afford to lose $1,000,000? The answer was simple. They used the dental office network as loss leader to earn twenty five million in profits on the medical insurance part of their contracts with major local employers.

The first insurance company to set up a nationwide network of dental offices will have tremendous competitive advantage in bidding for the Fortune 500 medical business. Don't kid yourself, this is a multi-billion dollar gambit that's being played out in secret as we sit here worrying about raising the price of a prophy by three dollars.

The real question is how can you compete on the local level against an industry that can take a million dollar hit and write it off as a marketing expense? One would think there should be a law against this type of subsidized, below-cost competition from the insurance industry.

"Pay Less Dental Office" Is Coming Soon To Strip Mall Near You

And if you think it can't get any worse, think again. The venture capital vultures are beginning to circle the dental industry. Their model is the pharmacy industry.

Remember when you were kid, you would go down to the local drug store to get a prescription for your mom and maybe even get a cherry coke at the soda fountain? Remember when the kindly pharmacist behind the counter actually owned the store and his teenage son stocked the shelves? He even knew you and all your family members by name. Does any of this sound familiar?

When was the last time you saw an independent privately-owned pharmacy? When was the last time you saw a CVC, Osco, Longs, Pay Less, or Save-On pharmacy?

Venture capital sees a major opportunity in the dental industry. Buy up a string of dental practices. Set up central computers for billing. Cut supply and equipment cost through centralized bulk purchasing. Set up regional centers for hiring and training staff. Use the power of a twenty-plus office group to hire a top marketing company to saturate the regional market with sophisticated advertising. Is this starting to sound like a powerful concept?

Very Seductive Scenario

Venture capital's pitch gets better. Doctor, sell out now and we give you stock options, warrants and shares in the company. In few years, we will go public and you'll be rich. You do the dentistry. We manage the practice and handle all the headaches. Will this happen? Yes, most likely, and maybe.

This scenario is being played out now in the northeast. We have clients who have already been approached. If the pharmacy model holds true, these city-wide or regional groups will be bought out and consolidated by larger groups. Depending on the demographics, the insurance companies will pick off the players who will fill the gaps in their medical/dental network.

What's wrong with this scenario? Well, how do you feel about working for a big corporation? How do you feel about working nights and weekends? How do you feel about the company telling you what kinds of treatments are approved or not approved for any given patient? Want to try a new bonding material? Please submit a purchase order. And has this material been approved by corporate yet? And, oh! Doctor, please wear your happy face button and remember to tell all patients we're having a sale on crowns this week in operatory 5.

The Future: 5,000 Dental Practices

A very knowledgeable friend recently said to us that he sees a future with just 5,000 dental practices. 4,800 of them will be traditional fee-for-service practices catering to very specific market niches. The remaining 200 will be owned by insurance companies or big corporations and each will have 500 branch offices.

The real question is where will you be? Will you be forced into managed care? Will you sell out to a venture capital company? Will you be one the 4,800 who maintain their independence and prosper? What is right for you? Our philosophy at DuMolin & DuMolin is to deal with each of our doctor clients as individuals. Our hope is that most of you will choose to implement a long term strategy to maintain an independent, prosperous, patient care based practice.

Remember, our real goal for each of our clients is their personal happiness and long-term financial security of them and their families. Out of necessity and circumstance, some of you will choose to join the insurance industry and corporate America. That's all right too. Our job is to help you work through this time of change to reach your goals using the best financial and management tools available.