DSOs Illustrate How the Private Sector Can Solve Public Health Problems

Delusions that increased government control will heal what ails the U.S. health care system continue to fester. Private dental organizations are illustrating that it is private sector innovations, not increased government regulations, which have the power to improve the U.S. health care system.

Poor dental care is linked to higher risks of cardiovascular disease, increased incidence of infections, and makes managing diabetes (a growing chronic problem in the U.S.) even more difficult.

Despite the importance of good dental care, lower income children have appallingly low access.  According to the Pew Charitable Trust, “the latest data from 2014 show that more than 18 million low-income children went without [dental] care.”  And, lack of access to dental services is associated with lower overall oral health.

According to the Kaiser Family Foundation, tooth decay still remains one of the most common chronic diseases among children aged 6-18, especially children from lower-income families.  The broader consequences can be significant.

A 2011 Reuters story reported that “in the U.S., it’s estimated that up to 11 percent of 2-year-olds and 44 percent of 5-year-olds have cavities. And the majority of those children are from low-income families.”  The health problems created by these cavities can impact school attendance and lead to serious health problems.  In the extreme, simple cavities become severe infections that, in the case of one Maryland boy, became fatal.

These problems may seem surprising because Medicaid requires states to provide dental coverage for children.  However, the federal government cannot legislate away economic reality.  Medicaid’s reimbursement rates have been, and continue to be, too low to adequately compensate traditional dental practices. Consequently, most dentists do not accept Medicaid.

According to a 2011 Pew Charitable Trusts study, 33 state Medicaid programs paid dentists less than 60 cents on the dollar.  When coupled with the high administrative costs associated with doing business with Medicaid, traditional dental practices lose money if they attempt to serve Medicaid patients.  And, due to continuity of care regulations, those dentists that try to serve Medicaid patients will be obligated to continue caring for them even if they are losing money doing so.

The results are predictable.  Based on data collected by the Medicaid-CHIP State Dental Association, only a third of dentists will treat Medicaid patients – the financial risks from doing so are just too great. A Government Accountability Office (GAO) report found that in many states, most dentists “treat few or no Medicaid patients.”

Enter the Dental Service Organization (DSO). Started in the late 1990s, DSOs are, essentially, individual practices banded together to create greater efficiencies.  Through greater scale, DSOs reduce capital costs (through bulk purchases and greater negotiating power) and create efficiencies in administration and accounting, which is particularly important when dealing with state Medicaid programs.  DSOs also bring marketing expertise and other business skill sets that are not part of the traditional dentist training programs.

Because DSOs can operate more efficiently than a single dentist office, they can cope with Medicaid’s low reimbursement rates and heavy paperwork requirements, providing care for the poor without losing money on each patient they see.

And, the benefits are not just theoretical. Health care consulting firm, Dobson, DaVanzo & Associates (DDA) performed a multi-year study of one DSO, Kool Smiles. The study found that “Kool Smiles’ focus on routine cleaning and hygiene reduces the number of restorative and extraction procedures required per patient, hence improving oral health for this underserved and vulnerable population.”

Greater preventive care also leads to greater monetary savings. According to the study, if the monetary savings from Kool Smiles was expanded across the seven states studied, the state Medicaid programs would save over $550 million. Alternatively, if the savings were applied to expanding dental access, 1.9 million more children could receive dental care without increasing state Medicaid costs.

Wayne H. Winegarden, Ph.D. is a Partner in the economic consulting firm Arduin, Laffer & Moore Econometrics (ALME) where he advises corporations, policy & trade associations, and government agencies on the business and economic implications from changes in economic trends and government policies. Dr. Winegarden is also a scholar at the Pacific Research Institute and a contributor to EconoSTATS.

Source: previously published in Forbes