Dental Service Organizations: A Private-Sector Solution to a Public Health Problem

Published December 31, 2012

Across the country today, Medicaid requires states to provide dental coverage for children. Yet Medicaid’s reimbursement rates have been, and continue to be, too low to adequately compensate traditional dental practices. This leads to significant health problems, where simple cavities become severe infections which can even prove fatal in extreme circumstances.

Because the federal government cannot legislate away economic reality, it’s time for the private sector to consider an alternate approach to providing dental care.

Dangers of Poor Dental Care

Poor dental care is linked to poor nutrition. It is also linked to higher risks of cardiovascular disease and increased incidence of infections, and it makes managing diabetes (a growing chronic problem in the United States) even more difficult.

Yet despite the importance of good dental care, lower income children have appallingly low access to it. A 2010 Pew Center study estimated “17 million low-income children in America go without dental care each year. This represents one out of every five children between the ages of 1 and 18 in the United States.”

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.

Today as many as 11 percent of two-year-olds and 44 percent of five-year-olds have cavities, according to a 2011 study published in the journal Pediatrics. The health problems created by these cavities are particularly concentrated in low income households. They can impact school attendance, make finding a job more difficult when these children grow up, and even lead to serious health problems.

Practices Lose Money on Medicaid

A major part of the problem is government reimbursement which falls far short of market prices. According to a 2010 Pew Research Center study, Medicaid pays dentists around 60 cents on the dollar in 26 states. Just one state paid dentists 100 percent of their normal fees, while 14 paid less than half.

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. Only a third of dentists treat Medicaid patients—the financial risks from doing so are just too great. A Government Accountability Office (GAO) report found in many states most dentists “treat few or no Medicaid patients.”

Time to Band Together

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 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.

Today there are more than 3,500 DSOs in operation, according to the Dental Group Practice Association. And according to a 2012 study by Laffer Associates, the cost per patient among DSOs operating in Texas was almost half that of traditional dental offices—$484 versus $712. At one DSO, Kool Smiles, the per-patient cost was just $345.

Taxpayer Burden Could Decrease

Whereas many advocates concerned about the dental health of low-income children advocate spending more taxpayer money, DSOs are able to provide the same benefit without the requirement that more government funds be allocated, an important benefit in light of the budget crises afflicting many states. Ultimately, the taxpayer burden could even decrease.

As the Children’s Dental Health Project explains, when the poor go without routine dental care, they often end up in emergency rooms. A three-year comparison found treating dental problems in emergency rooms cost 10 times more than preventive treatment provided in a dentist’s office.

The benefits are not simply in theory; DSOs are starting to make an impact on children’s health. The Children’s Dental Health Project has found that over the past decade the share of poor children who’ve seen a dentist has climbed, and it attributed 20 percent of that increase to the expansion of DSOs.

The benefits created by DSOs are no small feat. And these benefits are created without any new government fiats or regulations. Instead, DSOs exemplify the right way to reform healthcare—through private sector innovations that create greater efficiencies, lower costs, and better service.

Wayne Winegarden, Ph.D. ([email protected]) is a senior fellow with the Pacific Research Institute, a contributor to EconoSTATS at George Mason University, and a partner in the economic consulting firm Arduin, Laffer & Moore Econometrics.


Internet Resources:

Laffer Associates: Dental Service Organizations: A Comparative Review, September 2012: